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Why invest in industrial real estate?

According to a recent report from JLL, the demand for Industrial property has increased off the back of growth in e-commerce, food logistics and infrastructure investments. The Australian economy has proven resilient and is well placed to benefit from strong GDP growth into 2021. This is expected to further benefit the industrial real estate sector.

Evidence of this can be seen in the prices for industrial space, which have risen this year, pushing down yields. JLL estimate that there is $45 billion of capital looking to be invested in the industrial real estate sector, with only $4.5 billion of transactions recorded over 20201. These favorable supply and demand dynamics has increased competition for well located, high quality assets and further driving down investment yields. Average investment yields on Prime Sydney assets were 4.35% as at Q1 2021 with Melbourne (4.5%) and Brisbane (4.75%) also seeing yield compression1.

Additionally, land in desirable, centralised locations for industrial real estate development is becoming scarce. This in turn puts pressure on supply chain efficiencies. Given that half of supply chain costs come from transport, and only 5% from occupancy costs, finding a location which will minimise those costs is key – this means a location with good access to suppliers and customers is key.

All these factors are expected to provide a continued strong tailwind to the industrial real estate sector.

1. Industrial & Logistics & Logistics Investment Review & Outlook 2021, JLL, March 2021

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