There are no guarantees in life or in property investment but there are 5 key things to consider when deciding who to trust with your money. If you’re thinking about investing in a property trust, you should analyse the following characteristics to help choose a property investment manager that you can rely on to make consistently good decisions. 

  1. Track record

While past performance is no guarantee of future success, a track record of putting investors’ interests first, behaving ethically, and sticking to a clearly-communicated investment process, is a good start. Of course, everyone is subject to market movements in the short-term, but a long-term show of good decision-making, clearly explained, is important.

Investors should look for a well-thought through, transparent and robust investment process, as well as a demonstrable history of consistently sticking to it. How properties are chosen and why, what they will add to an overall portfolio, and what plans there are to upgrade them now or in the future, are all factors that contribute to the ultimate return an investor can expect to receive.

Time spent in the market builds knowledge and experience that can’t be learnt any other way, and it’s also the only way to build strong relationships (the importance of which we cover in point 3).

Transparent dealings at every stage of the investment process are arguably more important now than ever, in a post-Royal Commission world. Some analysts are predicting a tightening of credit and access to funds in the wake of revelations of systemic problems in the past – but those with a track record and a strong balance sheet are likely to be less affected. And the ability to access funds at a reasonable rate is of course important because all costs impact final investment returns.

  1. Size matters

The size of a company’s balance sheet matters because it gives an indication of financial strength of the entity.

A strong balance sheet and conservative capital management are important because they provide comfort not only to investors, but to banks and other financiers. A financially secure company will typically find it easier to access credit and raise equity than one which is considered riskier – and funding costs will usually be more competitive. The cost of debt (and of raising equity) can make a difference to the end return an investor takes home, so getting the most competitive rates is important.

Size also matters in property investment because research and understanding of specific property markets will make good investment decisions more likely. Time on the ground talking to tenants, agents, and other players is crucial when it comes to identifying and securing quality properties for the right price – sometimes off-market.

  1. Relationships matter

Relationships matter in property markets, arguably more than they do in some other investment classes. Investors choosing equities on the basis of quantitative models, for example, don’t need the same market relationships that other investment managers do – particularly property investment managers.

Property transactions can be competitive and complex. Property transactions typically involve a number of participants – vendors and buyers of course, but also commercial property agents and financiers – and long-term industry relationships increase the chances of a favourable deal. Relationships with agents, who play a pivotal role in recommending a buyer to the vendor, are key to success. If a commercial property is for sale via a competitive tender process, the recommendation of the managing agent can make the difference between winning or losing. The same can be said of off market transactions, which can allow for a better deal due to the reduced competition. Relationships are key to identifying potential opportunities, and to negotiating a deal off market.

Strong relationships with tenants can make a significant difference to the returns from a property. Trust between tenant and landlord takes time to build, and close relationships mean fewer surprises with respect to tenants’ intentions. Being the first to know when a tenant requires more space, is experiencing difficulty paying the rent, or is looking to re-locate, means being in a better position to negotiate the best possible deal.

An understanding of the importance of good tenants and good relationships with tenants is the reason that we at Centuria believe strongly in the importance of an in-house asset management team. Our internal asset management team coordinates all negotiations with tenants – which are mostly completed directly, or sometimes in conjunction with a third-party agency.

  1. Flexibility and responsiveness, not bureaucracy

Size matters, but flexibility matters as well, and finding the right balance can be a challenge.

The size and financial strength to compete for quality deals is key, but so is the flexibility to move quickly and negotiate in a matter of days not weeks. This is true in acquisition and sale processes, but it is equally true with tenants. Responding in a timely manner helps build relationships, but it also means securing deals quickly.

  1. Transparency at every stage

Investors have the right to know where their money is going and how it is being invested – down to the last dollar. Investment managers that do a good job of communicating their investment process, outlining reasons for individual investment decisions, and updating investors regularly are more likely to engender trust and loyalty in those investors.

Transparency is key – and there’s nothing like hearing updates from the horse’s mouth. We believe that investors should be able to talk directly to the fund manager – the person responsible for the ultimate decisions about every property transaction. We hold regular investors updates for this purpose, during which investors can ask questions directly of the fund and asset managers and have them answered openly.


