Knight Frank reports double digit returns on industrial investments in 2019

Australia’s industrial and office sectors are forecast to be the highest performing asset classes within commercial real estate, following the release of Knight Frank’s Australian Capital View 2019.

The potential for double-digit returns in 2019 have been announced by the agency.

According to Ben Burston, Knight Frank’s Partner, Head of Research & Consultancy Australia, the industrial sector is set to lead the way with total forecast returns of 13.4%, followed by offices at 11.4%.

“Despite slower economic growth in the second half of 2018, the outlook for commercial property remains robust, underpinned by sustained tenant demand.

“As the year progresses, we expect the market to undergo a transition from yield compression to rental growth as the primary driver of performance, and this shift will see the office and industrial sectors deliver another year of strong returns due to ongoing supply shortages.” Mr Burston said.

This backs up the commercial real estate firm’s announcement in November 2018 that the east coast would likely see a fresh wave of speculative development in 2019, due to a trend of falling industrial vacancy rates.

According to September quarter data compiled by Knight Frank, total vacant space for lease fell by 11.5% in Sydney, 8.2% in Melbourne (down to a five-year low) and by 3% in Brisbane.

Australian Capital View forecasts net face rental growth across the major CBD office markets over the next five years, with Sydney (23%) and Melbourne (20%) topping the list due to tight supply and sustained demand momentum.

“Among the office markets, we expect the fastest growth in Melbourne this year, but over a five-year view, Sydney’s very limited speculative development pipeline is expected to result in the fastest growth nationally,” said Mr Burston.

Knight Frank’s Robert Salerno, Partner and Head of Industrial Australia, has stated that prime grade industrial investment stock has never been more highly sought after, as the market continues to see the flow-on impact from the sustained strength of occupier demand and consequent rental growth.

“The flip-side of this is that accessing the market remains difficult, and investors accessing scale through portfolio acquisitions are prepared to pay a premium. We expect this will continue in 2019 with investors exploring a variety of creative approaches to increase their exposure to the sector.” Mr Salerno said.

The action isn’t however isolated to the NSW and VIC state capitals, with Brisbane and Perth expected to benefit from improving leasing market sentiment, according to Paul Roberts, Knight Frank’s Partner, Joint Head of Institutional Sales Australia.

“Investors seeking higher income returns will be attracted to these markets in greater numbers as the perception of risk subsides.”