August 2014 – Perth Industrial Sub $5 Million Investment Review

14 October, 2014 / Vanessa Rader

According to Deloitte Access Economics, “the bigger they come, the harder they fall”. At the peak of WA’s boom in 2012, a third of all spending in economy was due to businesses investment in capacity expansion. A decline in this resource investment pipeline has translated to a weak short term growth outlook for the WA economy. With more of that slowdown now projected to fall into 2014-15 rather than 2013-14, the growth forecast for 2014-15 has now been revised down to 1.1%. The medium term forecasts for GSP (Gross State Product) growth however will remain above the Australian trend, rebounding quickly to growth of around 4% and retaining the mantle of Australia’s fastest growing State over the next decade.

Sales activity has picked up over the past two years in the sub $5 million price range; a growth in unit developments in all regions has resulted in an influx in activity for this price bracket. A combination of owner occupier activity and some investment demand has been driven by the current low interest rate environment resulting in the volume of transactions increasing in late 2011 to date particularly in areas benefitting from improved infrastructure.

Over the last financial year, close to $680 million has transacted in the sub $5 million price category, which is down 18.93% on the 2012/13 volume high of $838.2 million where 1,000 transactions were completed. Considering sales in the over $5 million price category during the 2013/14 period totalled close to $480 million in 35 transactions with those sales over $10 million only representing 13 and $317.9 million, a clear divergence in scale and size of the sub $5 million price category is abundantly clear.

In the South the strong supply of smaller industrial units have driven the greater smaller sales values, with transactions sub $500,000 accounting for 58.7% of number of transactions and the volume of these equate to over $40 million. The North also has a significant small unit, warehouse market which is again demonstrated in the high volume of transactions, with this regions activity over 80% in the sub $1 million category being 373 sales worth close to $180 million. While this price category also has strong depth in the East, the size of holdings in this location has resulted in a slightly higher volume of sales over $1 million.

This sub $5 million, or more so sub $3 million price category operates quite differently to the broader market, with differing owner/vendor and tenant/landlord expectations. A predominately private market, this sector is divided into two general broad categories—owner occupiers of SME (often purchased in SMSF) and smaller private investors (again often in SMSF). As a result owner occupiers will often pay a ‘premium’ to secure a suitable property to house their business. Investors are happy to purchase on a passing yield of +/- 7% which represents a sound investment in comparison to holding funds in a term deposit at a much lower return.

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