Disclaimer

This article was issued by Centuria Property Funds Limited (ABN 11 086 553 639, AFSL 231149) and Centuria Property Funds No. 2 Limited (ABN 38 133 363 185, AFSL 340304), wholly-owned subsidiaries of Centuria Capital Group (ASX: CNI). The information in this article is general information only and does not take into account the financial circumstances, needs or objectives of any person. Centuria is the responsible entity of a number of listed and unlisted property funds, each of which are issued under a product disclosure statement (PDS) that is available on Centuria’s website centuria.com.au for all funds open for investment. An investment in any of Centuria’s property funds carries risks associated with an investment in direct property including the loss of income and capital invested. The risks relating to an investment are detailed in each Fund’s PDS and Centuria strongly recommends that the PDS be downloaded and read before any investment decision is made. Centuria receives fees from investments in its property funds. Past performance is not a reliable indicator of future performance.

The Australian economy performed well in 2018 – growth accelerated, unemployment fell and construction activity remained strong. It was a busy year for commercial property as well. Beginning with largest ever takeover in corporate Australia – the $33 billion sale of Westfield to global property giant Unibail-Rodamco – the year ended with a major office property transaction, when Canadian pension fund Oxford successfully outbid private equity giant Blackstone for control of the $3.4 billion Investa Office Fund. Office sales hit $16.6 billion in 2018, slightly lower than in 2017, but a solid performance nonetheless.

At the same time, headwinds in the form of volatile capital markets, falling prices in residential property and a slowdown in residential construction have the potential to impact the office sector looking forward.

Office property investors are understandably questioning whether 2019 will bring a continuation of the returns they saw in 2018 – and in our view, the answer is yes.

We believe there are no serious signs that office property is suffering, and we expect that 2019 will be characterised by the same themes that drove returns in 2018 – population growth in Sydney and Melbourne, investment in infrastructure, an improving mining sector, and strong demand from offshore buyers looking for a safe home and a positive yield differential between property and interest rates.

We expect office property markets to remain largely positive across the country and believe Sydney and Melbourne to again emerge as clear winners. Brisbane and Perth have been the weaker of the major CBD office markets over the past few years, but we expect both to continue to stabilise, consolidate, and improve. Canberra and Adelaide on the other hand are likely to remain a tale of two cities – with quality, well-located office property at a premium in terms of rents and value, and older, less attractive assets continuing to struggle.

Sydney and Melbourne office property continues to perform

Vacancy rates in Sydney and Melbourne office property are currently at historically low levels, and market consensus is that, like interest rates, they will remain lower for longer – at least over the next few years.

Sydney CBD office property vacancy was 4.1% in January 2019 – its lowest level in 11 years – and we expect that it will decline still further to a level closer to 3.6% during 2019. Population and job growth are the major drivers of demand and underpin the strength of office markets. We expect that both will remain strong, which means that the current tight supply conditions will most likely continue. The office market contracted by approximately 100,000 sqm in 2017 and 2018 and the outlook for 2019 is a further contraction of 25,000 sqm. Effective rents in Sydney were $657 per sqm at 31 December 2018, but we believe could end the financial year closer to $760 per sqm.

Despite the strength of the market as it stands, and the fact that yields are already trending down towards historical lows, we still believe that there is room for modest yield compression and rental growth. Leasing in office markets remains tight, and tenants are responding in a number of ways: by locking in extra space at current rents where possible, by using space more innovatively in order to reduce workspace ratios, as well as actively seeking properties which allow for greater flexibility in workspace layout.

Vacancy rates in Melbourne office property are slightly lower than those in Sydney – 3.2% at January 2019, and likely to stay around this level as strong demand combined with the current limited supply of new stock converge to keep vacancies low. We expect vacancy to continue its downward trend until the end of 2019, when the influx of 400,000 sqm of new space will impact vacancies, which we expect to rise to an estimated 6%.

Perth and Brisbane office property consolidates and improves

Slow and steady improvement is the overarching theme for both Perth and Brisbane office property, despite the fact that vacancy rates in Perth remain stubbornly high – 18.5% at the end of January 2019. Both cities returned to prime net effective rental growth in 2018 after five years of declines, and we expect this improvement to continue.

Employment in the mining sector is picking up, and we are starting to see demand for office space strengthen as well. There is evidence that tenants are taking their sub-lease space off the market, and CBD rents are expected to hold up at between $280 and $293 per sqm.

