He said capital values could return to where they were 12 months ago, depending on when properties were last appraised, but rent growth would be stronger.
“We continue to be active buyers for the primary reason that we believe in the rental growth story. We have seen rental growth across our portfolio and our new developments are all outperforming,” said he declared.
The five properties, which are spread across Melbourne’s main industrial areas, were acquired for the $1 billion, institution-backed ESR Australia II logistics platform with a weighted average capitalization rate of 4.46 % and a WALE of 5.7 years.
They include sites adjoining 102-130 Turner Street in Port Melbourne acquired for $28.1 million; a 1.54 hectare property at 9-13 Annick Crescent in Truganina purchased for $16.2 million; a 2.29 ha property at 147-153 Canterbury Road in Kilsyth ($22.2 million); a 1.95 ha property at 321-327 Greens Road in Keysborough ($25 million); and a 1.1 ha property at 4 Healey Road in Dandenong South ($15 million).
The Port Melbourne properties cover nearly one hectare of land in Fishermans Bend and are ESR’s closest assets to the CBD. The properties hold three warehouses leased to several tenants.
“Port Melbourne is going to undergo a major transformation over the next 10 years, and when a rare opportunity arose to acquire assets in the Fishermen’s Bend employment district, we seized the opportunity,” said Mr. Pearce.
The Dandenong South property has two years of holding income, providing ESR with the ability to re-let or redevelop when the tenant vacates, while the tenant of the Kilsyth property is B&D Australia, a subsidiary of the Dulux Group.
Mr Pearce said these two properties, plus Keysborough, were part of EALP II’s strategy to acquire sites in Melbourne’s landbound southeast.
Along with the shorter leases, Mr. Pearce said the rent reviews were structured to capture inflationary annual rent increases, predicted by CBRE and JLL to be in the double digits over the next three years.
“In the current interest rate environment, you can’t sit on a 10-year lease in Sydney that’s worth a 3.5% cap rate,” Mr Pearce said.
But he pointed out that unlike other asset classes, industrial or logistics real estate was seeing rental growth, which meant it was “well positioned to weather the storm”.
“Historically, landlords have been happy with annual rent growth of 3%, but in places like Western Sydney there has been 20% growth in the last six months.”