Savills Research
Western Australia
Spotlight
Perth Industrial
October 2014
Highlights
 A total of 143,877 square metres


of industrial space was reported
leased in the 12 months to
September 2014
Prime rents in Perth’s industrial
core precinct range from $95 to
$125 per square metre
Approximately $435 million of
industrial property was reported
sold over the year
 Core land values range from $400

to $1,150 per square metre for
assets up to 5,000 square metres
A large amount of forecast new
supply will likely lead to softening
conditions in industrial capital and
leasing markets over the next 12
to 18 months
Prime rents in
Perth’s core
precinct range
from $95 to
$125 per
square metre
Savills Research
Savills Research | Perth Industrial
October 2014
Savills West Australia Team
Research
Managing Director
Associate Director
Gemma Alexander
+61 (0) 8 9488 4140
[email protected]
Sales & Leasing
Divisional Director
James Condon
+61 (0) 8 9488 4169
[email protected]
Valuation & Consultancy
Divisional Director
Mark Foster-Key
+61 (0) 8 9488 4145
[email protected]
Managing Director
Paul Craig
+61 (0) 8 9488 4156
[email protected]
Property Management
Divisional Director
Jason Ridge
+61 (0) 8 9488 4118
[email protected]
Project Management
General Manager
Graham Nash
+61 (0) 8 6271 0306
[email protected]
Savills West Australia
Level 27, 108 St Georges Terrace
Perth, WA 6000 Australia
+61 (0) 8 9488 4111
savills.com.au
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2
Savills Research | Perth Industrial
October 2014
Introduction
Despite the widely-reported contracting resources sector the Western Australian economy
continues to perform strongly. Growth in WA’s gross state product has consistently
outperformed the Australian GDP, and with the exception of 2015/16 where state and
national forecasts are on par, WA is anticipated to continue to have higher percentage
growth than GDP through to 2016/17. And news in the mining sector is not all bad; in the
six months to April 2014 six projects in WA worth a combined $11.97 billion were
progressed to the Committed Stage on the Bureau of Resources and Energy Economics
(BREE) major projects list, the largest of which being Hancock Prospecting’s Roy Hill mine
at $10.70 billion in value. It is anticipated that the majority of these committed projects will
move into the operations phase by the 2018/19 financial year.
Western Australia also continues to have strong market fundamentals with the highest
population growth in the country (2.5 percent to Australia’s 1.7 percent), and the second
lowest unemployment rate behind the Northern Territory (4.8 percent to Australia’s 6.0
percent. Perth’s population growth is predicted to remain robust, with the city’s population
forecast to overtake that of Brisbane within the next 15 years to become Australia’s third
largest city. In recent years Perth has seen the commitment by the WA State Government to
a number of infrastructure projects around the city; the new Elizabeth Quay development
and the Perth City Link have added further momentum to the Perth market, as well as the
Gateway WA Perth Airport and Freight Access project, and the Perth-Darwin Highway. The
volume of new development and infrastructure projects underway shows that Perth is well
on the way to becoming a true international city, right on the doorstep to Asia.
The top sale in
the past 12
months was the
$70.50m sale of
2 Bannister Rd in
Canning Vale
Savills Research
Industrial leasing activity over the previous year has been rather subdued compared with
historical levels; 143,877 square metres of industrial space was recorded leased in the 12
months to September 2014 in the Perth metropolitan area. Sales for the period for also
below historical levels, with $435 million worth of transactions recorded for the period.
Major transactions in the 12 months to September 2014 include:

