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Investors

Tighten

Their Grip

Competition

intensifies to

acquire quality

assets

INDUSTRIAL

First Half 2014

Australia and New Zealand

Research

and

Forecast

report

(2)

HOTELS First Half 2014 Australia & New Zealand

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Forecast report

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Metro Office

INDUSTRIAL

Institutions tighten their grip on the industrial property market

5

Our industrial perspective

10

Industrial market overview

1.

Sydney

12

2.

Melbourne

17

3.

Brisbane

22

4.

Perth

27

5.

Adelaide

31

6.

Auckland

35

7.

Wellington

36

8.

Christchurch

37

Our industrial experience

38

Contents

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3

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Glendenning, NSW

Sold on behalf of Green’s General Foods Pty Ltd

(5)

Metro Office

INDUSTRIAL

Source: Colliers International

NATIONAL INDUSTRIAL MARKET PURCHASER PROFILE

Other Syndicate Private

Occupier/Developer Institutional 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2011 2012 2013 2014 YTD

Institutions tighten their

grip on the industrial

property market

Australian Industrial property is a popular asset class with

institutions. Notably their appetite for Industrial has intensified in

the last few years. Institutional representation amongst the total

pool of purchasers is becoming more dominant due to perceptions

of being underweight in this market leading property class. What

are the factors supporting Industrial property demand and when

will Institutions appetite be satisfied?

By Mark Courtney

Director | Research

mark.courtney@colliers.com

To address these questions it is useful to define the purchaser profile of the Australian Industrial property market. The following chart shows the profile derived from the details of all investment into the industrial property in Australia by transactions with values above $5million since 2011.

In the 2014 year to date (YTD) the clear dominance shown by Institutions – foreign and domestic, has become even more pronounced as they currently account for 71.9% of all purchases by total value of investment sales. While we are barely through the first quarter of 2014, this result is up from the 2013 full year result of 58.8%. Private investors have increased their representation of the purchasers profile from 16.9% last year to 19.7% in 2014 YTD. Easier finance terms including low interest rates and the growing utilisation of Self-Managed Super Funds (SMSFs) are key factors supporting the growing interest by Privates. Private investors tend to seek out high quality, well maintained assets with minimal capital expenditure required in the short term. It would appear that Institutions appetite is not diminished. Our view is that they will continue to represent the single largest investment group over the near to medium term for a number of reasons.

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M1 & M2 Industrial Estate, Melbourne

Sold on behalf of Pellicano Property Trust 3

The spread between industrial and risk free

investments

Like any financial investment into industrial property, it is all about returns. The chart below shows the spread between average Australian Prime Grade industrial yields and 10 Year Commonwealth bonds. At 400 basis points the spread, although down from its recent peak of five quarters ago, it still provides a good starting point for investors to consider industrial property as part of their portfolio. Should yields continue the compressing trend established since March 2009, as Colliers International expects, then it is likely that this spread will remain no less than 300 basis points over the next 18 months. On this basis the returns from Industrial appear relatively attractive.

While the spread is a good indication of the type of returns that can be generated it doesn’t explain why Institutions are leading the charge into Industrial. IPD statistics for the December quarter 2013 shed some light on why the industrial property option is growing more popular amongst Institutions.

Industrial investment returns – an income

focussed proposition

The chart below shows the annual total returns comprised of income and capital growth for Australian Retail, Office and Industrial property. It also shows the average total returns established over a 20 year period. It is notable that Industrial is currently providing the highest total returns at 11% as well as generating the strongest returns at 11.8% on a 20 year average basis. From an investment perspective amongst the commercial property asset classes, Industrial is currently the market leader. And the same story is being told in New Zealand where industrial showed double digit total returns of 10.8% in the December quarter 2013, which was a slight dip in total returns achieved in the previous quarter, according to PCNZ/IPD data. This is a reoccurring trend in the industrial sector which tends to lift up and out of economic recovery the fastest and stabilises more quickly than other sectors.

Source: Colliers International

PRIME GRADE INDUSTRIAL YIELD VS. 10-YEAR GOVERNMENT BOND RATE

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% M ar -9 8 Se p-98 M ar -9 9 Se p-99 M ar -0 0 Se p-00 M ar -0 1 Se p-01 M ar -0 2 Se p-02 M ar -0 3 Se p-03 M ar -0 4 Se p-04 M ar -0 5 Se p-05 M ar -0 6 Se p-06 M ar -0 7 Se p-07 M ar -0 8 Se p-08 M ar -0 9 Se p-09 M ar -1 0 Se p-10 M ar -1 1 Se p-11 M ar -1 2 Se p-12 M ar -1 3 Se p-13 M ar -1 4 (f ) Ra te ( % )

Spread Prime Industrial Yield 10-year Govt Bond Rate

Retail Office Industrial

Retail 20 yr avg Office 20 yr avg Industrial 20 yr avg -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0 25.0

Dec-03Jun-04Dec-04Jun-05Dec-05Jun-06Dec-06Jun-07Dec-07Jun-08Dec-08Jun-09Dec-09Jun-10Dec-10 Jun-11 Dec-11 Jun-12Dec-12Jun-13Dec-13

To ta l R et ur ns (% )

Source: IPD/Colliers International

TWENTY YEARS OF TOTAL RETURNS

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Metro Office

INDUSTRIAL

113,046 m2 of floor space which is under construction. Goodman

(54,507m2) and Dexus (34,872m2) are active in Brisbane South

West while Australand (9,773m2) are active in the South. Combined

these groups account for almost 88% of Brisbane’s new supply

under construction. (+10,000m2 facilities). Sydney has 273,530m2

of additional floorspace which is under construction. Goodman

(104,000m2) and Dexus (18,250m2) are active in Sydney’s

West where they account for 45% of this new supply. And in

Melbourne’s West 111,493m2 of additional floorspace is under

construction. Goodman (73,930m2) and Australand (37,563m2)

account for all of this new supply. Throughout the most sought after industrial precincts of the eastern states, they have built up solid industrial development pipelines and have tended to deliver product for logistics and retail customers. Australian REITs focus their industrial property activities sharply on locations situated near to major arterial roads, ports, airports and distribution hubs. The quality of product that Australian REITs build attracts Institutional investment. This quality grows out of their business models which are generally based on a BOOT (build, own, operate and transfer) approach which ensures continuity from development stage to the property management phase. They also are strong on environmentally sustainable design. A snapshot of some of the leading Australian REITs current projects provides insights into their number of development fronts, locations and end users of their product.

Goodman’s recent developments include Bungarribee Industrial Estate on the Great Western Highway, Huntingwood, Interchange Park on Interchange Drive and Oakdale Industrial Estate on Old Wallgrove Road both in Eastern Creek and the new Redbank Motorway Estate on Monash Street, Redbank, QLD. Later this year, Goodman will deliver a 32,000m² D&C facility for Logistics firm DB Schenker in this estate.

