Q2 2024 Outlook

The Australian Industrial and Logistics sector has demonstrated strong relative performance over recent years, and in doing so has become the second largest commercial property sector, behind office, with the sector currently valued at approximately A$300 billion. The sector is forecast to continue to outperform as supply / demand fundamentals remain favourable.

“Low vacancy, strong macro demand drivers, supply constraints and increasing economic rents are expected to continue to support rental growth. However, we remain focused on identifying submarkets that have defensive and growth characteristics that we expect to outperform over the long-term” said Michael Noblet, Head of Funds and Institutional Capital at Aliro Group, an Australian property development, investment, and funds management group.

Strong demand drivers for industrial property are forecast to stem from population growth, e-commerce penetration, onshoring and investment into infrastructure at both the State and Federal Government levels. Supply remains constrained in key markets due to limited land availability and the inability to deliver supply quickly. Moreover, 2024 supply is already more than 50% pre-committed nationally. This dynamic is expected to hold vacancy rates in many markets below the equilibrium rate, creating an environment for positive rental growth.

Economic rents have risen over the past two years as a result of increased interest costs, softening in cap rates, and growth in construction costs. These conditions position the sector for continued above long-term average rental growth.

While the industrial sector will continue to benefit from these tailwinds, achieving outperformance may become more challenging given the potential softening in macroeconomic conditions and industrial supply in select outer markets. To continue delivering investment and development alpha, Aliro is currently focused on key sub-markets with strong underlying fundamentals, identifying high quality assets in these locations as well as leveraging its active development and asset management capabilities.

“For investors, Australia continues to screen well on a Global basis, with the Industrial sector remaining one of the most preferred sectors due to the strength of the underlying fundamentals. We are seeing genuine depth in demand from capital partners seeking to invest in Australian Industrial across the full spectrum of risk strategies – this appetite has continued to support liquidity and pricing,” Noblet added.

“Will Industrial continue to outperform through 2024? We remain positive on the sector due to strong fundamentals supporting further rental growth and along with stabilising cap rates we expect this will drive capital value growth. This provides an interesting re-entry point for investors looking to deploy capital alongside experienced Industrial/Logistics managers, such as Aliro, to take advantage of favourable market conditions while delivering alpha through repositioning and active asset management strategies.”

For more, contact info@aliro.com.au or follow Aliro Group’s LinkedIn page.