Acquisitions in Perth were also up during the 2017-18 financial year, and demand for quality office assets is strengthening as mining improves and buyers focus on the significant yield differentials between Perth and the stronger markets of Sydney and Melbourne. Foreign buyers have been particularly active in the Perth market – six of the eight properties purchased during the 2017-18 financial year were bought by foreign buyers. Demand from Chinese buyers has dropped off, but the gap has been filled by flows from both Hong Kong and Singapore.

Looking forward, there is some news on the supply side as well. Chevron announced in June 2018 that it will build a new 29-storey, 52,000 sqm Asia-Pacific headquarters in Perth. This new building will make up the vast majority of new office supply (estimated at just under 57,000 sqm in total) and will naturally translate into an increase in Premium grade office stock. This is a positive sign of an improving local economy overall, but is likely bad news for secondary assets, which are already struggling and may deteriorate further during the year.

In Brisbane, better-than-anticipated demand for Premium grade office space saw the second highest level of absorption of all office markets over the past 12 months – almost 47,000 sqm in the Brisbane CBD. Vacancy rates fell, albeit to a relatively high 13.0% (as at 31 January 2019). On the supply side, Brisbane differs significantly from Perth – to the extent that stock is being taken out of the market to the tune of 35,000 sqm in the year to July 2019. Ultimately, we expect that the improving outlook for resource markets generally will continue to push vacancies down during 2019.

Investment in Brisbane office property remained solid – $1.1 billion of office space changed hand, 80% of which was sold to offshore purchasers. In our view, sales activity is likely to continue – as an example, Mirvac recently announced that it will sell 50% of its 80 Ann Street property to British fund manager M&G Property’s Asian property fund for $418 million.

On the demand side, a robust infrastructure pipeline is expected to generate both jobs and business confidence – and Premium office space has already felt the benefits. Vacancies in Premium grade space were 9.5% as at 31 December 2018 whereas A grade vacancies were higher, at 11.7%. Rental levels have followed to a certain extent – with modest recovery in gross effective rents across most grades since 2015 – and we do expect this trend to continue in both Premium and A grade stock.

Metro office broadly positive

Metro office stock differs from market to market, which makes it difficult to talk about metro office property as a whole in detail – but it’s fair to say that we continue to be positive on metro office property generally.

Our view is backed up by Colliers, which states that metro office property markets will be key to long-term growth in Australian cities. Population growth in Australia is among the highest in the developed world, and as our CBD office markets are not large enough to accommodate growing numbers of workers – particularly given demand for residential property and hotels in the same space – metro office markets will need to fill the gap.

At the same time, metro office markets are the beneficiary of increasing rents in CBD office space and a lack of affordable space, which is driving tenants into more affordable markets – in particular those well-served by transport links, and/or located on the fringe of CBD areas.

Decentralisation also remains a primary theme for both government and large corporations – and this trend is only growing stronger as rents in CBD office markets rise and infrastructure, in the form of improved transport in some CBD markets, makes metro office property more appealing. Areas with good amenities and transport links have already benefitted. Properties like the Australian Technology Park in Eveleigh on the edge of the Sydney CBD, will soon house 10,000 Commonwealth Bank staff moving from Sydney Olympic Park, where transport and amenities are not as good.

On Sydney’s north shore, rental growth is evident in the fringe office markets. North Sydney had 6.8% vacancy as at the end of January 2019, Macquarie Park was 4.8% and St Leonards 6.1% – and we expect that these vacancy rates will continue to fall. St Leonards in particular should continue to strengthen, as the area around Royal North Shore Hospital becomes a health hub, and transport and amenities improve. There is no new office supply coming into the market in St Leonards over the next 12 months, and this will provide further support for vacancy rates – and rental levels with them.

In Melbourne, the city fringe, inner east, and outer east office vacancy rates are all below long-term average levels. The city fringe in particular has the second lowest office vacancy rate in the country, after Parramatta in NSW, at just below 3.5% – largely driven, as in Sydney, by tenants looking to move from outer suburban markets or to escape the higher office rents in the CBD.

Australia’s largest office-specific REIT continues to improve $1.4bn portfolio

Centuria Property Funds Limited (CPFL), as Responsible Entity of Centuria Metropolitan REIT (ASX: CMA), is pleased to announce CMA’s half year financial results for the period ended 31 December 2018.

1H19 highlights include:

  • Completion of strategic initiatives repositions CMA as Australia’s largest ASX-listed pure play office REIT
  • 12-month Return on Equity1 (ROE) of 10.9%
  • The acquisition of a $521 million portfolio of four office assets continued to raise CMA’s quality and took the portfolio to $1.4 billion2 (from $930.5 million at FY18)3.