A typical REIT strategy is to use their development and leasing capabilities to deliver new or repositioned properties to increase capital values and generate earnings accretion and boost total returns. While total returns are drawing the Institutions attention, the income component of the return provides a most compelling feature. Of the total return of 11% recorded in the December quarter 2013, 8.7% was generated from the income with capital appreciation providing the balance. Income therefore represents 79.6 % of the total return. On average over the past four years income has represented an average 86.3% of Industrial’s total return. This is markedly above the income return proportions for retail and office which for both is around 75%. If income is the component of the total return that matters most to the investor, then industrial should clearly be the preferred property option. As well as having a higher income component, the way that the income return is generated for Industrial is equally as important. Income from Industrial assets tends to be primarily generated from leases. This feature provides reliable and predictable contractually based income which increases over fixed periods, often at the rate of CPI or CPI+ “X”. In an economy where growth is below trend, how income is generated matters.

Other asset classes may have multiple income sources that combine to become to produce a total income or yield. Multiple income streams may provide diversity and reduce risk. Multiple leases attached to the single asset are generally more associated with Retail and Office properties. And multiple tenancies may require a more involved approach to management. Higher management fees represent a cost that can erode returns. Often Industrial assets feature a single lease which may create a level of risk due to the lack of alternative income streams generated by the property. However, for investors who do not seek convoluted investments industrial property provides a streamlined and relatively straightforward investment. And for Institutions, a high quality industrial facility located in a sought after transport node location leased to a national blue chip logistics or retailing business represents a justifiable investment. Because these types of assets are delivering leading property market returns that are based on stable income streams with structured growth, and are provided by reputable tenants on long term leases Institutions have adjusted their portfolios to accommodate a higher share of industrial property.

The significance of the REITs

Within the Australian development pipeline, there is over

660,000m2 of industrial facility (+10,000m2) floor space under

construction. Meanwhile New Zealand has 49,200m2 under

construction, a return to levels recorded a year ago.

The REITs are the major contributors to this additional stock. In recent years, Australian REITs and in particular Goodman, Dexus and Charter Hall have sustained a high level of development of industrial estates and large scale industrial facilities. Brisbane has

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Charter Hall has a portfolio valued in excess of $1.2 billion which includes industrial properties leased to blue chip retail and logistics tenants. Charter Hall is another salient example of an Australian REIT with a background in the delivery of quality industrial real estate. They have a 50% interest in industrial pre-lease developer CIP who have developed a total building area in excess of 1,060,000m², with projects under construction for major occupiers such as Toll, Fosters, Caterpillar, Linfox, Schenker and Grace. Charter Hall have also partnered with a large range of external developers and corporates to acquire and develop prime institutional grade assets. In the last seven years, they have been involved in the ownership and construction of 20 property assets valued in excess of $600 million which represent approximately 410,000m² of floor space. Clients for Charter Hall’s projects include market leading retailers and logistics firms such as Woolworths, Coles, Australia Post, Volkswagen, Toll and Electrolux. Current projects include sites at 15 Long Street Smithfield NSW, Blackwoods Logistics Facility Mackay QLD, Electrolux Distribution Centre Beverley SA, Logan Motorway Business Park Berrinba QLD, LoganLink Industrial Park Berrinba QLD, Sherbrooke Industrial Estate, Willawong QLD.

DEXUS Property Group (DEXUS) invests directly in high quality Australian industrial properties and manages properties located in key Australian markets on behalf of third party capital partners. DEXUS also develops industrial properties in Australia, and have provided more than 1.8 million m² of industrial accommodation. They specialise in premium business parks, industrial estates and logistics and distribution facilities. With a portfolio is valued at $2.6 billion DEXUS concentrates its industrial investments in the key metropolitan markets of Sydney, Melbourne and Brisbane, locating

its properties close to multi-modal infrastructure and employment hubs where there is tenant demand is strong. DEXUS has been particularly active over the last four years developing premium grade industrial properties including facilities such as Quarry Industrial Estate, Reconciliation Drive at Greystanes, Erskine Park in NSW and DEXUS Industrial Estate, Laverton North in VIC and 255 & 295 Archerfield Road, Richlands in QLD.

What have institutions invested in over H1 2014?

Institutions continued to respond to the REITs quality product during the last six months. Over the year to March 2014, Institutions invested over $1.4 billion in Australian industrial property (+$5 milllion). The chart below which presents the shares of this total by the Institutions shows that Charter Hall accounted for 28%, followed by Goodman with 23%, Australian Industrial REIT at 12% and Dexus with 9%.

Wembley Road, Berrinba

Leased to CEVA Logistics 28% 23% 12% 9% 7% 6% 15% Charter Hall Goodman GPT Group Australian Industrial REIT Dexus

Propertylink Holdings Others

Source: Colliers International

SHARES OF TOTAL INVESTMENT BY INSTITUTIONS - 12 MONTHS TO MARCH 2014

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Metro Office

INDUSTRIAL

In Sydney, growing Institutional demand, coupled with a strong capital markets environment is driving strong yield compression across all Sydney markets. In Sydney’s South notable sales included the $37 million Dunning Avenue, Rosebery sale to Goodman by the City of Sydney. In the Western and Northern markets, the impact of this weight of capital chasing assets has resulted in strong yield compression. Institutions such as Dexus have recently been active, acquiring 4 Inglis Road for $34.5 million and Bunnings Property trust paying $40 million for Lyn Parade in Prestons. Sales volumes for the North have been led by the institutional players including Dexus, Investa and Stockland all contributing significant sales in the North over the past 6 months. The largest sales were $71.8 million to Stockland in Waterloo Road North Ryde and the $40.5 million sale to Dexus in Pittwater Road Brookvale. Key drivers for these purchases are the attractive yields on offer as well as the scarcity of industrial stock.

In Melbourne Investment sales activity in the North has been dominated by Australian Industrial REIT, who purchased three properties in this precinct in the last six months. Their first acquisition in the North was 24-32 Stanley Drive, Somerton which is a 24,350m² warehouse occupied by Bluestar Logistics. Australian Industrial REIT paid $23.7 million for the property in October 2013, representing a yield of 8.50%. More recently, another two assets were acquired as part of a wider five-asset portfolio acquisition. Colliers International handled the portfolio sale on behalf of the vendor Primewest. The biggest investment sale to occur in the South East was Pellicano Group’s sale in early 2014 of 50% of M1 & M2 Industry Park to AMP Capital, who were acting on behalf of Sunsuper. As part of the Primewest portfolio sale of five (5) assets to Australian Industrial REIT, 324 Frankston Dandenong Road, Dandenong South was sold for $24.2 million in March 2014.

In Brisbane, investment sales increased sharply with institutions accounting for almost 75% of the sales volume and driving the market direction. In the Australia TradeCoast, Dexus and Charter Hall acquired properties. For $39.6 million the Dexus Property Group acquired a facility in Hemmant while Charter Hall also undertook a $25 million acquisition of a facility in Pinkenba. In the North, ISPT invested $18.06 million in Interchange Industrial Estate in Narangba. Dexus Wholesale Property Fund invested $27.4 million in a property located in Nudgee Road Hendra. Meanwhile in the South and South West Sydney based institution Propertylink Holdings bought two properties in a portfolio transaction from Dexus. And in Yatala, GPT Group purchased a 40,782m² facility at Lots 4-5 Quarry Road 16-28 Quarry Road Stapylton for $44.5 million.

