industrial sector picks up (afr pg. 40)

Industrial sector picks up (AFR Pg. 40)

The Industrial property market is poised for a recovery after a tough couple of years for owners and developers.
The sector was one of the worst affected markets during the global financial crisis as companies cut spending and crammed operations into existing space.
Valuations fell and sales transactions dropped by 70% during the worst period in 2008.
While developers held off in the first half of 2010, large institutions snapped up portfolios at the top end of the market.
A GIC-backed fund bought the Salta industrial property portfolio for $220 million, while DEXUS?s funds arm purchased the Colonial First State Direct Property Industrial Fund for $231 million.
In the biggest play, a consortium led by Goodman Group and including some of the largest sovereign wealth funds such as China Investment Corporation made a $1.4 billion bid for the ING Industrial Fund.
A number of economic factors point to a slow recovery in the industrial market this year.
Container volumes ? a litmus test of the health of the economy and closely linked to demand for industrial space across the Port of Sydney and Port of Melbourne ? has risen.
The big retailers and logistics companies are starting to look for extra space.
Big-name retailers and logistics companies such as Ingram Micro, Linfox, EB Games and DHL all signed major pre-commitment deals last year.
A number of large groups have already expanded. Caterpillar has leased 30,700 square metres at Somerton Logistics Centre in Melbourne?s north; TNT has committed to a 18,800 square metre development at Welshpool in Perth?s east; and EB Games has taken 17,200 square metre at Eagle Farm in Brisbane.
Higher demand points to a busy year for developers. Research predicts 2.4 million square metres of projects are in the pipeline for 2011.
At least four major projects of over 50,000 square metres should be built this year, including the 78,000 square metre distribution centre for Kmart at Laverton North.
Sydney and Melbourne in particular are expected to benefit from this recovery the most because of limited supply.
While demand for space has increased, debt financing is still hard to obtain for second-tier property developers.
Net face rents rose 1.8% in the third quarter of last year and research is forecasting A-grade warehouse rents to rise by 2.7% this year. Rental growth in the secondary market is expected to take longer.