Portfolio highlights:

  • Divestment of remaining industrial assets, at premium-to-book values
  • High occupancy maintained at 98.8%;2,4 100% occupancy through WA, SA, VIC and NSW properties
  • Settlement of new Target Headquarters at 2 Kendall Street, Williams Landing boosted the portfolio: 100% occupancy on a 10-year lease and an uplift of $6.0m since acquisition.

A transformative year

Centuria also appointed Grant Nichols as new fund manager of CMA. Mr Nichols, who is a highly experienced fund manager with over 15 years of experience in Australian office markets, said: “In the last year, CMA delivered 10.9% return on equity to unitholders, and is now Australia’s largest sector-specific listed office REIT with a high-quality $1.4 billion portfolio.

“Having made CMA a pure-play in office assets, Centuria has continued to improve the quality of the portfolio – its delivery on strategy is evident in its strong returns to unitholders5.”

In addition to strategic transactions, Centuria’s experienced in-house team continues to deliver high-quality asset management, with over 14,500 sqm6 of net lettable area (6.7% of the portfolio NLA) leased across sixteen transactions during the half – extending the WALE to 4.3 years2,7 and maintaining high occupancy of 98.8%.

Mr Nichols continued “It’s been a truly transformational period for CMA, executing a number of strategic initiatives to create a truly diversified sector-specific office portfolio underpinned by quality income streams. Tenant appetite to make the move from CBDs to better value, strategically located metro markets continues to grow. With a high-quality, fit-for purpose portfolio 89% weighted to the eastern seaboard and an average building age of 15.5 years, CMA is well positioned to capitalise on tenants seeking to expand or reposition across Australian metropolitan markets.”

On track for FY19

The fund returned a statutory profit of $14.7 million in 1H198 and funds from operations of $26.5 million. With a $26.0 million like-for-like revaluation gain in the last 6 months, CMA is well on track for a strong and steady second half, with nearly 60% of CMA’s income expiring at or beyond FY23.

Grant Nichols commented, “The underlying fundamentals for Australian office markets remain solid, with positive leasing activity and falling vacancy rates evident in most major office markets across the country. With pending supply relatively in-check, this should underpin future market rental growth and continued investment demand, which remains strong. As Australia’s largest pure play listed office REIT, CMA’s scalable portfolio is positioned to benefit from investor and tenant demand alike.”

CMA forecasts FY19 funds from operations9 of 18.7cpu and distributions of 17.6cpu.



1 Return on Equity is calculated as (closing NTA minus opening NTA plus distributions) divided by opening
NTA
2 Excludes 13 Ferndell Street, Granville, NSW (settled 31 January 2019)
3 Includes 2 Kendall Street, Williams Landing VIC as if complete
4 By area
5 Past performance is not a reliable indicator of future performance
6 Includes Heads of Agreement
7 By gross income

Strengthening industrial markets drive strong half-year results, says CIP

Centuria Property Funds No. 2 Limited (CPFL2), as Responsible Entity of Centuria Industrial REIT (ASX: CIP), is pleased to announce CIP’s half year financial results for the period ended 31 December 2018.

1H19 financial highlights include:

  • 1H19 Statutory profit of $46.1 million
  • Distributable earnings of $23.3 million
  • 12-month Return on Equity1 (ROE) of 15.8%
  • Balance sheet gearing2 reduced to 37.0%3.

Portfolio highlights:

  • Leases agreed for more than 65,900sqm, representing 8.2% of portfolio GLA
  • Occupancy increased to 97.1% with a WALE of 4.7 years4
  • Portfolio value increased to $1.2 billion
  • $168.6 million of transactions to improve portfolio quality.

On track and on strategy

Commenting on the results, CIP Fund Manager, Ross Lees said “The first half FY19 result continues the momentum created by our team to execute CIP’s strategy of delivering income and capital growth to investors from a portfolio of high quality Australian industrial assets. At the same time, we have successfully grown our pure-play portfolio of Australian industrial real estate.

“Industrial markets continue to strengthen, particularly on the east coast, where increasing land values coupled with improved demand – particularly from growth in e-commerce – is putting upward pressure on rents. Both local and global investors are actively seeking increased exposure to logistics assets, and this is keeping pressure on capitalisation rates.

