Signs are the bull run of Australia’s industrial property sector is easing, but a leading analyst predicts a soft landing and positive outlook.
The rising cost of debt will bring an end to the industrial property sales price boom, with sector investment returns set to soften sooner than anticipatedPrincipal property economist Lee Walker said bond yields were well above 3 per cent and expected to stay elevated over the next two years, making finance more expensive.
Since 2020, the value of prime industrial property in Sydney and Melbourne had grown by 52 per cent to 64 per cent, he said,Average yields had potentially bottomed out at 3.6 per cent in Sydney’s outer west and 3.9 per cent in the south-east corridor of Melbourne. “We calculate prospective internal rates of return closer to 6 per cent per annum over the next five years for Sydney and Melbourne prime industrial property,” he said.“That’s still reasonable, but well below the 11 per cent or 12 per cent per annum of the last two years.”
“We think pandemic-triggered drivers of the market will remain prominent near term, before normalising as spending rebalances towards services, and supply chain pressures ease,” Mr Walker said.“Then, rental growth is expected to slow for two to three years before another phase of growth, all influenced by the vacancy rate cycle and cost pressures coming from the pre-lease market.”
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