In Adelaide, the largest sale in the year was the new Rand facility which sold in August for $32.3 million. This was sold by the developer – Pacific Group to Cromwell property trust. This was the third sale in the Adelaide industrial market which was purchased by an institutional investor during 2013. Institutional

investors have been largely absent from the Adelaide market during 2008 to 2011, but since 2012 Charter Hall, 360 Capital, Ascot Capital and Cromwell have purchased assets.

Can institutions appetite be satisfied?

Deloitte Access Economics anticipates Australian GDP growth will be subdued at around 3% on an annual basis for the next five years. This compares with about 3.3% over the long term. In a climate of below trend economic growth, property investment continues to grow as an attractive option for institutions. The sustainability of current levels of investment by the institutions in the Australian industrial property market looks set to continue over the near term. It’s uncertain whether Industrial property can continue to deliver market leading total returns or whether institutions will maintain their share of total industrial investment purchases at the current +70%. However, underpinned by requirements from logistics and retailers seeking competitive edges in an ecommerce world, the REITs and other developers will continue to have a compelling reason to construct pre-leased and speculative facilities. Developers that are successful in obtaining some of the current pre-lease requirements will benefit from this trend, with many buyers seeking out blue chip tenanted stock with attractive WALEs.

Although, the income component is an important aspect of the rationale supporting investment, there are other drivers of Industrial property investment. All investors will continue to compete with each other on account of these drivers which include:

• the increasingly generic built form with the tendency toward the “big box” type of facility which has developed from the rise of logistics and as a more homogenous product has been well received by investors;

• the tendency for industrial facilities to maintain their functionality and require less capital expenditure to upgrade than alternative investments such as office towers or retail centres;

• the “land rich” nature of Industrial property. Under evolving planning conditions industrial land can be put to higher and better uses such as residential as in the case in South Sydney and Melbourne City Fringe.

Looking forward, for all these reasons investors including Privates and Syndicates will remain enthusiastic towards Industrial property although it is likely to become harder to compete with the Institutions on price. For Institutions looking for a more balanced portfolio through investment in the form of high end, quality industrial facilities that deliver steady and stable returns, Industrial property ticks the box and will do so for the foreseeable future.

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1

TRANSACTION ACTIVITY - (+$5 MILLION)

Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-1

1

Dec-1

1

Jun-12 Dec-12 Jun-13 Dec-13

25 20 15 10 5 0 -5 -10

* Properties transacted at + $1 million

WHO IS BUYING?

Market conditions fuel competition among investors.

Industrial market fundamentals are strong:

• Steady and strong income returns • Generic built form

• Tendency for industrial facilities to maintain their functionality • “Land rich” nature of industrial property

Number of sales steady, as transaction value picks up

SYDNEY WEST:

Eastern Creek, Chullora, Greystanes

SYDNEY SOUTH: Pagewood

SYDNEY SOUTH WEST: Campbelltown

SYDNEY NORTH: Rooty Hill

Sydney 2

MELBOURNE WEST:

Ravenhall, Truganina, Altona, Derrimut

MELBOURNE SOUTH:

Dandenong South & Keysborough

Melbourne 3

BRISBANE SOUTH WEST:

Richlands, Redbank Plains

BRISBANE SOUTH: Berrinba

Brisbane

Sydney Melbourne Brisbane Perth ($5m+) Adelaide Auckland *

10 25 9 1 2 13 12 14 18 2 1 13 $163.3$213.4 $416.7 $331.8 $31.3 $16.7 $41.6 $329.3 $115.3 $159.4 $7.9 $45.0

Average Net Face Rents

Australian Prime Grade Industrial Incentives

INVESTMENT ATTRACTED BY STEADY & MODEST RENTAL INCREASES

H1 2013 H2 2013 H1 2014 H2 2014(f) H1 2015(f) Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

Sydney Sydney Auckland Auckland Melbourne Melbourne Brisbane Brisbane Adelaide Adelaide Perth Perth Christchurch Wellington

Our perspective

INDUSTRIAL

AUSTRALIA AND NEW ZEALAND

Accelerating success.

How else can we help you?

Speak to one of our property experts today.

au.industrial@colliers.com

For more information about Colliers International

and working with us, visit;

www.colliers.com.au

FIRST HALF 2014

National Industrial Market Purchaser Profile

INDUSTRIAL OUTPERFORMS OTHER COMMERCIAL

PROPERTY ASSETS OVER LAST 20 YEARS

$ 1.48 BILION

28% 23% 12% 9% 7% 6% 15% TOTAL INVESTMENT

Institutions Still Dominate

CONSTRUCTION ACTIVITY INCREASES

(facilities +10,000sq.m) Under Construction

Charter Hall

Goodman GPT Group Australian Industrial REIT*

* Facilities with floorspace + 5,000sqm *REITs respond to demand from retailers and logistics along the eastern seaboard.

Source: IPD / Colliers International

Propertylink Holdings Others Dexus 2011 2012 2013 2014 YTD Institution Retail Retail 20 yr avg Office Office 20 yr avg Industrial Industrial 20 yr avg In Millions Development Hotspots Occupier/Developer Private Syndicate Other

H2 2013 H1 2014 H2 2013 H1 2014 Sydney 75,840 273,530 Melbourne 128,643 108,998 Brisbane 67,000 113,046 Perth * 64,841 79,136 Adelaide* 74,400 85,997 Auckland* 8,450 49,200 Largest Sale

AMP Capital purchase from the Pellicano Group 50% share of a property at M1 & M2 Industry Parks Dandenong for $76 million.

H2 2013 H1 2014 Total Value

660,938,412

Count: 47

1,009,961,116

Count: 47 100% 80% 60% 40% 20% 0 $145 $135 $125 $115 $105 $95 $85 $75 16% 14% 12% 10% 8% 6% 4% 2% 0 Total (Australia) 410,724 660,707

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1

TRANSACTION ACTIVITY - (+$5 MILLION)

Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-1

1

Dec-1

1

Jun-12 Dec-12 Jun-13 Dec-13

25 20 15 10 5 0 -5 -10

* Properties transacted at + $1 million

WHO IS BUYING?

Market conditions fuel competition among investors.

