Business Inventory Building Supports Industrial Property

 Market Amid Global Uncertainty

Major mining and energy sector investment and the continuing strength of the Australian Dollar helped fuel a continued increase in company inventories during 2011.

This can be as rising container traffic flow pushed Australia’s “import share” of economic activity to a new high since the GFC, as noted below.

However construction of prime industrial property supply remains below the long term growth and investor sentiment is still being hit hard along the consumer sentiment due to continuing global uncertainty.

Bawdens Managing Director, Barry Cawthorn commented “These factors are temporarily subduing the normal cyclical development of the broader conditions needed to produce speculative construction of small buildings. That is, growth economic rents needed to support such construction.”

Examples of “below replacement costs” leases were being completed everyday by Bawdens, some of which are report in this edition of Industrial Property news, he said.

He further commented that the Company routinely completed feasibility studies and the Company continues to observe present net industrial rental levels in Sydney to be 45-70% below what they need attract speculative investment construction from small to medium private industrial developers in Sydney.

Such conditions, once economic indicators and confidence improve will emerge to create a significant shortage of industrial property causing rents to rise.

In observing another property sector in a different cycle, he sited recent above trend growth of residential market rentals was now supporting renewed unit development constructions across all major Sydney CBDs presently.

For industrial property, the subdued conditions were further yet evidence in 2011 with prime industrial yields remaining essentially unchanged since late 2010 and secondary yields also steady through 2011, despite higher vacancy rates.

In the absence of improving confidence, the current spread between secondary industrial property to prime yields to continue in 2012 and potentially increase up to 1.5%. with interest rates anticipated to fall further this year, secondary industrial property market returns will continue to attract investors in 2012.