Property sales for industrial assets worth more than $5 million surged 73 per cent last year in Adelaide, with almost half the value coming from two transactions in particular.
A report from Knight Frank attributes the record $452.56 million figure to a record low cash rate coupled with the abolition of stamp duty on commercial property.
Total sales were buoyed by Stockland's $80 million sale of the Port Adelaide Distribution Centre to Quintessential Equity in September, as well as Blackstone's $67 million sale of 12-14 Bradford way, Cavan to Lineage Logistics in December.
2019 would have been a record year even in the absence of either of these major transactions, up 36 per cent on the previous high of $333 million in 2014.
Around 37 per cent of transactions were for properties worth more than $20 million.
"The value proposition and demand from interstate investors to chase industrial yields have helped further strengthen demand for industrial properties located in South Australia," says Knight Frank partner and chief economist Ben Burston.
"Currently average prime yields across the Eastern Seaboard are generally in excess of 100 basis points firmer than in South Australia, hence the state remains attractive for investors seeking higher income returns."
Burston believes fully leased industrial properties with strong lease covenants will continue to attract strong interest in 2020, with the outlook for the year ahead looking positive.
"Industrial yields have shown a continued firming bias over the past six months and are likely to continue firming given the attractive yields on offer in Adelaide compared to interstate," he says.
Knight Frank sales and leasing executive SA Garry Partington says the defence investment on the Lefevre Peninsula will start to ramp up in 2020 and boost South Australia's economy, with an expected flow-on effect for the industrial property market.
"The construction of the $535 million Naval Shipyard is well underway. On completion BAE Systems will take over the facility and commence the prototype for the $35 billion Hunter-class project before the first production starts in 2022," says Partington.
"BAE Systems have employed more than 80 graduates in 2019 and are expected to employ an additional 100 graduates in 2020 as the project ramps up.
"Furthermore, small and medium business such as Redarc Electronics, based in Lonsdale, have benefited from contracts on defence projects."
He says these projects will counteract potential headwinds, including land tax reform and higher than average unemployment in South Australia.
Lease transactions down
While more sales are taking place in Adelaide's industrial property market, the opposite has been the case with leasing transactions with the majority of deals in the inner north precinct.
"The limited leasing volumes is likely due to an increasing trend toward tenants purchasing their own premises, particularly given the abolition of stamp duty on commercial property," says Burston.
"The outlook for tenant demand is positive, however, with several briefs for space in the market ranging from 3,000 square metres to 15,000 square metres from industries including logistics, portable building manufacturing and steel manufacturing.
"Rents have remained steady over the past 12 months. Properties within inner metropolitan areas with good access to major transit routes have continued to be met with steady leasing demand."
Partington says the North to South Corridor infrastructure development and increasing density in the inner north precinct have had an impact on land values for industrial properties in the outer north precinct.
"Infrastructure projects will improve access to some of the key industrial areas in the outer north, such as Edinburgh Parks," he says.
"Industrial land values in the outer north have increased by circa 10% for properties above 10,000 square metres over the past six months, while all other precincts have remained relatively stable.
"Over the past two years we have also seen a marked increase in demand for new industrial facilities, particularly from the logistics sector, and a corresponding rise in construction."
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