ESR Australia Expands Exposure of EALP II in key Victorian locations

19 July 2022

ESR Australia is looking beyond short-term market slowdown prompted by rising interest rates, confidently expanding its Victorian footprint with the acquisition of five income-producing properties in Truganina, Kilsyth, Keysborough, Port Melbourne, and Dandenong

The combined outlay of A$106.5 million via its ESR Australia Logistics Platform II (EALP II) expands the Fund’s core plus strategy. It expands ESR Australia’s foothold in key logistics locations primed for rental growth.

The properties were acquired in quick succession, with a weighted average lease expiry (WALE) of 5.69 years and healthy yields reflective of the growing demand for Victorian industrial sites.

ESR Australia CEO, Phil Pearce, said the business has been experiencing robust leasing enquiry, particularly from customers in Melbourne seeking quality sites in prime locations.

“The Victorian industrial market is proving to be a source of great opportunity, and ESR Australia is delighted to be ramping up our presence and capitalise on these opportunities.

“Given the record high occupancy and record levels of demand being experienced across the major markets we expect rental to compensate for any expansion in cap rates following substantial compression over the past year.

“Port Melbourne is going to see a major transformation over the next ten years, and when a rare opportunity presented itself to acquire assets within the Fishermen’s Bend “Employment Precinct” we seized the opportunity.

“The acquisition of the sites in Dandenong South, Kilsyth and Keysborough play into EALP II’s core-plus strategy to acquire sites in Melbourne’s land constrained Southeast. These three income-producing sites will further establish ESR Australia’s presence on the ground, and with the sustained growth of demand, we anticipate healthy returns.

The Port Melbourne properties are the closest ESR Australia holds in proximity to Melbourne’s CBD and will see the amalgamation of 102-130 Turner Street, which currently has three warehouses on the site leased by multiple tenants.

The Dandenong South property at 4 Healey Road comprises a 1.8ha site with two years of holding income. The site provides the option to either re-lease or re-develop when the tenant vacates.

ESR Australia purchased the 22,850 sqm site at 147-153 Canterbury Road in Kilsyth for A$22.2 million, with over A$ 1 million invested in infrastructure upgrades to the site over the past five years. It is fully leased to B&D Australia, a subsidiary of the Dulux Group, who have been in occupation of the site for 50 years and has recently renewed their lease to 2027.

The 1.9ha site at 321-327 Greens Road, Keysborough, was built in 2021 and acquired for $25.0million off- market. The core 4-unit logistics estate is fully leased to embedded tenants on first-generation leases.