RESEARCH

2

Research Analyst SA

Infrastructure—North to South Corridor

The North to South Corridor is starting to

come together with the majority of

projects completed. Current projects

underway are the Darlington Upgrade

and Northern Connector, with expected

completion in late 2019. The remaining

sections that are yet to commence are

the River Torrens to Anzac Highway and

“Anzac Highway to Darlington”. On

completion, the 78-kilometre North-South

Corridor will reduce travel times by

providing a continuous non-stop

carriageway from Gawler to Old

Noarlunga. Furthermore, it will also

improve access to some of the key

industrial areas such as Edinburgh Parks

in the Outer North.

Manufacturing is back

The closure of the 122.5ha General

Motors Holden (GMH) site in Elizabeth

(Q2 2017) resulted in job losses across

the State. The new owner of GMH site,

Melbourne based developer Pelligra

group, has secured tenants such as

Genis Steel, SA Power Networks, Sonnen

and Levett Engineering.

In addition, Whyalla steelworks owner

Sanjeev Gupta (GFG Aliiance) plans to

revive vehicle manufacturing in Australia

by building electric cars. The location of

the manufacturing site is unknown

however, VIC and SA are being

canvassed for potential sites, due to their

history of vehicle manufacturing.

Besides that, the defence industry has

made a positive impact on the SA

economy, resulting from the $35 billion

Future Frigates contract with BAE

Systems. BAE Systems have recently

employed more than 80 graduates and

are expected to employ an additional 100

graduates next year as the project ramps

up. Furthermore, small & medium

business such as Redarc Electronics

have enjoyed the flow on contracts from

defence projects. More particularly,

Redarc had expanded its factory in

Lonsdale— an additional 3,000m² of

advance manufacturing space which will

increase the manufacturing capacity by

250% and create jobs for up to an

additional 100 workers.

The unemployment rate in SA currently

stands at 5.9%, which is 0.7% higher

than the national average as of June

2019 (seasonally adjusted). This figure

has improved from 7.3% in April 2017.

Moving forward, this downward trend is

likely to continue as a number of major

projects in the defence and

manufacturing sectors come online.

Low cost of capital will benefit the property market

Evidence from sales transactions during

CY 2018 suggested that the low cost of

capital and the abolition of stamp duty

had a positive impact on the number of

transactions for industrial properties

above $5 million.

In July 2019, the Reserve Bank of

Australia (RBA) has cut the cash rate to

1.00% (historical low), and also indicated

there are more cuts to come in the

following months. The downward trend

has taken the cash rate from 4.75%

(November 2010) to 1.00% (July 2019).

Hence, it is likely to continue to drive the

cost of capital down and attract more

investment into the property market.

Economic Growth

Aust: 1.8% SA: 1.8%

March 18 to March 19

Population Growth

Aust: 1.6% SA: 0.8%

As at December 2018

Unemployment Rate

Aust: 5.2% SA: 5.9%

As at June 2019

Infrastructure Spending

SA State Budget

2019/20: $11.9 billion

Unemployment Rate

(Seasonally Adjusted) Australia vs South Australia

Engineering

Construction

Aust: -13.5% SA: 7.8%

March 18 to March 19

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

Jun

-2009

Jun

-2010

Jun

-2011

Jun

-2012

Jun

-2013

Jun

-2014

Jun

-2015

Jun

-2016

Jun

-2017

Jun

-2018

Australia Unemployment Rate (Seasonally Adjusted)

South Australia Unemployment Rate (Seasonally Adjusted)

3

RESEARCH

Leasing transaction volumes remain low

as a result of the continuing trend of

owner occupation, where in lieu of

leasing their property requirements,

occupants are favouring to purchase

their facilities. This is partly due to the

historically low cash rate, coupled with

the abolition of stamp duty, which further

encouraged tenants to become owners.

The most sought after properties to lease

are those within inner metropolitan areas

with good access to major transit routes.

The majority of leasing transactions have

been located in the Inner North. This is

largely due to the size of the precinct in

comparison to other precincts. A recent

leasing transaction occurred at 113-117

Bedford Street, Gillman. The tenant,

Plasdene Glass occupies a brand new

office/warehouse of 2,456m², the deal

was struck at a face rental rate of $118/

m² p.a. net for an initial term of 5 years.

Furthermore, Advanced Piping

Systems— a supplier of Polyethylene

fittings and piping systems for mining

and industrial applications recently

vacated from 5, 7 & 9 Benjamin Street, St

Marys due to expansion. The tenant was

previously occupying a GLA of 1,823m²,

and has since leased 30 Charles Road,

Beverley, formerly occupied by Grace

Logistics and comprises a GLA of

7,135m². The deal was struck at a

commencing rental rate of $75/m² p.a.

net of GLA for an initial term of 5 years.

