How our Amazon habit is driving industrial property growth
Industrial property is hot, providing a bonanza for some investors in the sector. It's not traditional sheds that's driving the sector, but huge, sleek and super-efficient logistic centres and warehouses.
We may no longer manufacture much in this country, but we have embraced online shopping with enthusiasm, sparking demand for facilities such as Amazon's 43,000sqm centre at Moorebank, Sydney.
"The industrial market is booming - it is arguably the best-performing property sector currently," says the winter 2019 Australian Industrial Report from m3property Insight.
"Nationally over the past year prime net face rents [before any incentives] increased 3.8%, land values rose by a whopping 21.6% and prime yields firmed by 26 basis points to a new record low."
Industrial property returned a total of 13% in the year to June 2019, topping the sector table, according to research from MSCI, which provides indexes, and the Australian Property Council.
Healthcare came second, with a total return of 12.8%, and the office sector came in third at 11.6%. The retail sector bombed with a total return of only 3.7%.
With most modern industrial assets well out of the reach of individual investors, the easiest way to share in the industrial property boom is to buy units in an Australian real estate investment trust (A-REITs) that invests in industrial assets.
Goodman Group (ASX: GMG), one of the biggest owners of industrial warehouse and logistics assets in the world, was the second best performing A-REIT on the ASX last financial year, chalking up a total return of 59.9%.
Charter Hall Group (CHC), which has a lot of industrial assets as well as office and retail, topped the table with a total return of 72.4% for the 2018-19 year.
Goodman has total assets of $46.2 billion under management in 17 countries including Australia, the US, the UK, Japan and China.
It is one of the largest landlords around the world for Amazon, which is its biggest customer by net income. In Australia, Amazon leases its huge Moorebank facility from Goodman.
The logistics giant predicts the good times will continue to roll, with chief executive Greg Goodman forecasting a rise in earnings of about 10.4% for 2019-20, following an 11.4% rise in 2019.
"Customer demand is outstripping supply for urban logistics globally as our customers continue to invest in the efficiency of their supply chains," he says.
"This is leading to consistently high occupancy, steady growth in rents and an increase in development work in progress."
The rise of the industrial sector, in particular logistics, is also pushing other A-REITs, including GPT, Dexus, Stockland and Mirvac, to increase their weightings to this sector.
Another listed option is the Centuria Industrial REIT (CIP), which labels itself as Australia's largest domestic pure play industrial REIT.
It aims to deliver income and capital growth to investors from a $1.2 billion portfolio of quality Australian industrial assets.
Investors in Centuria enjoyed a 12-month total return of 27% in the 2018-19 compared with 19.4% from the S&P/ASX 300 A-REIT Accumulation Index. The distribution yield was 5.5% and is forecast to be about 6% next year.
The APN Industria REIT (ADI) owns interests in industrial (52% of portfolio) and office (48%) assets that provide functional and affordable workspaces for businesses. Industria's $739 million portfolio of 28 properties located across the major cities aims to provide sustainable income and capital growth for unit holders over the long term.
Funds from operations increased in 2018-19 by 5% to $31.6 million though net profit fell due to non-cash value adjustments. The REIT paid distributions of 17 cents a security, up 3% from last year.
It has forecast a 3% lift in its distributions in the coming year, underpinned by fixed annual rent increases across most of its portfolio.
Apart from investing through the ASX, retail investors can choose an unlisted fund such as the Charter Hall Direct Industrial Fund No.4, which holds quality industrial properties in Australian industrial precincts, with an emphasis on those positioned near major transport infrastructure.
With a portfolio valued at $375 million, it has returned 11% a year since inception in 2016 and pays an income yield of 6.2%.
The minimum investment is $20,000.
Details of any new unlisted industrial funds can generally be found on the Core Property Research website. Core also provides an analyst report of new funds to help investors make informed choices.