“With occupancy at 97.1%, lease expiries in FY19 of less than 2% and balance sheet gearing at a manageable 37%, CIP’s portfolio is well positioned as we continue to execute our investment strategy and create value for our investors.”

Acquisitions contributed to increasing valuations

Mr Lees pointed to a number of acquisitions that had helped to expand CIP’s portfolio and tenant base:

“We have had a strong half year of acquisitions and divestments. Speaking to our track record as active portfolio managers, we acquired $112.3 million in high quality properties.5

“These acquisitions, located in established industrial precincts or close to key infrastructure amenity, presented opportunities to expand CIP’s portfolio with complimentary assets whilst introducing new national tenant customers within the portfolio.

“As a result of these acquisitions and selective divestments, CIP’s portfolio is now valued at $1.2 billion, enforcing its position as Australia’s largest ASX-listed income-focused industrial REIT.”

Growth trajectory and strong leasing activity in core market segments

Mr Lees said the REIT has continued to grow value for unitholders with NTA increasing by 3.9% and a 12 month Return on Equity of 15.8%. This has been achieved by continued leasing momentum from FY18 and continuing to identify attractive investment opportunities.

“Our active asset management approach has helped contribute to strong leasing results. We have now improved occupancy to 97.1%6 (94.5% at FY18), and have leases agreed for 65,902 sqm7. In addition, we have continued to improve the Victorian portfolio with 80% of leasing occurring in this sub-portfolio, improving CIP’s Victorian occupancy to 96.4%.”8

The portfolio remains well positioned with lease expiry for the remainder of FY19 now 1.5% of CIP’s total portfolio.

Mr Lees said that CIP’s portfolio had benefited from strong leasing activity, based on growing tenant demand for inner ring industrial space.

“Over the past two years, 74% of national leasing activity has occurred in areas between 5,000 to 20,000 sqm9, according to Jones Lang Lasalle. We are well positioned to benefit from increased activity in our core market segment, which has an average size of 19,484 sqm. these sub-20,000sqm assets are well suited to the rising market of e-commerce tenants who require smaller fulfillment centres closer to urban areas, with a high weighting (64%) to New South Wales and Victoria.”

Outlook for 2019

In conclusion, Mr Lees forecast that CIP would continue to benefit from increasing demand across the industrial and logistics sectors.

“Economic tailwinds provided by e-commerce, last mile logistics and manufacturing continue to drive underlying demand from tenants seeking to be located in infill locations or near core infrastructure facilities. CIP’s portfolio is well positioned to benefit from tailwinds within the industrial sector while our focus on active management, enhancing outcomes for our tenant customers and continuing to identify opportunities to create value for unitholders continue to align with the execution of strategic initiatives for the remainder of the year ahead.”



1 Return on Equity is calculated as closing NTA minus opening NTA plus distributions divided by opening NTA
2 Gearing is defined as total assets borrowings less cash divided by total assets minus cash and goodwill Pro-forma gearing 34.2% post-settlement of 13 Ferndell Street, Granville NSW (settled on 31 January 2019)
3 Gearing is as total borrowings less cash divided by total assets less cash and goodwill
4 By income. Assumes 12 month rental guarantee for Cargo Business Park, 1 International Drive, Westmeadows, VIC
5 Acquisition prices and initial yields before transaction costs
6 By income. Assumes 12-month rental guarantee for Cargo Business Park, 1 International Drive, Westmeadows, VIC
7 Includes heads of agreement (HOA)
8 By income. Assumes 12-month rental guarantee for Cargo Business Park, 1 International Drive, Westmeadows, VIC
9 Source: JLL research

Please be advised that Centuria is transitioning its registry service provider to Boardroom Pty Limited (BoardRoom) for all investments.

The transition follows a comprehensive review of our registry services and tender process. BoardRoom has a 30-year track record in safely managing share registries, offering an efficient, tailored and cost-effective solution, which can deliver an optimal experience for all unitholders.

With this change, Centuria will now offer the Centuria Investor – a centralised platform to easily access all the information related to all your Centuria investments in one place. More information on Centuria Investor can be seen over the page, your login details will be sent out to you in the near future.

To ensure a seamless experience for you, we have arranged the secure transfer of your relevant investment details to BoardRoom. You will be sent information regarding accessing the Centuria Investor website.

If you have questions regarding this transition or on your investment with Centuria, please call Centuria Investor Services on 1800 182 257.