Industrial market fundamentals are strong:

• Steady and strong income returns • Generic built form

• Tendency for industrial facilities to maintain their functionality • “Land rich” nature of industrial property

Number of sales steady, as transaction value picks up

SYDNEY WEST:

Eastern Creek, Chullora, Greystanes

SYDNEY SOUTH: Pagewood

SYDNEY SOUTH WEST: Campbelltown

SYDNEY NORTH: Rooty Hill

Sydney 2

MELBOURNE WEST:

Ravenhall, Truganina, Altona, Derrimut

MELBOURNE SOUTH:

Dandenong South & Keysborough

Melbourne 3

BRISBANE SOUTH WEST:

Richlands, Redbank Plains

BRISBANE SOUTH: Berrinba

Brisbane

Sydney Melbourne Brisbane Perth ($5m+) Adelaide Auckland *

10 25 9 1 2 13 12 14 18 2 1 13 $163.3$213.4 $416.7 $331.8 $31.3 $16.7 $41.6 $329.3 $115.3 $159.4 $7.9 $45.0

Average Net Face Rents

Australian Prime Grade Industrial Incentives

INVESTMENT ATTRACTED BY STEADY & MODEST RENTAL INCREASES

H1 2013 H2 2013 H1 2014 H2 2014(f) H1 2015(f) Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

Sydney Sydney Auckland Auckland Melbourne Melbourne Brisbane Brisbane Adelaide Adelaide Perth Perth Christchurch Wellington

Our perspective

INDUSTRIAL

AUSTRALIA AND NEW ZEALAND

Accelerating success.

How else can we help you?

Speak to one of our property experts today.

au.industrial@colliers.com

For more information about Colliers International

and working with us, visit;

www.colliers.com.au

FIRST HALF 2014

National Industrial Market Purchaser Profile

INDUSTRIAL OUTPERFORMS OTHER COMMERCIAL

PROPERTY ASSETS OVER LAST 20 YEARS

$ 1.48 BILION

28% 23% 12% 9% 7% 6% 15% TOTAL INVESTMENT

Institutions Still Dominate

CONSTRUCTION ACTIVITY INCREASES

(facilities +10,000sq.m) Under Construction

Charter Hall

Goodman GPT Group Australian Industrial REIT*

* Facilities with floorspace + 5,000sqm

*REITs respond to demand from retailers and logistics along the eastern seaboard.

Source: IPD / Colliers International

Propertylink Holdings Others Dexus 2011 2012 2013 2014 YTD Institution Retail Retail 20 yr avg Office Office 20 yr avg Industrial Industrial 20 yr avg In Millions Development Hotspots Occupier/Developer Private Syndicate Other

H2 2013 H1 2014 H2 2013 H1 2014 Sydney 75,840 273,530 Melbourne 128,643 108,998 Brisbane 67,000 113,046 Perth * 64,841 79,136 Adelaide* 74,400 85,997 Auckland* 8,450 49,200 Largest Sale

AMP Capital purchase from the Pellicano Group 50% share of a property at M1 & M2 Industry Parks Dandenong for $76 million.

H2 2013 H1 2014 Total Value

660,938,412

Count: 47

1,009,961,116

Count: 47 100% 80% 60% 40% 20% 0 $145 $135 $125 $115 $105 $95 $85 $75 16% 14% 12% 10% 8% 6% 4% 2% 0 Total (Australia) 410,724 660,707

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Growing institutional demand, coupled with a strong capital markets environment is driving strong yield compression across all Sydney markets. However, the scarcity of quality stock is leading to intensive competition for assets amongst institutional investors, keen to establish a foot hold in the market.

The impact of this weight of capital chasing assets has resulted in strong yield compression, most notably in the Western and Northern markets. Prime yields have fallen by up to 50 basis points in some markets as institutional investors increase their ownership footprint. Prime indicative yields now average 7.5% to 8% across Sydney, with the sharpest yields seen in Western Sydney. Yields are forecast to fall further during 2014 while interest rates remain favourable and investor demand chases a shrinking pool of prime quality assets. Private investors seeking to exploit the favourable spread between yields and cheaper borrowing rates are expanding their risk profile to incorporate high quality secondary assets as part of their portfolios. The WALE profile of these assets are typically shorter, however existing tenants can be retained if the right rental and incentive rates can be negotiated.

Land acquisitions have not been immune from the spike in investor activity. The scarcity of land in Sydney’s industrial zoned areas is leading to strong growth in land values. The lack of zoned land is driving investors to acquire large englobo parcels in Sydney’s west, whilst in Northern Sydney, highest best use considerations are seeing land parcels pass to residential developers. Land values in Sydney now range from $250/m² in the South West to $900/m² in the North. In December 2013, Mirvac paid a record $250/m² for an englobo site in Sydney’s west. As large developable sites remain tightly held in Sydney’s Western precinct, Mirvac’s recent acquisition of 60 Wallgrove Road will provide them with a strong medium to long-term industrial development pipeline. The lack of land supply will, in the longer term, lead to falling vacancy in secondary markets as occupiers take up the newly developed space. We anticipate that

land values will experience solid growth in the short to medium term as investors continue to actively pursue development opportunities.

From an occupier perspective Logistics and warehousing remains the engine of growth of the Sydney industrial sector and while this cannot grow above underlying economic activity in the long term, the focus on cost management and supply chain efficiencies in sectors such as retail, are supporting above average growth. Traditional “industrial” segments such as manufacturing and utilities continue to show weaker growth, however high tech manufacturing enquiry is rising in the sub 5,000m² market. Looking ahead, institutional investment will be the market leading indicator for Sydney industrial market going into the second half of 2014. Economic indicators point to rising demand from service based sectors such as transport, warehousing and construction overtaking manufacturing. The scarcity of quality prime assets will be met in the short term by a rising development pipeline in the west, however limited land supply will drive tighter vacancy levels in prime and secondary markets in the medium to longer term.

SYDNEY MARKET

Institutional competition for prime assets high

as cashed up investors seek opportunities

First Half 2014

Research

and

Forecast

report

SYDNEY PRIME GRADE INDUSTRIAL MARKET

MARKET AVERAGE NET FACE RENTS ($/m² pa) AVERAGE YIELD AVERAGE LAND VALUES ($/m²)

H1

2014 2014H2 2014H1 2014H2 2014H1 2014H2

Sydney West $120 7.75% $330

Sydney South $150 7.85% $850

Sydney South West $112 8.15% $250

Sydney North $175 8.00% $900

COLLIERS INTERNATIONAL RESEARCH FORECASTS

Note: Figures represent market averages as at end of Mar-2014. For more details see the Data Tables.