2 Bannister Rd, Canning Vale
$70.50m

22 Geddes St, Balcatta
$53.50m

103 Welshpool Rd, Welshpool
$17.00m

16 Frobisher St, Osborne Park
$16.00m

23 Selkis Rd, Bibra Lake
$15.80m
Precinct
Suburbs
Core
Belmont, Canning Vale, Kewdale, Osborne Park, Welshpool, Jandakot Airport, Perth Airport
North
Balcatta, Joondalup, Malaga, Neerabup, Wangara, Landsdale, Bullsbrook
East
Armadale, Forrestdale, Forrestfield, Maddington, Hazelmere, Bayswater, Bassendean, South Guildford
South
Bibra Lake, Henderson, Jandakot, Kwinana, Myaree, Naval Base, O’Connor, Rockingham, Latitude 32
Source: Savills Research
Infrastructure
Whilst Western Australia’s economy has contracted in reaction to the slowing of the mining
boom it remains strong on a national level, and regional and metropolitan development in
WA is continuing to support this. Within metropolitan Perth, a number of key projects are
also active, such as the Perth Airport Redevelopment project, the Perth City Link project
and the Elizabeth Quay project. These projects all aim to support future population growth
and development of the city. Another significant infrastructure project in the pipeline is the
proposed Perth-Darwin Highway. Once this project goes ahead it will open up a whole new
industrial precinct through the Bullsbrook area, which is likely to be favoured by transport
and logistics companies. The other infrastructure project significant to the industrial sector
is the $1 billion Gateway WA Perth Airport and Freight Access Project, currently under
construction and due for completion in 2017.
savills.com.au/research
3
Savills Research | Perth Industrial
October 2014
Leasing Activity
The total level of vacant space in
the industrial sector has been
increasing over the past 12
months. The weak level of tenant
enquiry is likely related to the
slowing of the resources sector,
directly affecting the space needs
of a number of industrial
companies.
September 2014. This is down on
the year prior (410,897 square
metres) and down on the five year
average (382,675 square metres).
The number of leases transacted
in the 12 months to September
2014 totalled 39. By comparison
the 12 months to September 2013
recorded a total of 92 reported
leases.
Savills identified approximately
143,877 square metres of
industrial accommodation leased
in Perth in the 12 months to
'Direct' leases accounted for the
majority of reported industrial
transactions over the period;
79,783 square metres or 55
percent.
The ‘Wholesale’ industry leased
the most industrial
accommodation, taking 69,414
square metres or 50 percent of
reported leasing activity.
The major leasing deals recorded
over the third quarter of 2014 are
displayed in the subsequent table.
Select Perth Industrial Leases to September 2014
Date
Property
GLA
(sq m)
Rent
($/sq m)
Jul-14
20 King Edward Rd, Osborne Park
1,269
na
Jul-14
34 Tesla Rd, Rockingham
1,205
137
Carbox
Jul-14
6&7 / 199 Abernethy Rd, Belmont
1,194
205
Boating Camping Fishing
Aug-14
17 Casella Pl, Kewdale
5,231
124
TEK Ocean Energy Services
Aug-14
137 Pilbara St, Welshpool
3,855
na
L & H Group
Sep-14
2 Roper St, O’Connor
4,400
80
Gage Roads Brewing
Tenant
Toolmart
Source: Savills Research
Select Perth Industrial Pre-leases
Date
Property
GLA
(sq m)
Rent
($/sq m)
Jul-14
L1 Abernethy Rd West, Hazelmere
6,500
na
Tenant
Wridgeways
Source: Savills Research
Perth Industrial
Metropolitan Leases by Lease Size (sq m)
Sep-09 to Sep-14
700,000
600,000
500,000
400,000
300,000
200,000
100,000
-
< 2,000
2,000 - 5,000
5,000 - 10,000
10,000 - 15,000
> 15,000
Source: Savills Research
savills.com.au/research
4
Savills Research | Perth Industrial
October 2014
Leases in the ‘Core’ accounted for the majority of industrial stock reported leased in the 12
months to September 2014 which recorded total leasing activity (excluding precommitments) of 79,503 square metres or 17 percent. The ‘Core’ also reported the most
number of leasing deals totalling 17. Of the 143,877 square metres stock that was reported
leased in the 12 months to September 2014, 54,150 square metres was precommitted to
new buildings.
Perth Industrial
Metropolitan Leases by Lease Type (sq m and number)
12 months to Sep-14
Prime rents in
the North
range from
$85 to $115
per square
metre
Savills Research
35
90,000
80,000
30
70,000
25
60,000
50,000
20
40,000
15
30,000
10
20,000
5
10,000
-
-
