Yields in sub-$5m Adelaide industrial market holding firm

4 April 2023

Demand for leased industrial investments in the sub-$5 million market in Adelaide remains strong in the current environment, with yields holding firm in for these assets despite some softening across the board.

Two properties in Regency Park in Adelaide’s inner north have recently sold in deals negotiated by David Ludlow and Marco Onorato of Knight Frank for yields in the four to five per cent range.

45 Birralee Road sold for $3 million in an off-market deal, while 14-16 Pambula Street sold for $2.6 million following a four-week Expressions of Interest campaign.

The 1,200sq m facility at 45 Birralee Road sits on a 2,400sq m site and was sold with a 5-year lease in place to Tradeware, which has occupied the property long term.

The 1,285sq m office warehouse at 14-16 Pambula Street sits on a 2,600sq m site and was sold with a 5-year lease in place to King Furniture, which has occupied the property since 2019.

Mr Ludlow said the on-market campaign for Pambula Street had generated significant investor interest, with over 50 enquiries and 12 offers, while the Birralee Street was sold in an off-market deal.

Of the off-market transaction, he said: “Knight Frank has relationships with a diverse group of investors who, through their unique or differing criteria, we are able to match the right capital to the right property without diluting pricing.

“Occupier demand in Adelaide’s industrial market remains strong but supply is not meeting pent-up demand, which has pushed up rental growth,” said Mr Ludlow.

“The disparity between high rental rates, which have grown significantly over the past 12 months, and lower land values in Adelaide in comparison to the eastern states has garnered attention, positioning South Australia as an attractive location for all types of investors.

“Despite the slowing market due to rising interest rates, elevated construction costs and supply chain difficulties, industrial assets remain a secure investment option, with historically low vacancy rates and projected rental growth.

“Some market participants have adopted a ‘wait and see’ approach and in line with this activity has slowed slightly, but plenty of investors, particularly in the lower price bracket, are active.”

Knight Frank’s latest industrial research, the Australian Industrial Review – Q4 2022 – found industrial land values in Adelaide had increased over 2022, with growth ranging from 18 per cent to 22 per cent between precincts.

It found average rental rates across all grades for prime and secondary assets in Q4 rose by 4.62 per cent to $113/square metre and 3.6 per cent to $86/square metre net respectively.

Furthermore, due to continued strong demand for industrial assets, the average incentive for prime stock in Q4 has remained stable at the 10-year low of seven per cent.

The report found in Q4 both blended prime and secondary yields softened from 5.8 per cent to 6.89 per cent to 5.97 per cent and 6.94 per cent respectively.

The total sales volume for industrial assets above $5 million in the 2022 calendar year was $596.37 million (including $30.64 million regionally). There were less sales by number in 2022 compared with the year prior, yet sales value growth showed an approximate 22.34 per cent increase.