The outlook for tenant demand is looking

positive with several briefs for space in

the market for office/warehouse

accommodation ranging from 3,000m² to

10,000m². Notable requirements are from

industries such as logistics (circa

ADELAIDE INDUSTRIAL AUGUST 2019

Rents, Incentives & Outlook

Average

Prime

(all regions)

$95/m²

0.5% p.a growth

10.0% incentive

Average

Secondary

(all regions)

$62/m²

0.8% p.a growth

5.67% incentive

Adelaide Industrial Rents $/m² net face, 2009-2019

Prime vs Secondary

Recent Leasing Activity Adelaide

Address Region

Net

Rent

$/m²

Bldg

Area

(m²)

Term

(yrs) Tenant Date

Part, 113-117 Bedford Street, Gillman IN 118 2456 5 Plasdene Glass May-19

14-16 Pambula Street, Regency Park IN 82 1,285 5 King Furniture May-19

30 Charles Road, Beverley IW 75 7,135 5 Advanced Piping Apr-19

7 Rosberg Road, Wingfield IN 88 1,713 5 Stoddart Mar-19

Unit 3, 43-55 Produce Lane, Pooraka IN 110 2,807 3 Marlau Mar-19

Part 41 Barfield Cres, Edinburgh North ON 50g 2,080 3 Wheel & Barrow Feb-19

Part 51-85 Morrow Rd, O’Sullivan Beach OS 49 15,456 4 Orrocon Steel Feb-19(r)

Unit 8, 3 Selgar Avenue, Tonsley IS 80 1,222 3 Black Mango Dec-18

53-73 Churchill Road North, Dry Creek IN c65 4,319 4 Carpet Call Jul-18

25 George Street, Green Fields IN 70 4,096 # Apex Steel May-18

Limited leasing activity over the past six months

10,000m²), building construction (circa

10,000m²), pipe manufacturing (circa

3,000m²) and electrical manufacturing

(circa 3,000m²).

Rents have remained steady

Rents have remained steady over the

past 6 to 12 months. Despite this,

properties within inner metropolitan

areas with good access to major transit

routes have continued to be met with

steady leasing demand. Average prime

incentives remained unchanged at

approximately 10%.

Adelaide Industrial Secondary Rents $/m² net face, 2009-2019

By precinct

40

50

60

70

80

90

100

110

Jul

-09

Jul

-10

Jul

-11

Jul

-12

Jul

-13

Jul

-14

Jul

-15

Jul

-16

Jul

-17

Jul

-18

Jul

-19

PRIME SECONDARY

Adelaide Industrial Prime Rents $/m² net face, 2009-2019

By precinct

40

60

80

100

120

140

160

Jul-

09

Jul-

10

Jul-

11

Jul-

12

Jul-

13

Jul-

14

Jul-

15

Jul-

16

Jul-

17

Jul-

18

Jul-

19

INNER NORTH OUTER NORTH INNER SOUTH

OUTER SOUTH INNER WEST

40

45

50

55

60

65

70

75

80

85

Jul

-09

Jul

-10

Jul

-11

Jul

-12

Jul

-13

Jul

-14

Jul

-15

Jul

-16

Jul

-17

Jul

-18

Jul

-19

INNER NORTH OUTER NOR TH INNER SOUTH

OUTER SOUTH INNER WEST

4

Holden site has finally settled

The 122.5ha General Motors Holden

(GMH) site has finally settled in January

2019 after an extended settlement with

a due diligence period (approximately

13 months). The site was transacted for

circa $55 million to a Melbourne based

developer Pelligra Group with a portion

(approx. 30%) on a long term leaseback

to GMH utilised for parts and service.

The Pelligra Group plans to transform

the site into a multi-purpose business

precinct, known as ‘Lionsgate Business

Park’. Since taking possession of the

site, Pelligra Group has leased a portion

of the site to tenants including Genis

Steel, SA Power Networks, Sonnen and

Levett Engineering.

$535 million Naval Shipyard is well underway

One of the most significant

developments in SA is the $535 million

Osborne Naval Shipyard. The property

is currently under construction and will

comprise four (4) new major buildings,

with the largest building being approx.

13,500m² (180m x 75m) and 55 metres

in height (equivalent to 14 storey

building). The development is expected

to be completed by March 2020 and will

be utilised for shipbuilding infrastructure

for the $35 billion future frigates project.

Over the past six months, land values

have remained steady for all precincts.

Despite this, the high underlying land

value in the inner west has driven a

change into a mixed use precinct.