Direct
Precommit
Sublease
Leaseback
Renewal
sq m (LHS)
No (RHS)
Source: Savills Research
Prime industrial rents as at September 2014 typically range from $85 to $115 per square
metre per annum net for industrial buildings in the North, and between $70 and $105 per
square metre per annum net for industrial buildings in the South. The average rent in the
North is $100 per square metre per annum net, a 13 percent fall over the year. Secondary
industrial rents over the period typically range from $65 to $85 per square metre per annum
net for industrial buildings in the North, and between $60 and $80 per square metre per
annum net for industrial buildings in the South. The average rent in the North is $75 per
square metre per annum net, a 23 percent fall over the year.
Looking forward it is likely that the industrial leasing market will soften further as firms
continue to display caution and as more supply is made available to the market.
$140
Perth Industrial
Average Prime Net Face Rents by Precinct ($/sq m)
Sep-07 to Sep-14
$120
$100
$80
$60
$40
$20
$0
Perth Core
North
South
East
Source: Savills Research
savills.com.au/research
5
Savills Research | Perth Industrial
October 2014
Sales Activity
Industrial sales were hit hard in the wake of the Global Financial Crisis, but then picked up
in response to the state’s mining boom. As the resources sector in the state softens and a
number of projects move from the ‘construction’ to ‘production’ phases of their lifecycle,
industrial sales activity has come off accordingly.
Savills recorded approximately $435 million worth of reported industrial property
transactions in the 12 months to September 2014, down from $818 million in the previous
year, and down on the five year average ($626m). In the 12 months to September 2014, 58
properties were sold, down from the previous 12 months total of 212, and down on the five
year average of 135.
Average prime
capital values
in the North
decreased by
13% over the
past year
Savills Research
Perth Industrial
Metropolitan Industrial Sales ($m and number)
(>$1m) Sep-07 to Sep-14
300
$900
$800
250
$700
$600
200
$500
150
$400
$300
100
$200
50
$100
$0
0
Sales >$1m (LHS)
Sales No (RHS)
Source: Savills Research
Prime industrial capital values as at September 2014 are estimated to range from $930 to
$1,100 per square metre for buildings in the North, and between $785 and $1,145 per
square metre for buildings in the South. Average capital values for properties in the North
fell approximately 13 percent over the year. Secondary industrial capital values as at
September 2014 are estimated to range from $775 to $1,000 per square metre for buildings
in the North, and between $630 and $880 per square metre for buildings in the South.
Average capital values for properties in the North fell approximately 24 percent over the
year.
Industrial land values have softened in all sectors in the 12 months to September 2014;
these prices are expected to remain relatively unchanged moving into 2015.
Perth Industrial Land Values ($/sq m) September 2014
Precinct
Small <5,000
Medium 10-50,000
Large 100,000+
Englobo
Core
400 - 700 up to 1,150
350 - 750
220 - 400
na
North
325 - 700
250 - 500
na
na
South
160 - 450
150 - 375
80 - 225`
55 - 80
East
160 - 475
140 - 350
85 - 220
40 - 85
Source: Savills Research
savills.com.au/research
6
Savills Research | Perth Industrial
October 2014
In the 12 months to September 2014, approximately 51 percent of the total value of industrial properties reported
transacted in Perth were valued in the range $1-$10m. Over the same period $197 million worth of reported
transactions occurred in the ‘Core’ precinct, accounting for 45 percent of the industrial sales. In the year prior, the
‘Core’ also recorded the highest value of transactions, worth $303 million. The 'Trust' purchaser category was the
most active in the investment market for the year ended September 2014, purchasing 24 percent or $104.55 million
of stock reported sold, followed closely by ‘Private Investors’ at 27 percent ($102.20 million).
Perth Industrial
Metropolitan Industrial Sales Buyer Profile (%)
(>$1m) 12 months to Sep-14
Undisclosed
0%
Fund
23%
Foreign Investor
0%
Private Investor
27%
Developer
2%
Syndicate
4%
Trust
28%
Owner Occupier
16%
Source: Savills Research
Prime industrial yields as at September 2014 are estimated to range between 7.75% and 9.00% in the North, and
