Investors Tighten Their Grip

Transcription

1 Research and Forecast report First Half Australia and New Zealand INDUSTRIAL Investors Tighten Their Grip Competition intensifies to acquire quality assets Accelerating success.

2 First Half Australia & New Zealand HOTELS Colliers International A leader in global real estate services, defined by our spirit of enterprise. Through a culture of service excellence and collaboration, we integrate the resources of real estate specialists worldwide to accelerate the success of our partners. We represent property investors, developers and occupiers in local and global markets. Our expertise spans all property sectors office, industrial, retail, residential, rural & agribusiness, healthcare & retirement living, hotels & leisure. Colliers International is Australia s own global real estate success story. 370 offices in 62 countries on 6 continents United States 140 Canada 42 Latin America 20 Asia Pacific 83 EMEA 85 $2 billion in annual revenue 2.5billion square feet under management 13,500 professionals and staff We have 200 research professionals in 90 offices on 6 continents Accurate and objective property research should be the foundation of all good property decisions. Colliers International provides reliable, unbiased and authoritative property research & investment property advice across all property sectors and geographic markets within Australia and across the globe. We share our knowledge and experience to deliver innovative and effective solutions and investment property advice. Our unique approach integrates people, experience, systems, and technology to create meaningful business connections and client outcomes. Improve your perspective. We have. Property Research worth talking about. Research and Forecast report Between the Flags Hotel markets provide investors with confidence Accelerating success.

3 Metro Office INDUSTRIAL Contents Institutions tighten their grip on the industrial property market 5 Our industrial perspective 10 Industrial market overview 1. Sydney Melbourne Brisbane Perth Adelaide Auckland Wellington Christchurch 37 Our industrial experience 38 How else can we help you? Speak to one of our property experts today. [email protected] Partner with our Research and Consultancy team Our highly experienced team of professionals can partner with you to ensure your next project has a positive outcome. we deliver strategic advice across a full range of property sectors, ensuring that your decisions are fully informed. [email protected] For more information about Colliers International and working with us, visit; Cover image: Inserrt text here. Photographer Name Name. Industrial Research & Forecast Report First Half 3

4 Glendenning, NSW Sold on behalf of Green s General Foods Pty Ltd 4 A Colliers International publication

5 Metro Office INDUSTRIAL 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 [email protected] 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 In the 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, 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 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. NATIONAL INDUSTRIAL MARKET PURCHASER PROFILE 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% YTD Other Syndicate Private Institutional Occupier/Developer Industrial Research & Forecast Report First Half 5

6 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. PRIME GRADE INDUSTRIAL YIELD VS. 10-YEAR GOVERNMENT BOND RATE Rate (%) 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 (f) Spread Prime Industrial Yield 10-year Govt Bond Rate TWENTY YEARS OF TOTAL RETURNS Total Returns (%) Dec-03 Jun-04 Dec-04 Retail Retail 20 yr avg Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Source: IPD/Colliers International Office Office 20 yr avg Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Industrial Industrial 20 yr avg Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 M1 & M2 Industrial Estate, Melbourne Sold on behalf of Pellicano Property Trust 3 6 A Colliers International publication

7 Metro Office INDUSTRIAL 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 660,000m 2 of industrial facility (+10,000m 2 ) floor space under construction. Meanwhile New Zealand has 49,200m 2 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 113,046 m 2 of floor space which is under construction. Goodman (54,507m 2 ) and Dexus (34,872m 2 ) are active in Brisbane South West while Australand (9,773m 2 ) are active in the South. Combined these groups account for almost 88% of Brisbane s new supply under construction. (+10,000m 2 facilities). Sydney has 273,530m 2 of additional floorspace which is under construction. Goodman (104,000m 2 ) and Dexus (18,250m 2 ) are active in Sydney s West where they account for 45% of this new supply. And in Melbourne s West 111,493m 2 of additional floorspace is under construction. Goodman (73,930m 2 ) and Australand (37,563m 2 ) 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. Industrial Research & Forecast Report First Half 7

8 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 prelease 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? Institutions continued to respond to the REITs quality product during the last six months. Over the year to March, 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%. SHARES OF TOTAL INVESTMENT BY INSTITUTIONS - 12 MONTHS TO MARCH 7% 6% 9% 15% 12% 28% 23% Charter Hall Goodman GPT Group Australian Industrial REIT Dexus Propertylink Holdings Others Wembley Road, Berrinba Leased to CEVA Logistics 8 A Colliers International publication

9 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 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 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. 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 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 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. Industrial Research & Forecast Report First Half 9

10 Our perspective INDUSTRIAL WHO IS BUYING? National Industrial Market Purchaser Profile 100% Institution 80% 60% Occupier/Developer Private Syndicate Other Market conditions fuel competition among investors. INDUSTRIAL OUTPERFORMS OTHER COMMERCIAL PROPERTY ASSETS OVER LAST 20 YEARS Retail Retail 20 yr avg Office Office 20 yr avg Industrial Industrial 20 yr avg 40% 10 20% 5 0 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 28% Charter Hall YTD Institutions Still Dominate 23% 12% 9% Goodman GPT Group Australian Industrial REIT* 7% Dexus 6% Propertylink Holdings TOTAL INVESTMENT $ 1.48 BILION *REITs respond to demand from retailers and logistics along the eastern seaboard. 15% Others Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Source: IPD / Colliers International Jun-07 CONSTRUCTION ACTIVITY INCREASES (facilities +10,000sq.m) Under Construction Dec-07 Jun-08 H H1 Sydney 75, ,530 Melbourne 128, ,998 Brisbane 67, ,046 Perth * 64,841 79,136 Adelaide* 74,400 85,997 Auckland* 8,450 49,200 Total (Australia) 410, ,707 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 * Facilities with floorspace + 5,000sqm Accelerating success. How else can we help you? Speak to one of our property experts today. [email protected]

11 AUSTRALIA AND NEW ZEALAND FIRST HALF TRANSACTION ACTIVITY - (+$5 MILLION) H H1 In Millions Number of sales steady, as transaction value picks up $329.3 $416.7 $331.8 Total Value H H1 660,938,412 Count: 47 1,009,961,116 Count: 47 Largest Sale AMP Capital purchase from the Pellicano Group 50% share of a property at M1 & M2 Industry Parks Dandenong for $76 million. $213.4 $163.3 $115.3 Sydney Melbourne Brisbane Perth ($5m+) Adelaide Auckland * Development Hotspots * Properties transacted at + $1 million 1 Sydney 2 Melbourne 3 Brisbane SYDNEY WEST: MELBOURNE WEST: BRISBANE SOUTH WEST: Eastern Creek, Chullora, Greystanes Ravenhall, Truganina, Altona, Derrimut Richlands, Redbank Plains SYDNEY SOUTH: Pagewood MELBOURNE SOUTH: BRISBANE SOUTH: Berrinba SYDNEY SOUTH WEST: Campbelltown Dandenong South & Keysborough SYDNEY NORTH: Rooty Hill $7.9 $31.3 $45.0 $16.7 $159.4 $41.6 INVESTMENT ATTRACTED BY STEADY & MODEST RENTAL INCREASES Australian Prime Grade Industrial Incentives 16% 14% 12% 10% 8% 6% 4% 2% Melbourne Adelaide Sydney Brisbane Auckland Perth Average Net Face Rents $145 $135 $125 $115 $105 Melbourne $95 $85 Perth Brisbane Sydney Auckland Christchurch Adelaide Wellington 0 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 $75 H H H1 H2 (f) H1 2015(f) For more information about Colliers International and working with us, visit;