Source: Colliers Internationa

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Metro Office

INDUSTRIAL

Sydney West

Yield compression continues as investors

compete for assets in tight supply market

The low cost of debt and a limited supply of quality industrial sites is compressing prime and secondary yields across Sydney’s western markets. Average prime yields are 7.5% in the west, down from 8% in H1 2013. Yield compression in secondary markets has also been present, with secondary yields across the west compressing to three year lows of 9% as investors broaden their risk appetite. However, weaker manufacturing conditions are expected to widen the divergence between prime and secondary yields. Traditionally manufacturing companies occupy secondary grade space while warehouse services firms occupy prime locations due to their larger size and storage volume capacity. Buyer enquiry for space in the sub 2,000/m² market has been strong, with low interest rates proving attractive to owner occupiers where the gap between rents and loan repayments has narrowed. Domestic institutions have led the demand for industrial land and assets over $5 million. Notably, the $55 million land purchase in Eastern Creek by Mirvac in December 2013 for an average rate of $250/m² was hotly contested by other institutional players. Assets with long WALE profiles that can attract occupiers from the transport, warehousing and logistics sectors continue to remain a top priority for investors but conditions remain challenging due to a limited supply of available prime assets. Land values firmed slightly in some markets due to limited supply of developable space,

Renewals keeping a lid on secondary vacancy

Prime rents are expected to see growth in the short to medium term while secondary grade rents are expected to remain un-wavered. Supply conditions in the west are strong, with high levels of pre-commitment underwriting deals; however leasing deals in the 5,000m² plus space remain challenging putting upward pressure on incentives in the short to medium term. Average prime rents in the western market range from a low of $95/m² in the South West to $145/m² in the inner west. Secondary rents remained steady, ranging from $75/m² to $115/m² respectively. Weakening conditions in the manufacturing sector and rising incentives from developers of A Grade facilities may lead to vacancy in secondary markets rising in the short term, however, existing tenants are reluctant to move operations due to high moving costs and are signing new, shorter lease renewals to retain their current premises.

Land supply levels tighten as institutional

investors strengthen their land holdings

Institutional investors have been hotly contesting large greenfield development sites in Sydney’s west, leading to land values rising across all parts of the west. Average serviced lot prices now range between $200/m² to $550/m². However englobo sites are also rising in value, with Mirvac paying $250/m² for a total of $55 million for a site in Eastern Creek. The last large englobo parcel sold in 2009 for $145/m². The limited availability of land will lead to further supply shortages of A Grade warehouse stock, putting downward pressure on secondary vacancy in the medium term.

1 Bellevue Circuit, Greystanes

Leased to Blackwoods

SYDNEY PRIME GRADE INDUSTRIAL MARKET

MARKET AVERAGE NET FACE RENTS ($/m² pa) AVERAGE YIELD AVERAGE LAND VALUES ($/m²)

H1

2014 2014H2 2014H1 2014H2 2014H1 2014H2

Sydney West $120 7.75% $330

Sydney South $150 7.85% $850

Sydney South West $112 8.15% $250

Sydney North $175 8.00% $900

Domestic Buyer Offshore Buyer $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 Sa le s Vo lu m e ($ m ill io ns ) 2009 2010 2011 2012 2013 2014 (YTD)

Source: Colliers International

SYDNEY INDUSTRIAL SALES BY BUYER TYPE

13

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Sydney South

Leasing demand rises as space scarcity continues

Leasing activity if the 3,000m² plus market remains slow, as occupiers seek smaller spaces but are constrained due to a lack of available stock. Smaller businesses are driving lease activity, cost and consolidation is the primary driver behind the movement of tenants to new premises. A number of tenants have also moved in order to revert back to a market rent, after contractual rent reviews push their current rent above market. The rising level of owner occupiers due to the low cost of borrowing is taking stock that would otherwise be used for leasing out of the market. High tech manufacturers, transport and storage companies were the key industry drivers of space occupation in the southern market. One of the larger transactions to occur were 53,000m² at Port Botany, sale and lease back to Australian Container Freight Services. Demand for smaller sites, sub 3,000m² has been driven by smaller retailers, distributors and warehouse operators.

Investment demand continues to gather pace

Institutional buyers continue to search for properties in the tightly held South Sydney market however only a limited number of large investment sale assets have come to market over the past 12 months. The lower cost of debt is attracting a growing number of owner occupiers to the market, keen to exploit the discount between market rents and loan repayments, however the limited availability of stock in the sub $10 million is driving some investors to consider other markets. Consequently, the strata market has been servicing most of this demand as the only market with any real supply. Conversions of facilities to be more supportive of occupation by warehousing, storage and logistics firms are also underway. Notable sales for this market

have included the $37 million Dunning Avenue, Rosebery sale to Goodman by the City of Sydney.

Planning and zoning set tone for longer term

play

Rising demand for residential land near inner city employment hubs is driving changes to the existing planning regimes in South Sydney.

The conversion of commercial and industrial sites to residential dwellings is beginning to have a major impact on the South Sydney industrial market, as the economics of highest and best use drive developers to look at residential options over the traditional industrial developments due to rising residential demand. The shift toward residential re-zoning will however be a longer term proposition, but some developers and investors may start positioning themselves by purchasing strategic holdings with a view to residential development upside later on.

Linfox Portfolio, Lenore Lane, Erskine Park

Sold on behalf of Linfox Australia Pty Ltd

29% 22% 46% 3% Private Institution Occupier/Developer Syndicate

Source: Colliers International

SYDNEY INDUSTRIAL SALES 2013 & 2014 (YTD) BY BUYER TYPE TYPE

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Metro Office

INDUSTRIAL

60 Wallgrove Road, Eastern Creek

Sold on behalf of Afteron Ltd

at an indicative 8.15% for prime assets and 9.25% for secondary. However, deals at sub 8% have been concluded, it is expected that the ongoing low interest rate environment will keep demand levels elevated and drive higher values over the next six to 12 months resulting in moderate yield compression.

Supply rises as developers re-enter the market

Developers have also seen a rise in sales and leasing demand for stock currently under construction and have moved to secure sites, or existing properties, for future projects. Demand for land has also risen with owner occupiers and developers now actively seeking sites for greenfield or strata development. With competition for sites high, unconditional offers are being made in some cases. Low borrowing costs have also had a positive effect for owner occupiers with some looking to purchase land in order to develop a purpose built facility for their business with financing costs now making it economical to do so. In September 2013, Modernco paid $11.5 million for a land site in Charles Street Canterbury and CIP Commercial paid $6.5 million for a Hepher Road Campbelltown on 2.3 Ha. Strong demand for sites is anticipated to continue into the second half of 2014 as investor appetite and enquiry remains strong.

Sydney South West

Bigger is better – tenants driving demand for

larger sheds

Rising tenant enquiry has seen sales for industrial warehouses over 10,000m² is leading to rising supply levels in the South West, but on a larger scale. Significant leasing transactions

over 10,000m² included 20,000m2 to Salmat and a 10,400m²

warehouse facility in Minto to Sebel furniture. Cost consolidation and attractive incentives for new facilities are a key driver of tenant moves for this market. Demand for high quality older assets is also high, as tenants with expanding warehouse requirements seek new space at a lower cost leading to a tightening secondary market. Smaller tenants are also active in the market, with demand for assets in the sub 2,000m² space growing. Prime rents for this market now average $108/m² and secondary $78/m².

