Waiting for the bounce-back

Tracey Cook takes a look at the industrial property market as part of the real estate series.

WESTERN Australia’s industrial property market is expected to re-emerge from a lean period on the back of the improving mining and resource sector, although the bounce-back may be some time coming.

Closely linked to WA’s economy, the industrial property market has declined over the past three years while the mining and resource sector was in the doldrums.

With the increased investment dollars being poured back into mining and resource exploration, the industrial property market is expected to improve.

However, the turnaround may be some way off with leasing demand for industrial property still continuing to be weak, according to a Colliers International report.

The shift of manufacturing offshore and the restructuring of the transport and logistics industry – which accounts for almost a third of all industrial sheds – has eaten into demand for industrial property.

Collier International industrial agency director Wayne Chorley said employment in transport and storage in WA had decreased by 10,400 full time and 2,500 part-time employees last year and was a major factor in the rise of industrial vacancy rates.

“Our survey of Kewdale/Welshpool showed there is over 160,000 square metres of vacant space in larger office warehouses in the area, and while there has been a high rate in older industrial property for some time, we are now also seeing vacancies in prime property increase,” Mr Chorley said.

Another damping influence on the industrial market is the greater prevalence of land in inner industrial areas on the market, due in part to several large Landcorp and private developments.

Despite the soft conditions in industrial leasing market, industrial properties continue to be bought and developed, rather than leased, according to the report.

Mr Chorley said investors who bought industrial property without a strong long-term lease may find that it could take a year or more to fill the space if the tenant moved out.

“Of course, the trade-off for this higher level of risk is that industrial yields are generally over 9 per cent, which are attractive to investors,” he said.

Real Estate Institute of WA public affairs director Lino Iacomella said that as the mining and resource sector picked up the demand for industrial property would improve.

“The industry is affected by the cyclical nature of the resource sector, which is based on volatile commodity prices,” he said.

Mr Iacomella said the market received a blow in the early ’90s when many national companies centralised their operations to the east coast, reducing their warehouse requirements in the WA.

“There has been a slight turnaround in this, primarily with companies wanting to gain a firm foothold in the local market and using the time advantage of having a company based locally,” he said.

Mr Iacomella said another driving factor in the market’s turnaround would be WA companies, which had grown into national and international organisations, choosing to base their operations in WA, particularly in the information technology and light manufacturing sectors.

Mr Iacomella said the long-term prospects for the sector were dependent on initiating more downstream operations, moving away from servicing and warehousing to the manufacturing and processing of commodities.