12 Research and Forecast report First Half SYDNEY MARKET Institutional competition for prime assets high as cashed up investors seek opportunities 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 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 $250/m² for an englobo site in Sydney s west. As large developable sites remain tightly held in Sydney s Western precinct, Mirvac s recent acquisition of 60 Wallgrove Road will provide them with a strong medium to long-term industrial development pipeline. The lack of land supply will, in the longer term, lead to falling vacancy in secondary markets as occupiers take up the newly developed space. We anticipate that land values will experience solid growth in the short to medium term as investors continue to actively pursue development opportunities. From an occupier perspective Logistics and warehousing remains the engine of growth of the Sydney industrial sector and while this cannot grow above underlying economic activity in the long term, the focus on cost management and supply chain efficiencies in sectors such as retail, are supporting above average growth. Traditional industrial segments such as manufacturing and utilities continue to show weaker growth, however high tech manufacturing enquiry is rising in the sub 5,000m² market. Looking ahead, institutional investment will be the market leading indicator for Sydney industrial market going into the second half of. Economic indicators point to rising demand from service based sectors such as transport, warehousing and construction overtaking manufacturing. The scarcity of quality prime assets will be met in the short term by a rising development pipeline in the west, however limited land supply will drive tighter vacancy levels in prime and secondary markets in the medium to longer term. COLLIERS INTERNATIONAL RESEARCH FORECASTS SYDNEY PRIME GRADE INDUSTRIAL MARKET MARKET AVERAGE NET FACE RENTS ($/m² pa) H1 H2 H1 AVERAGE YIELD H2 AVERAGE LAND VALUES ($/m²) H1 Sydney West $ % $330 Sydney South $ % $850 Sydney South West $ % $250 Sydney North $ % $900 H2 Note: Figures represent market averages as at end of Mar-. For more details see the Data Tables. Source: Colliers Internationa 12 A Colliers International publication

13 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 H 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 unwavered. 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. 1 Bellevue Circuit, Greystanes Leased to Blackwoods 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 $145/m². The limited availability of land will lead to further supply shortages of A Grade warehouse stock, putting downward pressure on secondary vacancy in the medium term. SYDNEY INDUSTRIAL SALES BY BUYER TYPE Sales Volume ($ millions) $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $ (YTD) Domestic Buyer Offshore Buyer Industrial Research & Forecast Report First Half 13

14 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 SYDNEY INDUSTRIAL SALES 2013 & (YTD) BY BUYER TYPE TYPE Occupier/Developer 22% Syndicate 3% Institution 46% Private 29% 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 14 A Colliers International publication

15 Metro Office INDUSTRIAL 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 20,000m 2 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 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 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 as investor appetite and enquiry remains strong. SYDNEY INDUSTRIAL MARKET AVERAGE YIELDS (Equiv. Rev. Yield) 12% Secondary Grade 10% 8% Prime Grade 6% 4% 2% 0% Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar Wallgrove Road, Eastern Creek Sold on behalf of Afteron Ltd Industrial Research & Forecast Report First Half 15

16 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 $130/m² for secondary. SYDNEY INDUSTRIAL PRIME GRADE AVERAGE NET FACE RENTS Warringah Corporate Centre, Rodborough Road, Frenchs Forrest Valued on behalf of Blackstone Real Estate Advisors L.P for Australiagen Office Portfolio Hold TC Pty Ltd ($ per sq m pa) $200 $180 $175 $160 $150 $140 $120 $120 $108 $100 $80 $60 $40 $20 $0 North South West South West Mar- Mar-2013 Mar-2012 How else can we help you? Speak to one of our property experts today. [email protected] For further information about our research please contact: Luke Dixon Associate Director Research Tel [email protected] 16 A Colliers International publication

17 Research and Forecast report First Half Metro Office INDUSTRIAL MELBOURNE MARKET Motor vehicle industry shutdown how will it impact Melbourne s industrial market? The announcement in late 2013 and early 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. 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. 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 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. COLLIERS INTERNATIONAL RESEARCH FORECASTS MELBOURNE PRIME GRADE INDUSTRIAL MARKET INDICATORS REGION AVERAGE NET FACE ($/m² pa) H1 H2 AVERAGE YIELD H1 H2 AVERAGE LAND VALUES ($/m²) H1 City Fringe $ % $713 North $ % $238 South East $ % $245 West $ % $160 Outer East $ % $288 H2 Note: Figures represent market averages as at end of Mar-. For more details see the Data Tables. Industrial Research & Forecast Report First Half 17

18 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 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 650 Lortimer Street, Port Melbourne Leasing by Colliers International 18 A Colliers International publication

19 Metro Office INDUSTRIAL 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 Q to 285,000m² of vacancy across 8 buildings as at Q1. 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 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 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 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. MELBOURNE AVERAGE EQUIVALENT REVERSIONARY YIELDS 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 North South East West Outer East City Fringe 49 Temple Drive, Thomastown Leasing by Colliers International Industrial Research & Forecast Report First Half 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. 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. MELBOURNE INDUSTRIAL LAND VALUES $/m² $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 North South East West Outer East 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 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 Saintly Drive, Truganina Leased to Encore Tissue 20 A Colliers International publication

21 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 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. 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. VICTORIAN INDUSTRIAL INVESTMENT SALES VOLUMES Millions $AUD $1,200 $1,000 $800 $600 $400 $200 $ YTD, RCA 6-24 Monash Drive, Dandenong Leasing by Colliers International How else can we help you? Speak to one of our property experts today. [email protected] For further information about our research please contact: Anneke Thompson Associate Director Research Tel [email protected] Industrial Research & Forecast Report First Half 21

22 Research and Forecast report First Half BRISBANE MARKET Institutions appetite for industrial grows 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 The investment volume was a substantial $331.8 million. This approached a figure of almost three times greater than the H 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. Secondary industrial facilities have been relatively stable sitting at $83/m² for the last two years. There is currently 113,000m² of floor space (facilities +10,000m²) under construction with Australand, Dexus and Goodman all active. While this result was well up from 67,000m² under construction in H2 2013, competition among the REITs to lease their speculative stock is anticipated to keep a lid on rental growth into H2. COLLIERS INTERNATIONAL RESEARCH FORECASTS 122 Donaldson Road, Rocklea Managed on behalf of The Bird Family BRISBANE PRIME GRADE INDUSTRIAL MARKET INDICATORS REGION AVERAGE NET FACE ($/m² pa) H1 H2 H1 AVERAGE YIELD H2 AVERAGE LAND VALUES ($/m²) H1 Australia TradeCoast $ % $275 North $ % $238 South $ % $225 South West $ % $225 Yatala $ % $200 H2 Note: Figures represent market averages as at end of Mar-. For more details see the Data Tables. 22 A Colliers International publication