Our new registry

BoardRoom is one of Australia’s leading securities registry providers that is committed to offering Centuria investors with an unrivalled user experience.

This is achieved by ensuring that you have centralised and easy access to all information related to your Centuria investments including:

  • Unlisted Property Funds
  • Listed Entities (CNI, CIP, CMA)
  • Investment Bonds (transitioning soon).

Key features

The Centuria Investor site provides you with 24/7 access to a wide range of self-service options to manage your holdings and personal information. Some of the key features include;

  • Portfolio View where you can link, consolidate and view all of your Centuria investments in a central location;
  • View and manage your personal information including contact details, banking information and tax file number;
  • Access online statements and advices;
  • Cast direct proxy votes online; and
  • See information about your holdings including balance history, reinvestment plans, linked holdings, dividends and other distributions.

Boardroom website interface

By Ross Lees, Fund Manager Centuria Industrial REIT

On the face of it, multi-storey warehouses seem to be the perfect solution to the challenges of an industrial sector both constrained by a shortage of land and driven to improve efficiency by a competitive market. And in Asia, this is exactly the response we are seeing: sixty percent of industrial warehouses in Singapore are multi-level, and numbers are rising quickly in China as well.

So, what about Australia – do multi-storey warehouses really stack up for our markets?

No sector of the economy has been untouched by technology – and industrial property is no exception. Advances in technology have changed the way we perform daily tasks, buy the things we need and inform ourselves – and the flow-on effects are being felt by all businesses, sometimes in ways we may not have predicted. For example, many businesses that relied in the past on widespread physical distribution networks as their competitive advantage, are now struggling to maintain margins and margin differentials across markets, as the internet offers price transparency and online shopping options previously unavailable to consumers.

Online shopping has changed the playing field fundamentally for retailers. And as consumers’ focus has shifted to delivery speed, there have been flow-on effects in the way goods are warehoused and shipped; logistics are managed; and to the kind of industrial property most in demand. Warehouses located close to consumers – or at the very least close to logistics and transport hubs with access to main roads – have become highly sought after. So it would make sense that in locations close to consumers, where industrial land is at a premium, multi-storey warehousing could offer a solution.

In Asia, land for development is at a premium

In Asia, for these and other reasons, multi-storey warehousing has been on the rise for some time.

Population density is higher than here at home and greenfield sites are almost non-existent. As a result, sophisticated urban planning is a necessity. Competition between residential and industrial developers is fierce, yet because residential development is a higher density use of land, it is incumbent on planners to find ways of allocating to industrial land without losing sight of the highest and best use of a scarce resource.

The solution to the conundrum in many areas has been to move to multi-storey warehousing – and to build transport links to match.

But in Australia, market conditions are different

In my view, here in Australia conditions are such that multi-storey warehousing is still a way away in the future, for a number of reasons:

  1. Urban planning has been done differently in Australia

Australian urban planners have typically sought to replicate city CBDs in other, secondary areas of cities, in a way that is not usual in Europe or Asia. In Sydney, areas such as North Sydney, Campbelltown and Liverpool have been developed and presented as CBD-alternatives, but specific spaces for industrial areas have not been set aside in a planned way.

  1. Transport and infrastructure is not world-class in Australia

Multi-storey warehouses can employ large numbers of workers, which can cause a problem if transport is not efficient. Urban planning is of a very high quality in Asia. Most workers catch public transport and as a result, industrial areas are well-serviced by public transport. In Australia, the situation is very different. Most workers in industrial areas drive to work – our cities are more spread out, and transport links are often inadequate or non-existent. More workers would require more car spaces and put more pressure on roads, many of which are already struggling to cope with our increasing population. If multi-storey warehouses were to be built in place of existing traditional warehouses, the volume of cars and trucks needing to get in and out of such areas would pose a serious challenge to the road network.

The NSW State Government is currently investing significantly in infrastructure, but the majority of this is not specifically designed to service industrial areas. In fact, the areas of Sydney that would most benefit from multi-storey warehousing – Chullora, Mascot and Silverwater for example – are already congested with traffic from local residents as well as existing industrial development. It’s difficult to envisage these areas coping with a massive influx of workers without a significant pre-investment into new transport infrastructure and this will not happen overnight.

  1. South-Sydney – a perfect candidate?

South Sydney has been touted by some as a suitable candidate for the first multi-storey warehouses in Australia for a number of reasons.

