Private land owners cash in on industrial demand

Long-term owners of land in Australia’s metropolitan fringe locations are selling to capitalise on rocketing industrial land values and the huge volume of demand from institutional investors.

March 15, 2019

Record pricing for industrial-zoned sites, including land that has not been prepared for development, has seen private land owners reap the benefits of significant price increases.

The deals come as research shows institutional investors represented almost half of all industrial sales of over A$10 million in Australia in 2018.

The average price of industrial land has doubled over the past two years to A$120 per square metre in Melbourne and A$600 per sq metre in Sydney.

The diminishing availability of industrial assets for sale, coupled with institutional investors’ increasing mandates for industrial property as part of a diversified real estate portfolio is driving the hunt for land, says Peter Blade, Head of Industrial in Western Sydney, JLL.

“There’s a lot of money seeking prime industrial tracts of land and it’s very tightly held. If anyone is selling at all they are selling at unbelievable prices.

“Investors are not making traditional development profits out of these deals. They are developing to increase the size of their funds under management,” Blade says.

A 55-hectare parcel of land in Truganina in Melbourne that couldn’t attract an offer of over A$30 per square metre three years ago was recently sold by offshore private owner, the Malaysian Ha family to Charter Hall for A$95 per square metre.

Due to historically high land values some institutional investors are selling parcels of their acquired land as part of land and building packages and reinvesting profits into infrastructure on their remaining holdings, says Matthew Ellis, head of Industrial in Victoria for JLL.

“Investors are taking advantage of this turnkey strategy to crystallise profits. They can sell their assets, take the cash and spend it on the roads, sewage systems and water infrastructure that is needed to service the balance of their land.”

Vaughans Construction sold a land and building package in Truganina, Melbourne to Frasers Property for A$37 million in August last year. The site will encompass 49,810 square metres with two office and warehouse buildings totalling 30,885 square metres, to be completed in July.

In another deal Vaughans Construction sold eight hectares of land and two warehouses within the Biodiversity Industrial Estate in Epping, Melbourne to Mirvac. Terms are now being finalised with a tenant to occupy 10,000 square metres.

Increasingly, offshore groups are forming joint venture partnerships with local developers so they can match their equity with local expertise.