23 Metro Office INDUSTRIAL Australia TradeCoast ATC shows broad appeal for industrial business Access to local, national and global markets ensures that leasing demand in the ATC remains firm. World class transport infrastructure gives the ATC its comparative advantages over other industrial precincts. The precinct which includes the North side suburbs of Eagle Farm and Pinkenba and the South side suburbs of Morningside, Colmslie, Queensport, Murarrie, Hemmant, Lytton and Fisherman Islands, is always in the mix as one of Brisbane s most sought after industrial areas. Almost 38% of all leased space (+2,000m²) in Brisbane during the period was taken up at the ATC. Demand for space in the ATC was reflected by the signing of almost 16,500m² of space over five significant leases including tenancies signed IMT Food Services, Cement Australia, DB Schenker Freight Forwarding, Rentokil and Thales. Rents at the ATC tend to attract a premium reflecting its locational advantage. Prime grade net rents ranged between $110/m² - $125/m² pa, and Secondary grade net rents have continued to fall between $75/m² - $110/m² pa. As at the end of March, 84,306m² of industrial facility floor space (+10,000m²) is in the development pipeline. Of this, 43,386m² is in the development approval phase and 40,920m² is at the Tenders and submissions for design and construct phase. Goodman Australia s project at Freight Street Lytton is set to be one of the largest to be delivered in the ATC in the near term. Their facility which includes two buildings incorporating two warehouses in each with over 40,000m² in floor space is expected to be completed by December. Given the ongoing appeal of the precinct, steady demand will maintain upward pressure on rents ATC in the year ahead. DEXUS, Charter Hall and privates secure investments Four sales were recorded which is consistent with the previous six months to September REITs again have been active Dexus and Charter Hall acquired properties in the ATC. For $39.6 million the Dexus Property Group acquired a 25,304m² facility Lytton Road Hemmant. Located approximately 14km east of the Brisbane CBD Hemmant is sought after area owing to its good access to the Port of Brisbane and the Gateway Motorway. Charter Hall also made ATC investment with a $25 million acquisition of a facility in Pinkenba, a property previously owned by Cromwell. Two other properties were also purchased by Privates. Prime Average Capital values were unchanged over the period, ranging between $1,200/m²- $1,600/m² and the Secondary grade stock between $950/m²-1,150/m². BRISBANE AVERAGE INDUSTRIAL RENTS $ per sq m pa $150 $140 $130 $120 $110 $100 $90 $80 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Prime Grade - Average Net Face Rent Secondary Grade - Average Net Face Rent Brisbane North Leasing around trend The North has traditionally been an industrial precinct accommodating services and manufacturers. More recently in the outer North has developed as a home for retailers requiring large warehouse and distribution centre facilities. With nearly 13,000m² of floor space leased in H1, the level of leasing activity in Brisbane North (Hendra, Northgate, Banyo, Virginia, Geebung and Zillmere Brendale, Strathpine, Lawnton, North Lakes, Narangba, Deception Bay, Burpengary, Kippa Ring and Clontarf) eased slightly from the levels recorded in the previous six months (16,289m²). Leasing in the North accounted for nearly 30% of all Brisbane s industrial floor space take up in the six months to March. Examples of significant transactions include Nikpol s at Wentworth Place in Banyo for 3,301m², Project Modular at Raubers Road Northgate for 7,129m² and Slattery Auctions at 2,500m² at Hayward Street Stafford. Manufacturing businesses dominated the tenancy type in the North during this period. The North has been the industrial location for some of the larger additions to Brisbane s new supply over the past year. Two significant projects account for more than 102,000m² of additional industrial facility floor space for facilities over 10,000m² and both are located in Brendale. Construction of distribution centre for the Super Retail Group with state of the art mechanised sorting conveyors is underway. The project accounts for almost 47,000m² of floor space. The other project which is at the contract let stage is being developed by ALDI Foods Ltd. It will comprise approximately 56,000m² of warehouse, cool house, office, refuse facility, truck wash, tank, pump and plant room. Meanwhile site preparation is underway for a facility developed by AP Constructions Pty Ltd and Costco Wholesale Australia Pty Ltd has their 13,894m² commercial warehouse under construction. In total, there is 94,715m² of floor space in the development pipeline in the North. Prime rentals should be supported at the top end given the purpose built nature of these new additions. Industrial Research & Forecast Report First Half 23

24 In the North, Prime grade net rents range between $110/m² - $120/m² pa and secondary grade net rents falling between $60/m² - $90/m² pa. Outer Northern prime grade net rents are expected to continue their long term pattern of being slightly lower than their inner north neighbours. DEXUS and ISPT acquire stock Two properties transacted and again the Institutions have led the investment charge. ISPT purchased a property at Interchange Industrial Estate in Narangba for $18.06 million. Dexus Wholesale Property Fund invested $27.4 million in a property located in Nudgee Road Hendra. This half s activity represents a pick up since the previous six month period when there were no recorded sales over the $5 million threshold value. With low levels of investment activity, Prime Average Capital Values have remained in a zone between $1,200/m² and $1,600/m². Prime grade yields are moving in the range between 7.50% and 8.75%. The tightly held nature of stock will continue to limit acquisition opportunities. This will remain the case well into particularly given the lack of speculative stock in the development pipeline in the North. BRISBANE AVERAGE CAPITAL VALUES $ per sq m $1,600 $1,400 $1,200 $1,000 $800 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Prime Grade - Capital Values Secondary Grade - Capital Values Brisbane South Leasing pauses temporarily as development ramps up The South precinct incorporates inner suburbs of Acacia Ridge, Salisbury, Rocklea, Coopers Plains, and the outer south suburbs of Larapinta, Berrinba, Heathwood, Parkinson and Browns Plains. Reclaim & Timber s 2,164m² at Jackson Rd, Acacia Ridge represented the precincts only significant lease deal during the period. In the previous six month period, Brisbane South accounted for a significant share of the total floor space leased across Brisbane with 38,450m² which represented almost 34.5% of all Brisbane s industrial floor space leased over the six months to September While leasing was down from trend, in terms of the development pipeline, the South precinct has continued to become the Brisbane development focus particularly for the REITs. There is 74,323m² or nearly one third of all Brisbane s potential new industrial supply in varying stages of the development pipeline. Approximately 9,773m² is in construction phase. This component is accounted for by Australand Holdings Ltd facility at Lot 25 Siltstone Place Berrinba incorporating warehouse, ancillary office and workshop. With competition strong amongst developers to secure suitable tenants prime rents are likely to show modest annual growth in. Rents have remained steady over the period with Prime grade net rents ranging between $95/m² - $115/m² pa and Secondary grade net rents falling between $70/m² - $95/m² pa. Market access drives investment and attracts Kiwi interest Quality highway infrastructure and the precincts strategic location which provided easy access to Queensland and interstate markets underwrite industrial investment in this precinct. A healthy level of investment activity marked the six months to March with a total of $71.3 million of investment sales achieved through five sales. This is consistent with the $74.1 million worth of investment sales also achieved through five sales recorded in the six months to September. New Zealand Syndicate KCL Property purchased two Acacia Ridge properties from IOOF. Sydney based institution Propertylink Holdings bought two properties in a portfolio transaction from Dexus. One of these was Balham Road Archerfield which was purchased in February for $30,376,377. Average Prime Capital Values continue are falling between $1,200/m²-$1,600/m². In contrast, Secondary grade Capital Values fell between $900/m²-$1,100/m². Average Market Reversionary Yields have remained steady over the six months and are between 7.5%-8.75%. 441 Nudgee Road, Hendra Sold on behalf of Property Solutions Group 24 A Colliers International publication