Sales demand continues to rise

Sales volumes are off to a strong start for 2014 in the South West. Significant deal flows, and ongoing strong enquiry levels make this a popular location for investors. All types of industrial properties have been in demand from buyers with competitive offers from multiple buyers being recorded for the majority of sales campaigns. Institutions such as Dexus have recently been active, acquiring 4 Inglis Road for $34.5 million and Bunnings Property trust paying $40 million for Lyn Parade in Prestons. Private investors, taking advantage of the low interest rate environment and tax structure of self managed super accounts are also actively pursuing strata and sub 2,000m² facilities. This demand, combined with a lack of suitable properties for lease, has seen owner occupiers begin to offer a premium to purchase the right property. Despite rising demand, yields remained stable

0% 2% 4% 6% 8% 10% 12% Se p-04 M ar -0 5 Se p-05 M ar -0 6 Se p-06 M ar -0 7 Se p-07 M ar -0 8 Se p-08 M ar -0 9 Se p-09 M ar -1 0 Se p-10 M ar -1 1 Se p-11 M ar -1 2 Se p-12 M ar -1 3 Se p-13 M ar -1 4 (E qu iv . R ev . Y ie ld ) Secondary Grade Prime Grade

SYDNEY INDUSTRIAL MARKET AVERAGE YIELDS

Source: Colliers International

15

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Sydney North

Supply levels fall short of strong demand for

industrial space

The North shore market hasn’t seen any new industrial assets ≥5,000m² complete in recent years. Tenants are in the market for strata unit and high-tech facilities, subduing tenant activity for other assets. The implementation of recent zoning changes has resulted in a shift in investment interest around high-tech developments. Investment interest in land within the Macquarie Park market is dominated by office requirements. The ongoing conversion of industrial sites to bulky goods retail, showrooms or residential properties continues to be a major driver behind the shrinking availability and lack of options for industrial space in Sydney’s North. Major road corridors across the North have seen the bulk of this conversion with former industrial assets being converted to their highest and best use which, due to recent planning and zoning changes, is residential apartments.

Institutions lead major sales transactions

Sales volumes for the North have been led by the institutional players, seeking to position themselves in a tightly held market. Dexus, Investa and Stockland all contributed significant sales in the North over the past 6 months. The largest sales were $71.8 million to Stockland in Waterloo Road North Ryde and the $40.5 million sale to Dexus in Pittwater Road Brookvale. Key drivers for these purchases are the attractive yields on offer as well as the scarcity of industrial stock. In the long term, rezoning to office services or residential may form part of the strategy behind these investment decisions. Owner occupiers and private investors are also leading purchaser interest in the, focusing on the suburbs of Meadowbank, North Ryde and Chatswood for residential rezoning and conversions. Yields sharpened to an indicative 8% for prime locations and 10% for secondary, though some secondary deals have been at sub 10% as the appetite for sites from investors has seen them move up the risk curve.

Smaller tenants driving improving leasing

conditions

Leasing demand for assets over 3,000m² remains weak due to a lack of available stock, driving some tenants into the western market where newer facilities, with attractive incentives are on offer. However, demand for industrial sites with low office content sub 2,000m² is still seeing strong demand. Small retailers, warehousing and high tech manufacturing facilities are driving the majority of enquiry for space. The proximity to residential areas is appealing to occupiers looking to attract and retain staff. Overall, rents and incentives have remained stable over the past six months. However a shortage of, in demand, smaller space for lease is expected to put upward pressure on rents over the medium term. Significant leasing deals for the period include 2,100m² to Westpac Banking Corporation in Lane Cove, and 4,900m² to Life Health Food in Berkeley Value. Rents remained stable at an indicative $175/m² for prime assets and $130/m² for secondary.

How else can we help you?

Speak to one of our property experts today.

au.industrial@colliers.com

For further information about our research

please contact: Luke Dixon

Associate Director | Research | Tel +61 3 9612 8867

luke.dixon@colliers.com

Source: Colliers International

Mar-2014 Mar-2013 Mar-2012

$0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200

North South West South West

$175 ($ p er s q m p a) $150 $120 $108

SYDNEY INDUSTRIAL PRIME GRADE AVERAGE NET FACE RENTS

Warringah Corporate Centre, 20-24 Rodborough Road, Frenchs Forrest

Valued on behalf of Blackstone Real Estate Advisors L.P for Australiagen Office Portfolio Hold TC Pty Ltd

(17)

Metro Office

INDUSTRIAL

MELBOURNE MARKET

First Half 2014

Research

and

Forecast

report

The announcement in late 2013 and early 2014 of the end of local manufacturing of vehicles by both Ford and Toyota generated a lot of publicity – particularly around Australia’s perceived inability to compete against cheaper manufacturing nations. While our manufacturing sector is certainly going through a period of significant structural change, the logistics and transport sector is filling the demand void left behind, and this is very evident when looking at demand trends in the industrial property sector. The continued contraction of manufacturing in Melbourne will be replaced by direct logistics and 3PL users, as the growing population demands goods, such as cars, that were once made locally and are now imported. All these goods require land for and infrastructure for storage and transportation. In the Northern Industrial market, a number of major logistics users are currently in negotiations to lease around 120,000m² of space, while the West is now a hub for some of the largest distribution centres in the country. Melbourne also has some of the strongest population growth in the country - over the year to September 2013, the population grew by 110,500 - and the revitalisation of the residential market, particularly the land subdivision market, also is increasing demand in this sector.

Implications specific to the shutdown of the motor vehicle industry in Victoria may not be felt for some time, as production is not due to fully cease until 2017. However, many affected firms will already be assessing their future, and any property disposal requirements will be key to these plans. Colliers International estimates that approximately 260 Ha of land in total is due to be vacated by car manufacturers in Victoria, 205 Ha of which is in Melbourne itself. The closure of the manufacturing plants, while providing some challenges to the market, also represents opportunity. The greatest opportunity lies in Toyota’s site in Altona North, and Holden’s and Toyota’s sites in Port Melbourne. The Altona North market is notoriously tightly held, and it is expected that a number of industrial developers will be eyeing the opportunity to redevelop or redeploy the site for alternative manufacturing uses.

The shutdown of motor vehicle industry will have a flow on impact to the parts manufacturers currently supplying parts to Ford and Toyota. Interestingly, the South East precinct has the highest concentration of impacted industrial space in Melbourne, at almost 370,000m². Even though the South East does not house any major manufacturers producing cars, there is a large parts supplier industry, which is a leftover relic of the days when Holden and others used to manufacture in the area. Today, major parts suppliers such as Nissan Casting Plant produce parts for both the local and international manufacturing sector.

The Outer East also has about 270,000m² of space occupied by parts suppliers, the biggest of which is believed to be ANCA plant in Bayswater, which employs around 400 people. This plant also exports a large proportion of its product, and is expected to be largely unaffected by the local shutdowns. All up, it is estimated the car manufacturers and car suppliers occupy almost 1.6 million sqm of industrial space throughout Melbourne and Geelong. About 650,000m² of this space is occupied by the three (3) major manufacturers, leaving a further 950,000m² of space occupied by parts suppliers.

Motor vehicle industry shutdown – how will it

impact Melbourne’s industrial market?

MELBOURNE PRIME GRADE INDUSTRIAL MARKET INDICATORS

REGION FACE ($/m² pa)AVERAGE NET AVERAGE YIELD AVERAGE LAND VALUES ($/m²)

H1 2014 2014H2 2014H1 2014H2 2014H1 2014H2 City Fringe $155 7.50% $713 North $78 7.75% $238 South East $83 7.38% $245 West $73 7.45% $160 Outer East $85 7.38% $288

COLLIERS INTERNATIONAL RESEARCH FORECASTS

Note: Figures represent market averages as at end of Mar-2014. For more details see the Data Tables.

