Hooking an ideal industrial property can be challenging under prevailing market conditions, so sticking to a buyer checklist is an effective way to avoid hasty decisions that could see you repenting at your future leisure.
Carefully weighing up key factors is well worth the effort as factories with the correct attributes can be especially fruitful investments. Parts of Sydney’s industrial sector are experiencing record low vacancy rates driven mainly by lack of land for new industrial premises, but that has not limited buyer interest.
Industrial rents in Sydney have grown above long-term trends in the 12 months to May 2019, Savills most recent report into Sydney’s industrial landscape notes. Following a prolonged period of subdued rental growth in conjunction with strong demand for prime industrial space saw, south western Sydney’s average prime industrial rents increased 8.9%, whilst in South Sydney and western Sydney, they grew by 7.4% and 5.1% respectively in the 12 months to March 2019.
In the same time period, investor demand for industrial assets in Sydney proved exceptionally strong, with sales volumes up notably from the prior annual period.
And as for the future, Savills Research expects rental growth “to be a prominent feature of Sydney’s industrial market as a result of growth in ecommerce retailing, a strengthening domestic economy and strong population growth...Sydney’s industrial market continues to go from strength to strength, outperforming across all key market indicators.”
In Melbourne, the largest industrial market in Australia, lower stock levels are likely to provide a boost to rental growth, Savills reports. While investment levels are at their lowest since 2013, this follows three to four years of record investment activity in the industrial sector, the report states, forecasting that future investor demand will target “specialised assets, such as cold storage and fulfilment centres, as underlying demand has been boosted by Victoria’s burgeoning population and increased food exports”.
Here are several factors from practical to pricing to consider when purchasing industrial property in today’s tricky climate:
1. Location
While it may seem obvious, regions can change rapidly when affected by shifting demographics and the rezoning and gentrification that can follow. This is one of the reasons Knight Frank partner and head of industrial NSW Matthew Lee advises investors against a pioneering attitude. “You don’t necessarily want to go completely off the beaten path and purchase in an area simply to have a point of difference.” Know the key drivers of the market in which you intend to buy.
2. Tenants and leases
Investigate the viability of the tenant, the length of the lease and past rental history, advises Victor Kelly of Sydney‘s Victor Kelly Estate Agents. The length of a lease can affect a bank’s willingness to lend while the tenant’s future potential to thrive will affect an owner’s entire investment strategy.
3. Internal clearance
Knight Frank’s Mr Lee says this should be among potential buyers’ highest priorities. “If you had to choose between a 500sqm factory with a 10m clearance and the same style of property down the road but with a 6m clearance, you would go with the 10m clearance every time,” he says.
4. Functionality
How easily can goods be transported in and out of the premises? Is the roller door high enough and how wide is the driveway? This is particularly important in markets where 3PL (Third-party logistics ) make up a high proportion of tenants. In Melbourne for instance, Savills reports that the transport and logistics sector has dominated total leasing activity in the past 12 months “with growth in the ecommerce industry continuing to drive total demand for space, accounting for 42% of total leasing activity in Melbourne in the 12 months to March 2019”.
5. Office to warehouse ratio
“Industrial properties with an unusually high proportion of office to warehouse are hard to sell and hard to lease,” Mr Lee points out.
6. Is the price actually right?
Exceedingly tight markets are forcing up rents, and in some cases seeing properties marketed with inflated prices and unusually high rents, observes industrial property expert Terry Saba, partner with long-established western Sydney firm Bawdens. “We ensure that our clients are paying the right rate per square metre for that particular suburb and whether the rent is set correctly,” explains Mr Saba who has almost two decades experience in industrial property. “It is most important to have a trusting relationship with your industrial real estate agent as there are agents out there who will falsify the market in these conditions.”