25 Metro Office INDUSTRIAL BRISBANE AVERAGE INDUSTRIAL YIELDS Equiv. Rev. Yield 10% 9% 8% 7% 6% Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Prime Grade - Yields Secondary Grade - Yields South West Precinct Leasing eases The precinct is recognized as home to larger users with excellent road infrastructure. It includes the suburbs of Darra, Wacol, Richlands, Redbank, Carole Park and Ipswich. Rentals in South West precinct have remained unchanged with leasing activity restricted to two significant leases during the period which together by floor space represent approximately 24% of the total Brisbane take up. Tenants taking up space include Oil Lift s 7,198m² at Boundary Road in Darra and the mining and resources services company Epic Drilling s 3,300m² at River Road in Redbank. The previous six month period saw demand for space running high with five leases signed off to represent 42.5% of Brisbane s total industrial floor space leased over the period. The South West precinct is perceived as a strategic location due the presence of excellent road infrastructure. This is highlighted by the 89,379m² of industrial project floor space which is currently under construction stage in the development pipeline. Another 33,862m² has development approval and approximately 13,956m² of floor space is in the contract let stage including Dexus Property Group s construction of two warehouses (Buildings 5 & 6) at 301 Orchard Rd and 255 Archerfield Rd (Lots 1 & 2 RP 62743) at Richlands. As a further indication of the precincts popularity amongst developers is the 47,645m² of project floor space in the development application stage. As well as Dexus, Australand Charter Hall and Goodman are all active in the South West with pre-commitment and/or speculative projects. Competition amongst the REITs has seen Prime grade net rents ease slightly to fall between $95m² - $110/m² pa while Secondary grade net rents have narrowed to $70 - $90/m²pa. Investment splurge on quality Six properties transacted during the six months to March. This compared to four transactions in the previous period and at a total of $90.9 million was well above the $38.8 million volume figure recorded in the six months to September As referred to in the South precinct section, Propertylink Holdings acquired two properties in a portfolio transaction from Dexus. One is located in the South precinct and the other is a 25,869m² facility in Viking Drive Wacol which sold for $32,123,559 in February on a reported yield of 7.75%. The other investment purchases were all undertaken by Privates. Prime Average Capital Values have remained narrowed to be between $1,200/m² - $1,600/m² as have Average Capital Values for Secondary grade stock at $900/m²-$1,100m². Port of Brisbane, Lytton Valued on behalf of Caisse de depot et placement du Quebec Industrial Research & Forecast Report First Half 25

26 Yatala Enterprise Area Leasing active for variety of industrial business The Yatala Enterprise Area (YEA) includes localities such as Yatala, Ormeau and Stapylton. It is centrally located in the middle of the burgeoning southeast Queensland growth corridor, halfway between Brisbane and the tourist destination of the Gold Coast, making it convenient to a range of business and lifestyle opportunities. Property Solutions undertook a recommitment to the Cosentino Group for a 1,750m² design and construct project for $117.50m² on Lahrs road on a ten year term while Competitive Foods signed ten year lease for approximately 10,000m² cold room facility for a rental in the order of $208m². There were another four other leases above 250m² for properties in a range of areas from 654-1,210m² featuring net rents in a range from $92-122/m². Average Prime grade net rents have eased over the period, to range between $95/m² - 110/m² pa, while secondary grade net rents have eased slightly to $70/m²-$95/m² pa. GPT acquires Stapylton site Investment in the Yatala Enterprise Area is expected to grow as available land in the Brisbane South and South West industrial regions dwindles. The Area s access to the Port of Brisbane, the international airports at Brisbane and the Gold Coast, access to population centres, the M1 national highway and rail links broaden its appeal to a range of industrial users. There was one transaction during the six months to March. In this institution driven market it is no surprise that the GPT Group s presence was made during the six months to March.GPT Group purchased a 40,782m² facility at Lots 4-5 Quarry Road Quarry Road Stapylton for $44.5 million. This follows the sale of a Property Solutions industrial facility at 100 Lahrs Road, Ormeau for $10,225,000 late in the previous six month period. The property which was originally built as a speculative development was purchased fully tenanted by a private investor. Prime grade Average Capital Values are between $1,200m² - 1,500/m², while secondary grade Average Capital Values fall between $900/m²-$1,100/m². Redbank Motorway Estate, Brisbane Leased to DB Schenker Australia Pty Ltd How else can we help you? Speak to one of our property experts today. [email protected] For further information about our research please contact: Mark Courtney Director Research Tel [email protected] 26 A Colliers International publication

27 Research and Forecast report First Half Metro Office INDUSTRIAL PERTH MARKET A slow start to After a slow 2013, leasing activity in Perth s industrial land sector is beginning to show some signs of recovery early in although it remains sporadic and focused on the smaller tenancies. At the same time, the level of sales inquiry from institutional investors is on the rise. Leasing enquiries have been subdued in line with business sentiment, as a result of below-trend economic growth expectations and uncertainty about the durability of resource sector-related investment. In terms of total transaction volumes, the preliminary numbers for to date showed 432 transactions, down 8.7% on the H volume of 473 transactions but nearly 9% higher than the corresponding second half period in The total value of transactions in H1 to date is $480.3 million, marking a 12.2% decline on the H result. Sales enquiry, however, remained solid as demand for quality industrial assets from private and institutional investors continued. Colliers International also notes increased tenant sales enquiry in recent months. Demand for expansion space was generally softer across the board in the second half of While there have been some instances of businesses looking to sub-lease excess space, it is too early to suggest a discernible trend. The general shortage of larger, well-serviced industrial space is continuing to provide some support for rents for these types of properties, and this is also true for larger secondary space with similar attributes. While industry investment is tapering, Western Australia s annual rate of population growth of just over 3.3% remains solid and still leads all Australian capitals. Since 2007, Western Australia has added 411,000 residents the equivalent of Canberra s population. This has translated into continued strong demand for housing construction with building approvals, commencements and completions all rising sharply as a result. This in turn has provided some much-needed support for industrial space occupancy/demand associated with building and construction. Face rents for Prime assets remained stable in Q4 of 2013 and the first two months of ; however, some increase in available space has resulted in increased incentives, along with some face rental contraction for difficult-to-lease space. Incentive levels had been stable at around 5% for quality space, but are now showing signs of increasing as competition for tenants gathers pace. Colliers International expects some downward pressure on rents to develop over, along with the likelihood of increases in incentives. Vacant land transactions volumes for H1 on preliminary results to date have fallen 31.5% since H1 2013, and are down 26.2% when compared to the corresponding period in 2012/2013. The availability of quality developable land is still a factor constraining turnover volumes; however, ongoing recent uncertainty has also contributed to the soft volume. COLLIERS INTERNATIONAL RESEARCH FORECASTS PERTH PRIME GRADE INDUSTRIAL MARKET INDICATORS REGION AVERAGE NET FACE ($/m² pa) H1 H2 H1 AVERAGE YIELD H2 AVERAGE LAND VALUES ($/m²) H1 Core Precincts $ % $510 North $ % $500 East $ % $500 South $ % $450 H2 Note: Figures represent market averages as at end of Mar-. For more details see the Data Tables. Industrial Research & Forecast Report First Half 27

