Adelaide Industrial Market
Confidence in the South Australian industrial market is gaining momentum.
Confidence in the South Australian industrial market is gaining momentum, underpinned by significant infrastructure spend and growth in key areas such as defence, advanced manufacturing (renewable energy, medical devices, digital technologies etc.), agriculture and logistics. Although the market will continue to go through a transition period away from car manufacturing, the Adelaide industrial market is now in a better position to take advantage of key opportunities through Government supported initiatives, programs and packages aiming to upskill car manufacturing workers and supply chain workers.
Although the final Air Warfare Destroyer (AWD) was launched in May, the ramping up of the $535 million South Australian Shipbuilding Infrastructure Program (SASIU) at Osborne in readiness to build the navy’s new fleet of frigates is helping maintain positive sentiment levels currently being displayed within the market. The recent announcement of BAE Systems winning the $35 billion contract to build the frigates is likely to lift confidence further, with the company previously declaring it would partner with local steel suppliers (BlueScope and Liberty OneSteel) for more than 48,000 tonnes of steel, if it were to be awarded the contract.
Gross tenant demand, in terms of leases signed over the year to June 2018 is lower than the year prior (for deals over 500 square metres in size), but remains above long-term averages. There has been a clear pickup in activity over the first half of 2018, with the significant commitment by Drake’s Supermarket’s to purpose build a new distribution centre in Edinburgh North leading the incline. The first stage includes a 35,515 square metre warehouse, which has recently been given the green light by the Playford City Council. In addition, the plans include future stages, to equal a combined total of approximately 51,400 square metres.
Tenant demand was strongest overall in the North, accounting for 38.6% of total gross absorption. Demand was also strong in the Outer North and West precincts, accounting for 25.5% and 20.8% respectively.
Prime net face rents were stable over the past 12 months. The West precinct continued to attract a premium due to the limited stock available, ranging between $100-$140 per square metre (based on deals of less than 3,000 square metres). Average secondary net face rents were also stable over the period.
“Although demand has started to pick up again, we expect there to be a time lag before we see some upward pressure on rents.”
Incentives for prime and secondary stock started to pull back over the year, but remain above historical averages.
Over the year to June 2018, there was circa $94,500,000 worth of properties traded in SA (sales over $5,000,000 in value), significantly down from circa $210,000,000 over the year prior.
Owner occupiers with 30.4% of sales, by value, accounted for the largest portion of sales over the year. Owner occupiers continue to take advantage of the historically low cost of funds on offer, rather than rent.
Prime investment yields in Adelaide were stable over the 12 months to June 2018 ranging from 7.00% to 9.50%. Secondary yields still lag prime considerably, having also been stable over the past 12 months. Secondary yields, as at June 2018, were in a range from 8.00%-11.00%.
Land values have also been stable in Adelaide over the past 12 months. The most recent movement was for land in the West precinct, where values increased by 7.4% to $300-$425 per square metre (based on less than 3,000 square metres), reflecting reduced supply.