Firstly, South Sydney is unique in its proximity to the CBD, the airport and Port Botany. However, residential development has risen sharply over the past decades and a significant area of industrial land has already disappeared as a result, increasing demand for industrial sites and pushing up prices.

What’s left of the industrial areas has to work much harder and this is the basis on which multi-storey warehousing has been touted as an option.

At the same time, the Australian Government has created (and owns) the Moorebank Intermodal Company, which has been established to develop an intermodal terminal in Moorebank in Sydney’s south-west, with the aim of managing expected growth in freight moving through Sydney.

The project aims1 to create 6,800 jobs and to reduce congestion growth in south-western Sydney by using rail rather than trucks to move shipping containers, thereby reducing the number of trucks on the road. It’s unlikely, given the investment in this terminal, that further warehouses that rely on movement by truck will be developed in the near future.

In conclusion, Asia and Australia are very different markets when it comes to industrial property and its uses. There is a shortage of greenfield land for new industrial sites in Australia, but not to the same extent as Asia by any means. In addition, our population is located differently, in residential areas that are often located further away from industrial spaces than more densely populated cities. Public transport is also a problem in Australia. It has been developed to service residential areas, which means many workers in industrial areas drive to work.

Furthermore, from an ownership perspective, potential revenue from multi-storey warehouses is higher than that from a traditional warehouse, but in order to benefit from increased revenue there are a myriad of operational challenges which would require significant investment to address. Owners’ business models would need to change: currently, users of industrial space are charged on a per-square-metre basis, whereas multi-storey warehouses imply a through-put model, which charges according to the number of trucks or other vehicles moving through the warehouse. For this to be possible in Australia, road infrastructure around industrial areas would need to be much improved. If it isn’t, the sheer increase in congestion associated with moving many more vehicles through a small space would negate any benefits of the larger warehouse space.

The bottom line?

At this point in time, weighing up the pros and cons, it doesn’t look like multi-storey warehouses are the solution to space constraints in industrial markets in Australia. In fact, at present they seem to raise more challenges than they offer solutions.

So what does this mean for the industrial landscape in Australia now? My view is that there may well be a case for multi-storey warehousing in Sydney and in other major cities in time. And as AI, specifically robotics and automation, continues to change manufacturing and eliminate some jobs, friction points will also change – as will the challenges of warehouses. At present, however, it’s difficult to see multi-storey warehouses stacking up.

Therefore, until the landscape changes, warehouses in central locations, close to existing transport and logistics hubs, will continue to be in strong demand and offer a premium to users in Australia.

1. http://www.micl.com.au/

Newton Rd Wetherill Park NSW Aerial


Disclaimer
This article contains selected summary information and does not purport to be all-inclusive, comprehensive or to contain all of the information that may be relevant, or which a prospective investor may require in evaluations for a possible investment in Centuria Capital or its subsidiaries. It should be read in conjunction with periodic and continuous disclosure announcements which are available at centuria.com.au.
This media release is provided for general information purposes only. It should not be relied upon by the recipient in considering the merits of Centuria or the acquisition of securities in Centuria subsidiaries.
Centuria Property Funds Limited (ABN 11 086 553 639, AFSL 231149) and Centuria Property Funds No. 2 Limited (ABN 38 133 363 185, AFSL 340304), subsidiaries of the Centuria Capital Group, are Responsible Entities of Centuria’s listed and unlisted property funds. These funds are issued under a disclosure document that is available on Centuria’s website for all funds open for investment. An investment in any of Centuria’s property funds carries risks associated with an investment in direct property including the loss of income and capital invested.
Before making an investment decision, the recipient should consider its own financial situation, objectives and needs, and conduct its own independent investigation and assessment of the contents of this announcement, including obtaining investment, legal, tax, accounting and such other advice as necessary or appropriate.
This article may contain forward-looking statements, guidance, forecasts, estimates, prospects, projections or statements in relation to future matters (‘Forward Statements’). No independent third party has reviewed the reasonableness of any such statements or assumptions. No member of Centuria represents or warrants that such Forward Statements will be achieved or will prove to be correct or gives any warranty, express or implied, as to the accuracy, completeness, likelihood of achievement or reasonableness of any Forward Statement contained in this media release.

Centuria’s Head of Real Estate and Funds Management, Jason Huljich, shares his view on current key property themes and the outlook for commercial and industrial property.