28 Perth South Most active vacant industrial land market The Perth South sub-region includes the suburbs of Fremantle, O Connor, Canning Vale, Willetton, Bibra Lake, Jandakot, Forrestdale, Armadale, Henderson, Kwinana and Rockingham. The South sub-region is home to much of the metropolitan area s medium and heavy industry, and also features a significant concentration of warehousing. Perth s South continues to register the strongest level of activity in both transactional volumes and total value of transactions in H1, with 174 transactions (totalling $175.3m) settled. The majority of transactions continued to be smaller assets, with just 16 transactions priced over $3 million. This is down from 2012, when 19 major transactions were completed. Over H1 so far there has been a notable increase in the availability of space larger than 2,000m² and this is starting to result in longer on-the-market time, which is encouraging landlords to adjust rental expectations downwards, particularly for those assets perceived to be of lower quality. For large prime warehouse assets, the achievable rental range remains between $90/m² and $120/m², with incentives still averaging around 5%. There are, however, signs of incentives increasing as properties take longer to lease. Increasingly, landlords are starting to accept offers towards the lower end of this range, with exceptional assets still able to achieve rents at the top end. Capital values generally remained stable for large prime properties, and generally range between $1,250/m² and $1,650/m² with yields ranging between 7.5% and 8.5%. Vacant land transactions in the South have been the most active of all the regions this year, with 33 lots settled as of February and core precinct values generally ranging between $350/m² and $550/m². 109 Bannister Road, Canning Vale Managed on behalf of S & L Nominees Pty Ltd 28 A Colliers International publication

29 Metro Office INDUSTRIAL Perth North Population growth providing significant support The Perth North sub-region includes the suburbs of Osborne Park, Balcatta, Malaga, Wangara, Landsdale and Neerabup. The sub-region is home to a substantial concentration of light industry that services largely population-driven requirements. Major transaction activities in the North are the second strongest of the sub-regions in H1, with 154 transactions totalling $150.1million. This was down from 184 transactions in H but stronger than the same period in 2012 / 2013, where 135 transactions were completed. Again, most transactions were smaller assets below $3 million with just seven major (+$3m) transactions settled at the time of report release. Rents for large prime warehouses remain stable at a similar rate to the South sub-region, generally between $95/m² and $120/m². Again, an increase in available space and competition from other regions is putting pressure on landlords to either increase incentives or lower rents to quickly lease space however, the impact on rents has been moderate to date. Capital values for larger prime assets have been generally stable and currently range between $1,250/m² and $1,650/m², with yields between 7.5% and 8.5%. Vacant land values in the core industrial areas range broadly between $420/m² and $550/m². The volume of vacant land transactions was Perth s second highest (19 transactions in H1 to date), behind the South region with 33 transactions. Woolworths Distribution Centre, 2 Horrie Miller Drive, Perth Valued on behalf of Growthpoint Properties Australia Industrial Research & Forecast Report First Half 29

30 Perth East PERTH INDUSTRIAL YIELDS 10.0% Tightly-held market keeps lid on major transactions The Perth East sub-region includes the suburbs of Bassendean, Maddington, Cannington, Welshpool/Kewdale, Belmont, Hazelmere, Bayswater and Midland. The East sub-region is the focal point for much of the metropolitan area s transport and logistics sector, as well as housing a substantial fabrication and engineering sector. Average Yield (%) 9.0% 8.0% 7.0% 6.0% 5.0% H H H H H H H H H H H H1 Perth s East industrial sub-region recorded the lowest volume of transactions in so far in H1, with 120 settled sales totalling $154.9m. However, it was the region with the highest volume of major ($3m+) transactions with ten settled sales in H1 at the time of report release. Large prime warehouse rents here have also been stable, but they too are starting to experience downward pressure as more space became available for lease from halfway through H Achievable rents range between $95/m² and $125/m² for newer, well-positioned assets with higher incentives being offered to execute leases. Prime Grade - Yields Secondary Grade - Yields PERTH AVERAGE INDUSTRIAL LAND VALUES (2,000m² - 4,000m² LOTS) Average Land Value ($/m²) $750 $650 $550 $450 $350 $250 $150 Capital values for these same assets have been stable and currently range between $1,200/m² and $1,650/m², with yields between 7.5% and 8.5%. Vacant land transactions have been low, with just five transactions in to date compared to the other two regions. There remains minimal land available for subdivisions in the East, which traditionally contributes to its comparatively lower volume hence prices here generally tend to perform better than other regions. Vacant land values in the September quarter of 2013 ranged from $420/m² - $600/m². $50 H H H H PERTH AVERAGE INDUSTRIAL RENTS $120 $110 $100 $90 $80 $70 $60 $50 H H H H H H H H H H H H1 H Core H H H Fringe H H H H1 Average Warehouse Rent ($/m²) Prime Grade - Average Net Face Rent Secondary Grade - Average Net Face Rent Glassford Road, Kewdale Sold on behalf of Jeffs Mining Equipment How else can we help you? Speak to one of our property experts today. [email protected] For further information about our research please contact: Michael Knight Manager Research and Urban Economics Tel [email protected] 30 A Colliers International publication

31 Research and Forecast report First Half Metro Office INDUSTRIAL ADELAIDE MARKET Largest industrial land deal announced One of the South Australia s largest parcels of undeveloped industrial land was sold at the beginning of. An option over the 400ha site at Gillman which is currently owned by the State government was sold to Adelaide Capital partners for $100 million. This site requires significant remediation works before further development can occur on the site, but once remediated this will provide a pipeline of industrial development land in the Inner North region for up to 20 years. The announcement of the Holden plants closure has come as a blow to certain parts of to the South Australian industrial market. Holden and suppliers to the Holden plant account for a significant amount of employment, economic activity and occupiers in the Adelaide Outer North industrial market. Although this is likely to have a significant impact on the Outer North, other significant industrial markets in the West, Inner North and South are unlikely to see significant falls in occupancy. Also the full effects of this closure are likely to be staggered as the plant will not cease production until This allows for some time for the South Australian economy to readjust and absorb some of the workforce left from the Holden closure. Increases in vacancy in the Outer North are likely to be most acute from 2017 onwards. Demand for industrial space appears to have improved over the last six months with the level of enquiry and size of requirements improving over this time. Logistics and transport have been the key tenant type which has driven demand over the last 12 months. This is a trend which is reflected across other industrial markets nationally and is supported in part to the significant increases in online retail. This is positive for the South Australian industrial market with this sector likely to remain a driver of demand over the medium term. Tenants looking for prime quality industrial space over 5,000m² have very limited choices in the Adelaide industrial market. This is a result of the lack of new industrial supply which has been delivered to the Adelaide market over the last five years. There are limited listings of this size and quality with shortages of supply mostly in the Inner North sub region. As a result we have seen vacancy tighten in the Adelaide industrial market with a vacancy rate of 4.2%, compared to 4.4% in the second half of There are several large requirements currently in the market, and with the limited choices available, it is likely that these tenants will need to consider pre-committing to a new building. This demand is likely to result in an increase in construction activity in the Adelaide industrial market over the next 12 to 18 months. Overall rentals have eased slightly over the last 12 months with a rental range of $78/m² in the Outer South to $143/m² in the Inner West. Incentives across the market have remained stable with prime incentives currently quoted between 10-15%. The outlook for the Adelaide industrial market will be challenging in the Outer North and possibly Inner North in the medium term. This is due to the structural change from the automotive industry to another use, which will take time. For the other industrial regions the outlook is more positive, with demand and enquiry likely to pick up and the lack of A grade space is likely to drive more new construction to meet demand over the next 12 months to two years. COLLIERS INTERNATIONAL RESEARCH FORECASTS ADELAIDE PRIME GRADE INDUSTRIAL MARKET INDICATORS REGION AVERAGE NET FACE ($/m² pa) H1 H2 AVERAGE YIELD H1 H2 AVERAGE LAND VALUES ($/m²) H1 Outer North $ % $80 Inner North $ % $203 Inner West $ % $425 Inner South $ % $410 Outer South $ % $100 H2 Note: Figures represent market averages as at end of Mar-. For more details see the Data Tables Industrial Research & Forecast Report First Half 31