Source: Colliers International

17

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650 Lortimer Street, Port Melbourne

Leasing by Colliers International It is difficult to quantify just how many of the parts suppliers will

shut down and/or vacate their premises, given that many now export their product and have diversified, and may be able to continue on without the local car manufacturing market. One estimate suggests that around 30% of these parts suppliers will be able to survive in the long term. If this figure is accurate, then about 665,000m² of space around Melbourne and Geelong could be vacated. The biggest impact will be in the South East and Outer East, as these have more scattered plants, and no large manufacturing sites that could be converted to other uses.

City Fringe

Structural changes continue

The City Fringe market will be particularly impacted by the closure of the motor vehicle manufacturing industry in Australia, given that both Holden and Toyota have significant presence in Port Melbourne. The Holden site in Port Melbourne sits within an area that is being gradually converted to more high-tech industrial use. Given that Port Melbourne will become even more tightly constrained as the Fishermans Bend precinct moves to more residential use, it is expected that the Holden site will also hold appeal for industrial and commercial developers alike.

The Toyota site in Port Melbourne sits within the Sandridge precinct of the recently rezoned Fishermans Bend Urban Renewal

Precinct. All available sites in this area will be looked at for future residential or other commercial use by major developers. It is also unclear at this stage whether Toyota and Holden will relinquish their Port Melbourne sites, given that both firms will presumably still require a local Australian Headquarters.

Sites within the Fishermans Bend Urban Renewal Precinct have already begun to transact to residential developers. In 2012 we saw the purchase of 4 Ha at 14 Woodruff Street by local developer Harry Stamoulis for $25 million. And now in early 2014 Little Projects has paid $18.5 million for an 8,800m² for an industrial site at 85 Lorimer Street. The site has potential for up to 1500 apartments. In total, 22 applications for residential apartment developments have been submitted for approval in Fishermans Bend, totalling more than 12,500 apartments. Once development gets under way, the landscape of Port Melbourne will change significantly, and existing industrial uses within the identified Urban Renewal precinct may see the benefits in relocation.

North

Major deals to Logistics firms imminent

The Melbourne North industrial leasing market is characterised by increasing demand for smaller office areas as well as larger areas of hardstand. This is a direct result of the increasing prevalence

(19)

Metro Office

INDUSTRIAL

West

Pre-commitment market heating up

The pre-commitment market in Melbourne’s west is heating up again, as major corporates look for opportunities to upgrade to new space and also to take on bigger premises. Colliers International is aware of around 220,000m² worth of pre-commitment requirements in the market. A number of these tenants are existing West-based businesses that are experiencing organic growth and benefiting from growth in the logistics and e-commerce sectors. Around three quarters of the pre-commitment requirement currently in the market are from companies that are warehousing/transport related. For tenants facing an upcoming lease expiry, there is currently great opportunity to secure brand new, purpose built premises with incentives that are generous by historical standards. Incentives in the West for Prime grade space now range from 15% up to 25%. There are examples of more generous incentives being offered, particularly by the institutional sector, but these tend to be more outliers. For the pre-commitment sector, innovative ESD initiatives are being marketed by the major institutions to potential tenants as a way of differentiating them from existing stock.

While current vacancy in the West of buildings over 10,000m² is around 250,000m², Colliers International has received significant enquiry from tenants looking for space in that range. Given the range of supply available and the number of quality developers active in the West market, most of these requirements are for Prime quality space. One of the West’s great strengths is its land availability and affordability relative to other markets, and these two factors are a significant driver of demand. It does leave secondary space, however, somewhat vulnerable, and owners of these facilities need to consider repositioning these assets to avoid prolonged vacancy.

of logistics and 3PL users in the area, who are attracted to the excellent transport links to both Melbourne Airport and the Port of Melbourne. The continued growth in e-retailing has also driven demand in the Melbourne North market, as much of this product comes through the airport and quick delivery and turnaround times are absolutely essential for these businesses. That being said, vacancy of facilities 10,000m² or greater in the north have increased – from about 170,000m² of vacancy in Q3 2013 to 285,000m² of vacancy across 8 buildings as at Q1 2014. The majority of this vacancy is in the Prime Grade market, and less expensive secondary grade warehouses are leasing quite well, with only three (3) currently available. Average Net Face Rents in the North are currently $78/m² for Prime grade space, and $50/m² for secondary grade space. While there has been limited leasing activity of Prime grade space, Colliers International is aware of three (3) impending major pre-lease deals in the North market. These deals will total around 120,000m² of warehouse space, and are being leased to major logistics firms as well as a large corporate occupier. A 5,868m² warehouse at 68 National Boulevard Campbellfield was also leased in January 2014 to a tenant that is currently undisclosed.

Investment sales activity in the North has been dominated by Australian Industrial REIT, who has purchased three (3) properties in this precinct in the last six months. Their first acquisition in the North was 24-32 Stanley Drive, Somerton. This is a 24,350m² warehouse occupied by Bluestar Logistics. Australian Industrial REIT paid $23.7 million for the property in October 2013,

representing a yield of 8.50%. More recently, they have purchased a further 2 assets in the North, as part of a wider five-asset portfolio acquisition. These are 9 Fellowes Court, Tullamarine and 49 Temple Drive, Thomastown. The assets were purchased for $3 million and $21.9 million respectively. Colliers International handled the portfolio sale on behalf of the vendor Primewest. Prime grade yields in the North now range from a low of 7.00% for long term WALE, blue chip tenant stock, up to 8.50% for stock with shorter WALEs. This represents a reduction in yields in the North of 25 bps since September 2013.

North South East West Outer East City Fringe

6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% M ar -0 5 Se p-05 M ar -0 6 Se p-06 M ar -0 7 Se p-07 M ar -0 8 Se p-08 M ar -0 9 Se p-09 M ar -1 0 Se p-10 M ar -1 1 Se p-11 M ar -1 2 Se p-12 M ar -1 3 Se p-13 M ar -1 4

Source: Colliers International

MELBOURNE AVERAGE EQUIVALENT REVERSIONARY YIELDS

49 Temple Drive, Thomastown

Leasing by Colliers International

19

(20)

The englobo land sales market is also seeing renewed activity, as owner occupiers - encouraged by land prices that are lower than other markets in Melbourne, and indeed the country – are returning to the market, and particularly enquiring on lot sizes that are around 1,000m² to 2,000m². The increase in demand for land has seen prices for lots increase from an average of $140/m² in Market 2013 to an average of $160/m² in March 2014. While this is a 14% increase over the year, land values in the West are still by far the most affordable in Melbourne. Coupled with the precincts excellent transport links and proximity to the Port of Melbourne, this encourages many current owner occupiers to remain in the market, and also occupiers from other precincts to make enquiries.