between 8.00% and 9.25% in the South. The average yield for investment properties in the North in the quarter to
September 2014 is 8.38%, no change over the year. Secondary industrial yields as at September 2014 are estimated
to range between 8.00% and 9.25% in the North, and between 8.50% and 9.50% in the South. The average yield for
investment properties in the North in the quarter to September 2014 is 8.63%, also showing no change over the
year.
Select Perth Industrial Sales
Date
Property
Price ($m)
GLA (sq m)
$/sq m
Yield (%)
Jul-14
22 Geddes St, Balcatta
53.50
26,389
2,027
7.65
Jul-14
294 Treasure Rd, Welshpool
8.50
8,083
1,052
8.47
Jul-14
173 Bannister Rd, Canning Vale
8.80
5,352
1,644
8.07
Jul-14
17 Truganina Rd, Malaga
6.75
3,975
1,698
7.78
Jul-14
99 Inspiration Dr, Wangara
4.53
3,018
1,499
VP
Jul-14
159 Abernethy Rd, Belmont
3.05
1,994
1,530
VP
Aug-14
18 Mandarin Rd, Maddington
3.74
2,403
1,556
na
Aug-14
9 Cressall Rd, Balcatta
3.60
1,500
2,400
na
Sep-14
2 Jones St, O’Connor
7.80
2,841
2,746
8.20
Price ($m)
Area (sq m)
$/sq m
8.00
212,600
38
Source: Savills Research
Select Perth Industrial Land Sales
Date
Property
Sep-14
111 Warren Rd, Bullsbrook
Source: Savills Research
savills.com.au/research
7
Savills Research | Perth Industrial
October 2014
Key Market Indicators - September 2014
Core
Prime
Secondary
Low
High
Low
High
95
125
70
95
Yield - Market (%)
7.50
8.25
8.00
9.25
IRR (%)
9.75
10.25
10.00
11.00
20
35
15
25
1,000
1,300
780
1,000
Rental Net Face ($/sq m)
Outgoings - Total ($/sq m)
Capital Values ($/sq m)
Land Values 3,000 - 5,000 sq m ($/sq m)
400-1,150
Source: Savills Research
North
Prime
Secondary
Low
High
Low
High
85
115
65
85
Yield - Market (%)
7.75
9.00
8.00
9.25
IRR (%)
9.75
10.50
9.75
11.00
Outgoings - Total ($/sq m)
16
30
15
25
Capital Values ($/sq m)
930
1,100
775
1,000
Rental Net Face ($/sq m)
Land Values 3,000 - 5,000 sq m ($/sq m)
325-700
Source: Savills Research
South
Prime
Secondary
Low
High
Low
High
70
105
60
80
Yield - Market (%)
8.00
9.25
8.50
9.50
IRR (%)
9.85
10.75
10.25
11.50
Outgoings - Total ($/sq m)
16
30
15
25
Capital Values ($/sq m)
785
1,145
630
880
Rental Net Face ($/sq m)
Land Values 3,000 - 5,000 sq m ($/sq m)
160-450
Source: Savills Research
East
Prime
Secondary
Low
High
Low
High
75
115
60
90
Yield - Market (%)
8.00
9.25
8.75
10.25
IRR (%)
9.75
11.50
10.50
11.75
Outgoings - Total ($/sq m)
16
30
15
25
Capital Values ($/sq m)
730
1,000
580
900
Rental Net Face ($/sq m)
Land Values 3,000 - 5,000 sq m ($/sq m)
160-475
Source: Savills Research
savills.com.au/research
8
Savills Research | Perth Industrial
October 2014
Outlook
The total amount of available industrial stock in the Perth metropolitan region has continued on
its upward trajectory over the first three quarters of 2014. This has led to further increases in
vacancy levels, falling face rents and rising incentives; with the level of deals being done being
at the lowest level seen over the past decade. Despite this subdued leasing market Savills
expect the level of enquiry to pick up over the coming years, due to a significant number of
leases reaching expiration over the period. Tenants may choose to take advantage of the
comparatively lower rents and higher incentives to upgrade their current industrial
accommodation.
Sales levels in the 12 months to September 2014 were at the lowest level seen since postGFC; however the shortage of larger-sized, well located industrial lots seem to indicate that
demand for this asset class is likely to outpace supply. Some relief to this limited space may
come from larger scale developments in areas such as Perth Airport and Jandakot Airport, as
well as in less central locations such as Hazelmere and Forrestfield to the East and Neerabup
and Bullsbrook to the North; Bullsbrook is beginning to emerge as a future industrial hotspot,
especially for large transportation and logistics firms.
Leasing and sales enquiries for prime quality properties with warehouses, excess lay down
areas and/or gantry cranes installed are likely to continue to be relatively strong, while
secondary grade properties in fringe locations are more likely to continue to struggle to
generate interest.
savills.com.au/research
9
Savills Research | Perth Industrial
October 2014
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