32 Inner North / Outer North Holdens announce Elizabeth plant to close The announcement in December that Holden will cease production in Adelaide from 2017 has come as a blow to the Outer North industrial market. Holden is the single largest occupier in the Outer North region and the decommissioning of the plan will see this market shrink by 24%. There are also several large component manufacturers that supply the automotive industry located in the Inner and Outer North. Colliers International estimate that these suppliers occupy around 310,000m². The total occupied space relating to the automotive industry is just short of 600,000m² which is around 8.0% of the total space (over 5,000m²) in the Adelaide market. It is difficult to estimate the full impact of the closure of Holden on the industrial property market, as some of the businesses that currently supply Holden could diversify and continue to occupy their current building. However it is likely that some of the current automotive suppliers will either close down or move to alternative accommodation. Vacancy in the Outer North and possibly in the Inner North markets is therefore likely to increase during 2017 and Construction activity remains strong Construction activity during 2013 improved significantly with around 154,000m² of new supply added to the Adelaide industrial market. The largest project to complete in the year was the Liebherr Australia (32,000m²), facility which completed late last year. There is a further 21,000m² of space under construction and a further 88,800m² of supply which is due to complete during. New supply of industrial space to the Adelaide market has been below average over the last five years with the exception of last year. This lack of new supply has resulted in a shortage of prime grade contiguous space available to lease. Aldi and Costco are coming to Adelaide Aldi has committed to purchase a site in Regency Park for their distribution centre to service the planned network of stores in South Australia. The distribution centre on Naweena Road, Regency Park is planned as a 30,000m² centre which is due to complete in Current plans are to open between stores in the South Australian market over the longer term. Costco have started construction on their 14,000 sqm purpose built facility at Kilburn which is due to complete in This is part of a significant expansion for the US retailer with five stores nationally due to complete in the next 18 months. Sales volumes remain above average A total of $88.12 million of industrial property transacted during Although this is above the five year average, the value of transactions is 42% below the transactions seen in The Outer and Inner North accounted for over 85% of these transactions. The largest sale in the year was the new Rand facility which sold in August for $32.3 million. This brand new facility 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 Institutional investors have been largely absent from the market during 2008 to 2011, but since 2012 we have seen Charter Hall, 360 Capital, Ascot Capital and Cromwell all purchase assets. Most of these assets are either prime quality assets with long WALEs or have some significant development upside. Adelaide West Vacancy jumps in the inner West Despite a tightening of the vacancy rate in the Adelaide industrial market, the West saw vacancy jump from a very tight 0.9% in September 2013 to 3.1% in March. This was due to three additional properties being offered for lease in the region over the last six months. The West remains a tightly held market, and properties offered for lease tend to lease quite quickly. This is due to the West being a desirable location for tenants due to the reasonably central location with easy access to the CBD and close proximity to transport corridors and the airport. Adelaide South Tonsley Deeds Road, North Plympton Sold on behalf of Metcash The new TAFE facility at the Tonsley site has opened with the campus now operational for the year. This move has resulted in three TAFE campuses located at Marleston, Panorama and O Halloran Hill all closing with all teaching facilities being consolidated to the Tonsley site. This new facility will service over 6,000 students and is a significant part of the training and high 32 A Colliers International publication

33 Metro Office INDUSTRIAL tech manufacturing hub being developed at Tonsley. Industrial land lots have been released to the market on the site which has been well received by the market. The announced commitments are Siemens, Basetec and Tier 5 with further announcements in the coming months. This site has been set aside as employment lands for the Southern area, with plans for further industrial development, with a particular focus on high tech manufacturing and training over the coming years. Infrastructure construction well underway The South Road super way is now complete with the North bound lanes opened in mid-march and the South bound lanes in January. This is one the largest road infrastructure projects undertaken in South Australia. The opening of the Superway will improve freight movement times along South Road between Regency Road and Grand Junction Road. This is also likely to reduce congestion on this part of South Road which is not elevated. The Southern Expressway duplication is well underway with a completion set for mid-. The completion of this project will see traffic move in both directions along the Southern ADELAIDE INDUSTRIAL AVERAGE PRIME AND SECONDARY YIELDS 30 Bedford Street, Port Adelaide Leased to Cube Pty Ltd Expressway which is a key commuter corridor from the southern suburbs. Both of these projects are part of the North South Corridor plan which aims to have a transport corridor with limited traffic stoppages from southern to northern Adelaide. This is to support the increase in use of this corridor in the longer term due to increase freight and commuter traffic due to new residential development. ADELAIDE INDUSTRIAL SALES - VALUE OF $5 MILLION + Average Yields (%) 11.0% 10.5% 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% $ Millions $180 $160 $140 $120 $100 $80 $60 $40 $20 6.0% Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 $ Prime Yield Secondary Yield Inner West Outer North Inner North ADELAIDE CONSTRUCTION ACTIVITY - BUILDINGS OVER 1,000 SQM ADELAIDE INDUSTRIAL VACANCY Total Market '000's square metres Outer North Inner North Inner West 50 South Complete DA Applied DA Approved On hold DA Approved Under Construction Total - H Total - H1 How else can we help you? Speak to one of our property experts today. [email protected] For further information about our research please contact: Kate Gray Associate Director Research Tel [email protected] Industrial Research & Forecast Report First Half 33