What is your role at Centuria Capital?

My role at Centuria Capital is Head of Real Estate and Funds Management. So I mainly oversee the $4.6 billion dollars of assets we have in both our listed and our unlisted property funds, and I work closely with our transactions team to analyse and acquire assets, and with our distribution and funds management teams working with our investor clients.

What are some of the current key property themes?

Some of the key property themes we are seeing at the moment is continued strength in the commercial and industrial markets, particularly in Sydney and Melbourne.

Sydney is being driven by infrastructure throughout the state, so the WestConnex and the Metro Rail, and Melbourne is being driven by high population growth.

Brisbane and Perth are a little bit different. They have a strong tenant base dedicated to the mining industry. When the mining downturn occurred a few years ago we have seen demand come off, but in the last six to 12 months we’ve seen their vacancy rates decline and all of the big mining users actually take sub-lease space off the market as they gear up for improved conditions.

Canberra and Adelaide have high headline vacancy rates but when you break it down it is actually a lot more positive. The high-quality assets have very low vacancy but the more older assets, obsolete assets have high vacancy, so they distort the overall measure.

We are also seeing a lot of demand from investors in this space, looking for high quality commercial and industrial assets. We have all the onshore groups – so the REITS, the high net worths, the family offices and the wholesale funds. But then offshore, where the Chinese mainland were big buyers three, four, five years ago – they have dropped away and buyers from Hong Kong, Japan and Singapore have really taken up their space.

As we close out 2018 calendar year, what is your outlook for commercial and industrial property?

Our outlook for industrial and commercial property going forward is for another very strong year. All the major banks forecasters have interest rates staying low throughout the year which definitely helps the real estate sector.

Commercial leasing in Sydney and Melbourne has been extremely strong, probably the strongest I have seen it in 20 years, which bodes well for continued rental growth going forward.

The industrial sector has been a standout. There has been a lot of strength there. We’ve had huge demand by offshore and onshore investors.

A new group that’s come into that space is the private equity industry. Blackstone has been one of the largest buyers of industrial assets in the market for the last two or three years and this has driven down cap rates to historical lows in the industrial market. Overall, we expect a very strong 2019.

How are your funds performing?

The IPD PCA index rates all the unlisted funds in this sector, and we have had six out of the top 10 for the last six quarters and, in the last two quarters, we have had one to five as well. You don’t get much better performance on the unlisted side.

On the listed side we’ve got the two REITs.

CMA has had some really strong NTA growth and we’ve really been transforming that portfolio – so we have been selling off the two industrial assets we have got in the portfolio and also selling down some of the smaller assets.

Very recently we just bought the Hine’s portfolio which was a $520 million portfolio of very high quality office assets, and that has just transformed that portfolio into a very high quality office sector specific REIT. At the moment we are the largest metropolitan office REIT on the ASX and once Investor Office Funds gets taken off the boards, as it’s going through a buyout, we will be the largest office REIT on the index as well.

CIP, which is our industrial REIT, has had great share price growth. It’s returning about a 6.5% income yield and that’s 1.1 billion high quality industrial assets.

What is Centuria’s Investment philosophy?

Centuria’s main investment philosophy is that we are asset specific buyers.

If we identify an asset we think we can make money for our investors, then we are a buyer of that asset.

We also like buying assets that might have issues so that we can get a discount on the purchase price of that asset if there is something there we think we can fix. So something like vacancy, we really back ourselves to lease up vacancy in assets and its definitely one of Centuria’s key strengths.

One of the other things that diversifies us from others is we also like to manage our assets internally. Where a lot of our competitors would outsource the facilities management, property management and maybe the asset management, we have all that in-house and we believe we get better results from that.

Disclaimer

This video was issued on 3 December 2018 by Centuria Property Funds Limited (ABN 11 086 553 639, AFSL 231 149) and Centuria Property Funds Management No. 2 Limited (ABN 38 133 363 185, AFSL 340 304). The information is of a general nature only and has not been prepared taking into account your particular investment objectives, financial situation and needs. You should read the Product Disclosure Statement and assess whether any advice is appropriate before making any investment decision. You should also consider seeking the assistance of a professional investment adviser. Past performance is not a reliable indicator of future performance. The IPD/PCA Index is the Property Council/IPD Australia Unlisted Core Retail Property Fund Index. CA-CPFL-29/11/18-00886.

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