South & Outer East

Continuing the transitition to a logistics based

market

Similarly to the West and North markets, leasing enquiries for industrial space in the Outer and South East markets now typically include a higher requirement for hardstand than in previous years. This is due to the transition of a strong manufacturing sector – particularly around Dandenong – to a transport and logistics based market. The South East and Outer East industrial market looks set to be particularly impacted by the shutdown of motor vehicle manufacturing in Australia in around 2017. While these markets are not home to any of the major car manufacturers, Colliers International estimates that almost 650,000m² of space in these precincts is occupied by car parts suppliers and manufacturers. These businesses are clustered around Dandenong, Clayton, Bayswater, Croydon and Hallam. While some of these businesses have diversified to export markets or to manufacturing of components for the non-vehicle sector, others are reliant on the business of the Victorian based Ford and Toyota manufacturing plants, and face an uncertain future. There is therefore plenty of scope for a number of these assets to be repositioned for other uses, and to take advantage of the current demand for logistics space. While cars will no longer be made in Australia, the car import market is now certain to grow, and this will increase the requirement of industrial hardstand in strategic locations to store these vehicles.

North South East West Outer East

$0 $50 $100 $150 $200 $250 $300 $350 $400 $450 M ar -0 5 Se p-05 M ar -0 6 Se p-06 M ar -0 7 Se p-07 M ar -0 8 Se p-08 M ar -0 9 Se p-09 M ar -1 0 Se p-10 M ar -1 1 Se p-11 M ar -1 2 Se p-12 M ar -1 3 Se p-13 M ar -1 4 $/

Source: Colliers International

MELBOURNE INDUSTRIAL LAND VALUES

2-24 Saintly Drive, Truganina

Leased to Encore Tissue

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Metro Office

INDUSTRIAL

Dandenong is currently experiencing the greatest demand from large occupiers looking to position their businesses in the East, and are attracting enquiry from tenants located in the Outer East and Bayside regions. Local developer Vaughan Constructions is looking to capitalise on this demand, purchasing a 9 Ha site on the corner of Hammond Road and Rodeo Drive for a price in excess of $15 million. Vaughan Constructions plans to develop the site in accordance with the needs of tenants and buyers, and anticipates selling/developing lots in the range of 5,000m² to 8 Ha. This is a deliberate strategy designed to capitalise on the demand from the logistics sector, as the site is well located to Eastlink.

Another major land sale to occur in the South East was the sale in late 2013 of Sigma Pharmaceuticals 6.5 Ha site in Centre Road, Clayton for $25.3 million to Cedar Woods, a residential developer. This sale is indicative of a trend in some Outer East and South East areas, where older industrial sites that are well located to public transport and Monash University in particular are being repositioned as residential development sites. Given the industrial land available for development in Dandenong South, Keysborough and Lyndhurst, the precinct still has ample scope to relocate some of their major industrial occupiers, while better utilising some of these large industrial sites.

The biggest investment sale to occur in the South East was Pellicano Group’s sale in early 2014 of 50% of M1 & M2 Industry Park to AMP Capital, who were acting on behalf of Sunsuper. As part of the Primewest portfolio sale of five (5) assets to Australian Industrial REIT, 324 Frankston Dandenong Road, Dandenong South was sold for $24.2 million in March 2014. As discussed in the National overview of this report, the institutional market is again eyeing industrial property, and many have increased their allocations to the sector. Developers that are successful in obtaining some of the current pre-lease requirements that are in the market should benefit from this trend, with many willing buyers looking for blue chip tenanted stock with attractive WALEs.

$0 $200 $400 $600 $800 $1,000 $1,200 2007 2008 2009 2010 2011 2012 2013 2014 YTD M ill io ns $ AU D

Source: Colliers International, RCA

VICTORIAN INDUSTRIAL INVESTMENT SALES VOLUMES

How else can we help you?

Speak to one of our property experts today.

au.industrial@colliers.com

For further information about our research

please contact: Anneke Thompson

Associate Director | Research | Tel +61 3 9940 7241

anneke.thompson@colliers.com

6-24 Monash Drive, Dandenong

Leasing by Colliers International

21

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Investment sales increased sharply with institutions accounting for almost 75% of the sales volume and driving the market direction. The last six months have also been marked by stable growth in rents and firming yields as the market gathers momentum. In the near term, capital values are expected to firm in line with the anticipated compression in yields. With 18 investment sales ($5 million and above) plus one vacant possession sale of $6.5 million, transaction numbers are up from the fourteen ($5 million and above) sales in the six months to September 2013. The investment volume was a substantial $331.8 million. This approached a figure of almost three times greater than the H2 2013 result of $115.3 million. Some further yield compression over the next six months particularly for high quality end stock is anticipated as the buyers compete for A Grade well located stock. At the top end of the Secondary grade market yields are expected to compress as the tightness of supply of prime grade stock will lead investors to seek alternative opportunities. Secondary average rents are therefore expected to show some slight increase into the next six months and beyond.

Leasing activity dipped below trend levels. During the past six months, 42,084m² of industrial floor space for tenancies (over 2,000m²) was leased. This is down from the six months to September 2013 when approximately 111,000m² industrial floor space was leased. It is notable though that DB Schenker 31,400m² lease occurred in that

previous result and that we expect a number of significant leases will be signed during the coming months.

In terms of business use, Manufacturing (40.0%) accounted for the largest contribution of the total floor space leased while Services (17.0%) and Logistics (14.9%) also accounted for large percentages. There is in the order of 340,000m² of requirements from a range of users with the larger requirements amongst these coming from retailers and logistics firms. The gradual process of filling these requirements will create some degree of back filling. In turn this will create opportunities for other occupiers considering a change in premises for consolidation purposes, business expansion or to be more suitably located to suppliers and customers. It may also lead to opportunities to negotiate more flexibility in lease terms.

Average market rents for prime grade facilities stabilised at $109 in H1 2014. Secondary industrial facilities have been relatively stable sitting at $83/m² for the last two years. There is currently 113,000m² of floor space (facilities +10,000m²) under construction with Australand, Dexus and Goodman all active. While this result was well up from 67,000m² under construction in H2 2013, competition among the REITs to lease their speculative stock is anticipated to keep a lid on rental growth into H2 2014.

BRISBANE MARKET

Institutions appetite for industrial grows

First Half 2014

Research

and

Forecast

report

Note: Figures represent market averages as at end of Mar-2014. For more details see the Data Tables.

Source: Colliers International

BRISBANE PRIME GRADE INDUSTRIAL MARKET INDICATORS

REGION FACE ($/m² pa)AVERAGE NET AVERAGE YIELD AVERAGE LAND VALUES ($/m²)

H1 2014 2014H2 2014H1 2014H2 2014H1 2014H2 Australia TradeCoast $118 8.13% $275 North $115 8.13% $238 South $105 8.13% $225 South West $103 8.13% $225 Yatala $103 8.50% $200

COLLIERS INTERNATIONAL RESEARCH FORECASTS

122 Donaldson Road, Rocklea

Managed on behalf of The Bird Family

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