34 Research and Forecast report First Half NEW ZEALAND MARKET Industrial goes from strength to strength The achievements in 2013 that saw vacancy rates reach record lows, rent appreciation, firmer yields and higher volumes of investment activity are prominent features again in the early stages of. Hoisted to new heights, the industrial sector continues to flourish. Growth in the industry has shifted towards transport, distribution and construction, despite manufacturing remaining as the largest employment group in New Zealand. Adapting to the current environment has been easier for some regions than others. Auckland s growth in population, efficient distribution of products, storage of primary commodities, rising imports and exports and a residential construction boom has provided the perfect storm. Over the course of, we expect a surge in industrial development activity from north to south, to provide some relief for tenants looking for new and expansion space. Rents will increase further, placing pressure on yields to firm further, which are already at decade lows. Investors and owner-occupiers will continue to compete for quality property that is presented to the market for sale. While prospects are scare, pockets of opportunities still exist. At the other end of the north island, the lift in activity exhibited in the New Zealand economy provides a positive outlook for Wellington s industrial sector which has been pushed and pulled in diverging directions in recent times. Wellington investors are confident in the sector, remaining the most optimistic in the performance of industrial than any other commercial sector in Wellington. However, a high proportion of secondary stock and moderate tenant demand restricts the ability of landlords to push up rents, with limited net income rises exacerbated by the rise in operating expenses in a gross lease market. This is keeping the typically local purchaser base cautious in investing, selecting only the best premises. Christchurch is currently an industrial sector haven. The rebuild activity following the earthquakes continues to gather momentum, with all forms of industrial activity required. However, capacity constraints and rising construction costs from labour and materials are a continuing challenge for the region. Aggregated sales of industrial property in 2013 were just shy of the five year high achieved in Initial indications for sales activity is positive. National investment conditions is shaping up to be another busy year for the industrial sector with strong levels of industrial sales transactions already being recorded. Colliers International recently sold an industrial property at a yield of 5.5%, one of the lowest on record in the last 15 years. This activity follows a robust year of sales activity in 2013 with provisional results of settled sales of $2 million and over, just below the five year high exhibited in There were 186 such sales in the industrial sector, the second highest number recorded since the last cyclical peak in The aggregate value of national industrial properties sold for $2 million and over was just under $1 billion in 2013, slightly below $1.2 billion in In 2012, strong purchaser enquiry and activity resulted in average values breaking through the $5 million level for the first time and this was achieved again in The average value of industrial property sold remains high at around $5.2 million, which is a 27% rise on average values in The outlook for average values is expected to follow suit, pushing further towards breaking through the $6 million level. COLLIERS INTERNATIONAL RESEARCH FORECASTS NEW ZEALAND PRIME GRADE INDUSTRIAL MARKET INDICATORS REGION AVERAGE NET FACE ($/m² pa) H H1 H AVERAGE YIELD H1 AVERAGE LAND VALUES ($/m²) H Auckland $ % $350 Wellington $ % $325 Christchurch $ % $253 Note: Figures represent market averages as at end of Q For more details see the Data Tables H1 34 A Colliers International publication

35 Metro Office INDUSTRIAL Industrial showed double digit total returns of 10.8% for its owners in 4Q 2013, which was a slight dip in total returns achieved in the previous quarter, according to PCNZ/IPD data. This is a recurring trend in the industrial sector which pulls out of economic recovery the fastest and stabilises more quickly than other sectors. Analysis over a longer 10-year time frame shows some of the highest total returns available in the commercial sector with an average 11.7%, followed by the retail sector with 11.5% and office at 10.1% per annum. NEW ZEALAND - INDUSTRIAL PROPERTY SALES - OVER $2 MILLION Volume of Sales $(millions) Sales - First Half , CoreLogic Sales - Second Half Number of Sales Number of Sales Auckland update Leasing needs are moving with industry changes The shift in focus towards construction and especially transport, storage and distribution is shaping the pattern of leasing enquiry for industrial premises. The move towards more efficient and timely distribution together with better storage efficiencies is leading to the development of new, large span warehousing, which is leaving behind older large footprint space. However, overall vacancy at a record low 3.4% signals keen interest in all types of premises in the current environment. More development activity is forecast in and 2015, following around 140,000m² of new builds in One of the latest announcements is from Auckland Airport at The Landing in South Auckland. The development comprises 12,500m² of custom built premises for Hellman Worldwide Logistics with delivery expected in 3Q While land availability remains a key component of development capability in Auckland, something which the Airport and Goodman Property Trust still has plenty of, the costs of delivery is a hurdle that keeps on rising for all developers. Highbrook Business Park, East Tamaki Leased, valued and project managed by Colliers International. Industrial Research & Forecast Report First Half 35

36 INDUSTRIAL YIELDS VS HEAVY TRAFFIC VOLUMES According to Statistics New Zealand, construction costs for warehouses and factories are up 3.2% in 2013 compared to 0.7% for the 12 months to Higher costs for labour and raw materials are the major driver of construction cost rises, which show no signs of abating, according to New Zealand Institute of Economic Research (NZIER) forecasts. Rents appreciate as demand intensifies Rental appreciation in the industrial sector is highly comparable with economic activity and in turn the growth rates of industrial businesses. New Zealand s lower economic growth profile in the recent past reflected the trend in businesses and rents. However, the 3% to 4% growth in GDP forecast over provides the backdrop for better business performance and rental appreciation not experienced since the early 2000s. We are already seeing signs of this, with rents on track for a 3% rise over. Driven by record low vacancy rates, occupier options have reduced and landlords ability to command higher rents has grown. NEW ZEALAND GDP GROWTH VERSUS INDUSTRIAL RENTS GDP Growth (Annual Percentage Change) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% NZ GDP Growth (apc) Research, Infometrics Note Combined is 80% indsutrial, 20% office ratio Buy it, if you can find it Auckland Industrial Combined Net Face Rents (qpc) Forecast The scarcity of prime quality industrial premises brought to market is leading to competitive purchasing and firm yields. Prime industrial yields are already at record lows, firming by around 360 basis points over the last two decades. Prime average yields have been steady over the last year sitting at average 7.38% in Auckland City, 7.54% in Manukau and 7.25% in the North Shore. The ANZ Truckometer which measures heavy traffic volume flows has proven to be a good proxy of economic conditions and tracks comparably with prime Auckland investment yields. The correlation between these indicators is further evidence of the industrial sector s convergence towards distribution and storage requirements. Forecasts for the ANZ truckometer indicate a peak in quarterly data, but further positive momentum in annual data. This is likely to feature in prime investment yields across Auckland with stability followed by further yield compression, forecast to be moderate over in comparison to recent years. 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% Combined Net Face Rent (Quarterly Percentage Change) 10.00% 9.50% 9.00% 8.50% 8.00% 7.50% 7.00% 6.50% 6.00% 5.50% Dec-02 Jun-03 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-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Auckland City Prime Industrial Yield, ANZ ANZ heavy traffic index (inverted) Wellington update Wellington outlook lifts on positive national results The lift in activity exhibited in the New Zealand economy provides an improving outlook for Wellington s industrial sector. A high proportion of secondary stock and moderate tenant demand restricts the rate of buoyancy in the market, however more demand is evident with higher enquiry levels leading to reducing vacancy. We have updated and expanded our Wellington industrial survey coverage to incorporate a further 720,000m² of space in Porirua and Upper Hutt. We now monitor around 2.35 million m² of industrial space, the most comprehensive coverage available. The overall vacancy rate is at 7%. Comparing the results on a like for like basis, over the past year, vacancy in all precincts monitored has reduced, with the exception of Naenae/Wingate which increased marginally to 5.4% from 5.3% last year. Secondary stock accounts for 182,000m² of space, or just over 90% of all space. This restricts the ability of landlords to push up rents, with limited net income rises exacerbated by the rise in operating expenses in a gross lease market. Over the next year as demand grows, landlords are likely to try and recoup some of the losses to the bottom line over the last few years. Given the high vacancy rates and smaller market size, design build activity is rare. There has been some interest by owner occupiers in buying older or dilapidated properties and redeveloping them for their own occupation, in preference to buying vacant land. Wellington investors like industrial, but still cautious Since late 2008 Wellington investors have been more optimistic in the performance of the industrial sector than any other commercial sector in Wellington. This is a reflection of the higher transparency in a building s seismic strength in comparison to other sectors, along with confidence in future occupier demand. 36 A Colliers International publication

