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Infrastructure projects are helping drive the Australian industry

Victoria’s engineering construction activity has broken records for being the highest state total on record, valued at a total $16.7 billion in the 12 months to September 2018 according new Australian Bureau of Statistics (ABS) data.

The Australian industrial market continues to see high demand from investors for access to Australia’s long-term demographic growth prospects.

According to the Colliers International Capital Markets Industrial Investment Review, population growth and infrastructure are the two key factors driving the Australian industrial market.

Major transport infrastructure projects worth $260 billion are either under construction or planned across 315 projects in Australia, up from $211 billion across 260 projects only three years ago.

Colliers’ report found that capital values in Sydney have grown by 18 per ent, and in 14 per cent in Melbourne, over the two-year period to December 2018. This capital value growth has been driven by yield compression, with only few sub-precincts – such as Sydney South and Melbourne City Fringe – experiencing any significant rental growth. Both of these markets have been impacted by a reduction in supply, as alternative uses are now providing better returns to land owners.

“While population growth rates will ebb and flow in a cyclical pattern, over the last 10 years there has been a clear upward shift in population growth in Australia,” said Colliers International Managing Director – Industrial, Malcom Tyson.

Over the year to June 2018, almost 230,000 migrants from offshore decided to call Australia home, with 39 per cent of these people moving to New South Wales and 37 per cent moving to Victoria, while Queensland continues to be the top state for interstate migrants. These three major Australian cities are expected to remain in the top 10 fastest growing major cities in the developed world.

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“It is no surprise then that these states continue to be the focus for investors in the industrial sector,” Tyson said.

“In total 42 per cent of total industrial sales volumes occurred in NSW, and 26 per cent in Victoria and 16 per cent in Queensland.

“While most of this population growth is concentrated in our three major capitals of Sydney, Melbourne and Brisbane, the logistics sector continues to expand nationwide to cater not only for these additional people, but also for the continued gradual shift of consumer preferences to online platforms,” he said.

Throughout 2018 there was a limited amount of industrial stock on the market relative to demand – a direct result of lower investment volumes, with sharp increases in land prices and the tightening of yields across all the major national industrial markets, according to Colliers.

“The last 12-months saw solid capital growth across the national industrial markets, with increases in market rents for both primary and secondary stock and increased investor confidence through broader expansionary economic conditions and continued infrastructure spending,” said Colliers International Head of Industrial, Valuation and Advisory Services, Simon Andreatta.

“The focus on the distribution and logistics sectors has also continued and are expected to remain key drivers across the national industrial markets for the foreseeable future.

“Furthermore, the current sentiment for large industrial land holdings is at a historic high, being driven by a shortage of land suitable for industrial development.

“Western and South-West Sydney are prime examples where strong demand from both institutional and private owners, has seen land values increase by up to 60 per cent over the past three years, with the appetite for prime land holdings anticipated to grow,” he said.