Melbourne industrial market to trough in 2009

Industrial property values have come under significant pressure in Melbourne, with prime yields having softened by almost 250 basis points in just 12 months.

However, prices and yields are forecast to stabilise this year before a period of gradual recovery, according to new forecasts from CB Richard Ellis. Further, Kevin Stanley said pricing had moved more aggressively in the industrial sector than any other area of the market.

Grade A yields has softened to around 9%, reducing Melbourne industrial prices to levels not seen in eight years. Mr Stanley said some further softening was expected this year, which could drive another 5% reduction in capital values.

“Still, we think 2009 will be the year when pricing stabilises and begins a period of gradual recovery,” Mr Stanley said. Graham Hemingway said the historically low cost of finance would help stabilise yields over the next 12 months.

Increased investor activity was also forecast, with a recent CBRE analysis of enquiries received over the past nine months having identified 76 potential buyers looking for assets of between $5 million and $100 million in value.

“The vast majority of these are private investors who shunned the hype and activity of the last four years, and are now poised to benefit from an adjusted market,” Mr Hemingway said.

“We are seeing the re-emergence of syndicators, small groups of private investors keen to fill the void left by the listed groups, and acquire assets with a value of more than $10 million. We think 2009 will be a watershed year with greater transactions, and purchaser confidence re-emerging.”

For these active investors, the most important consideration was the security of a property’s lease covenant. Investors were also seeking out properties with lease terms that would outlast the current downturn based in areas close to major infrastructure.

“Given that the majority of purchasers are private investors, they are also looking for additional benefits from depreciation, mainly gained from buildings less than three years old,” Mr Hemingway said.

There was also the potential for increased activity from tenants seeking to become owner occupiers.

Source: CBRE – CBRE Australia