37 Metro Office INDUSTRIAL The purchaser profile of Wellington industrial stock remains dominated by local investors and owner-occupiers who both remain cautious and conscious of market conditions. The basket of industrial buildings being pursued is small in the Wellington region with an aggregate $51 million of industrial property sold in 2013 that was $2 million and over, compared to $64 million in While there has been a decrease in the total value of property sold, investors are competing for similar stock. This has led to a slight firming in yields. Average prime industrial yields are at 8.25%, down around 50 basis points. Average secondary yields are now 9.75%, after firming by around 30 basis points. Given the outlook, we forecast another year of yield compression, comparable to The slight firming in yields and stability to moderate growth in rents expected over the next year will lead to a rise in capital values, which have underperformed since Christchurch update Christchurch is an industrial sector haven The rebuild activity following the Canterbury earthquakes has gathered momentum. In, NZIER forecast Christchurch to provide approximately 1% of the 3% in economic growth forecast in New Zealand in. Many businesses have adapted to the new environment three years on from the last major quake, with a high proportion of the activity centred on industrial related products and services. The rise in demand and a hangover from the encroachment on industrial space following the CBD redzone cordon has led to an overall vacancy rate sub-5%, equating to around 100,000m². In Christchurch, however, it is near impossible to secure prime space, with approximately 1% of vacant space, only around 1,000m² considered to be prime. Industrial premises are being built, a few with uncommitted space available, which will alleviate some of the pressure on occupiers to find suitable space. Design build activity is also prominent. Capacity constraints and rising construction costs remains a challenge for developers. Rents jumped in 2012 by over 10% and a further 6% rise was recorded in 2013 which assisted in meeting some of the cost escalations from building regulations, labour and materials. The cumulative growth in construction costs, however, is forecast to be over 4% per annum for the next few years, likely higher than rental growth. Current forecasts suggest cost rises will peak near 5% and begin to reduce in 2015, with rents around 3% p.a. Strong industrial sales activity continues The five-year high in investment activity in 2012 continued in 2013 and looks set to record a similar result in. There were 31 industrial sales in 2013 that were $2 million and over, the same number in The aggregated value was slightly lower at $165 million in 2013 compared to around $169 million in Sale activity in the first few months of is buoyant and will likely lead to another strong year of sales aggregating $150 million plus, as more momentum in the rebuild is achieved. Glassworks Spec Units Hornby, Christchurch Leased on behalf of Goodman How else can we help you? Speak to one of our property experts today. [email protected] For further information about our research please contact: Chris Dibble Auckland Research Manager Research and Consultancy Tel [email protected] Industrial Research & Forecast Report First Half 37

38 Our experience INDUSTRIAL leased Redbank Motorway Estate Brisbane, QLD 31,420m² To DB Schenker Australia Pty Ltd 1 Bellevue Circuit Greystanes, NSW 17,815m² To Blackwoods Highbrook Business Park East Tamaki, Auckland, NZ 18,000m² To Metroglass Design Build sold Linfox Portfolio, Lenore Lane Erskine Park, NSW $104.7 million On behalf of Linfox Australia Pty Ltd Primewest East West Portfolio VIC & WA $81.2 million On behalf of Primewest 60 Wallgrove Road Eastern Creek, NSW $55.05 million On behalf of Afteron Ltd managed Beauchamp Road Banksmeadow, NSW 6,636m² On behalf of Tipalea Partners Pty Ltd 122 Donaldson Road Rocklea, QLD 11,064m² On behalf of The Bird Family Unitech Auckland, NZ 8,098m² On behalf of Unitech Property Trust valued Port of Brisbane Lytton, QLD 18,383,420m² On behalf of Caisse de depot et placement du Quebec project managed Nicker Miles Holdings 35 Bryant Street Padstow 38,000m² Project managed Woolworths Distribution Centre 2 Horrie Miller Drive Perth, WA 82,548m² On behalf of Growthpoint Properties Australia Ricoh Australia Distribution Centre, Eastern Creek 12,500m² Designed and project managed Moorebank Business Park Cnr Moorebank Avenue & Anzac Road Moorebank, NSW 81,666m² On behalf of Goodman Funds Management as responsible entity for Goodman Sub-Trust Australia Heathley Limited Acacia Ridge 10,750m² Project managed Accelerating success. How else can we help you? Speak to one of our property experts today. [email protected]

39 AUSTRALIA AND NEW ZEALAND IN THE LAST 18 MONTHS more than 700 transactions covering 1.7 million square metres 30 Bedford Street Port Adelaide, SA 10,625m² To Cube Pty Ltd 2-30 Saintly Drive Truganina, VIC 10,607m² To Encore Tissue 16 Hodgson Way Kewdale, WA 2,300 m² To Thermacon Insulation $2.2 billion of industrial assets 441 Nudgee Road Hendra, QLD $27.3 million On behalf of Property Solutions Group Deeds Road North Plympton, SA $12.72 million On behalf of Metcash Glassford Road Kewdale, WA $4.5 million On behalf of Jeffs Mining Equipment more than 1.8 million square metres 2-6 George Young Street Regents Park, NSW 7,827m² On behalf of Caleven Pty Limited 109 Bannister Road Canning Vale, WA 5,300m² On behalf of S & L Nominees Pty Ltd 21 Paramount Boulevard Derrimut, VIC 2,500m² On behalf of Allenah Pty Ltd over $8.6 billion worth of industrial space & Eastern Parade and & Martin Avenue Gillman, SA 36,026m² On behalf of Commonwealth Bank of Australia for De Bruin Group Citilink, Ingles Street Port Melbourne, VIC 23,196m² On behalf of DEXUS Property Group Warringah Corporate Centre, Rodborough Road Frenchs Forest, NSW 19,952m² On behalf of Blackstone Real Estate Advisors L.P for Australiagen Office Portfolio Hold TC Pty Ltd projects delivered by our award winning team Lincoln Electric Sydney 8,750m² Project managed Big Chill Highbrook Business Park East Tamaki, Auckland, NZ 5,000m² Project managed Alemlube Sydney 3,000m² Project managed For more information about Colliers International and working with us, visit;

40 How else can we help you? We offer a full range of property solutions... Agency Sales & Leasing Landlord Representation Tenant Representation Capital Markets Consultancy Corporate Solutions Design Development Facilities Management Financial Management Investment Services Insolvency Property Services Lease Administration Portfolio Management Portfolio Marketing Project Leasing Project Management Project Marketing Property Management Research Technology Solutions Transaction Management Valuation Workplace Strategy Across every property type... Office Industrial Retail Residential Rural & Agribusiness Hotels Healthcare & Retirement Everywhere 370 offices worldwide throughout 62 countries 46 offices throughout Australia and New Zealand Speak to one of our property experts today. Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections. Colliers International will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely upon that is contained in the material. Colliers International Accelerating success.