Metcash facility

Another major development is the

former Bianco steel fabrication facility,

located at 600 Main North Road, Gepps

Cross. The property has recently

transacted off-market to Charter Hall

for circa $35 million. Prior to the

settlement, the vendor had secured an

ASX listed tenant (Metcash) with plans

to construct a circa 68,000m² purpose-

Recent Land/Development Sales Activity Adelaide

Address Region Price

($ mil)

Site Area

(m²)

$/m² of

site area Zone Vendor Purchaser Sale Date

180 & 185 Philip Hwy, Elizabeth South ON 55.00 122.5ha 45 IND GM Holden Pelligra Jan-19

Lot 6 Schumacher Road, Wingfield IN 3.35 23,690 141 IND Renewal SA Private Developer Nov-18

157-165 Cross Keys Rd, Salisbury South ON 12.5 151,900 82 IND Commercial General Straits Real Estate Oct-18

Lot 34 Share Street, Kilkenny IN 11.59 50,277 230 UE Private Straits Real Estate Oct-18

Lot 10 & 22 Schumacher Road, Wingfield IN 5.30 44,190 120 IND Renewal SA Spendless Shoes Jul-18

21-27 Johansson Road, Wingfield IN 1.65 5,502 300 IND Landra Commercial Private Mar-18

built distribution centre. On completion

(scheduled for mid-2020), Metcash will

be relocating their existing premises

from Kidman Park. In 2018, Metcash

entered a long-term agreement with the

majority of the Foodland supermarkets

owners in SA which includes the

Romeo’s and the Chapley’s—excluding

Drakes, which are constructing their

own facility in the Outer North.

5

RESEARCH

South Australia remains attractive for

investors seeking higher income returns.

A notable investment sale was the Port

Adelaide Distribution Centre which

located on 25-91 Bedford Street,

Gillman. The property is currently under

contract to a Melbourne Based Fund,

Quintessential for approximately $80

million reflecting a core market yield of

circa 9.50%.

Another notable transaction was the sale

of 1118-1146 Port Wakefield Road,

Burton. The property was previously

sold in 2014 for $39.5 million reflecting a

core market yield of 8.43% (excluding

the adjoining sites). More recently

(October 2018), the property transacted

off-market to Singaporean based REIT,

Soilbuild Business Space for $61.25

million, with a “triple net” leased to

Strong start for transactions above $5 million

YTD 2019 industrial sales transaction

that exceed $5 million currently stands

at $140.08 million. This is significantly

higher than $49.35 million this time last

year. This was largely due to the sale of

the GMH site and a distribution centre

(to be construct) located in Gepps Cross

(Metcash).

Properties above $20 million continue to attract strong interest

Fully leased industrial property with

strong lease covenants in well located

areas continue to attract strong interest,

particularly from interstate and off-shore

buyers. Evidence has suggested that

over the past 12 to 18 months, there has

been an increase in the number of

transactions for properties above $20

million. This demand is being partly

driven by the historically low interest rate

environment together with the abolition

of stamp duty on commercial properties.

Furthermore, average prime yields

across the Eastern Seaboard are

generally in excess of 100 basis points

firmer than in South Australia. Hence

Ingham’s reflecting a core market yield

of 6.28% and a lease term certain of

16.1 years. The property was

purchased together with an office

building in Canberra (circa $55 million)

from Western Australian based fund,

Ascot Capital.

Prime yields are firming

Industrial yields have shown a continual

firming bias over the past six months.

As at July 2019, average blended prime

yields are ranging from 7.25% to 8.00%

for all precincts (average 7.77%).

Meanwhile, the average blended

secondary yields are ranging from

8.50% to 9.25% (average 9.04%).

Yields are likely to continue firming,

given the value proposition and

improving demand on offer in SA.

ADELAIDE INDUSTRIAL AUGUST 2019

Current Yields & Outlook

Average Blended

Prime

7.25% - 8.00%

-43bps 12 mths

Average Blended

Secondary

8.50% - 9.25%

-45bps 12 mths

SA vs East Coast Average Prime Yields 2009 - 2019

Recent Improved Sales Activity Adelaide

Address Region Price

($ mil)

Bldg

Area (m²)

Core Mkt

Yield (%)

WALE

(yrs) Vendor Purchaser Sale Date

Port Adelaide Distribution Centre IN c80.00 c167,485 c9.50 N/A Stockland Quintessential U/C

Lot 701 Port Wakefield Road, Gepps Cross IN c35.15 TBC N/A N/A Aretzis Group Charter Hall Apr-19

250 Regency Road, Regency Park IN 12.75 6,608 VP VP Footers Structural Detmold Group Apr-19

42-56 Grand Junction Road, Kilburn IN 10.40 12,174 VP VP IJF Bipco Properties Feb-19

Unit1, 2 & 4, 35-37 Maxwell Road, Pooraka IN 13.60 9,252 6.65 4.0 APD Realside Feb-19

65-85 Deeds Road, North Plympton IW 13.18 12,185 VP VP Ascot Capital Bidfood Jan-19

80-92 Grand Junction Road, Kilburn IN 9.31 6,889 7.73 15.0 A Noble & Son Ltd Peak Equities Nov-18

1118-1146 Port Wakefield Road, Burton ON 61.25 24,324 6.28 16.1 Ascot Capital Soilbuild Business Oct-18

113-117 Bedford Street, Gillman IN 14.00 8,844 7.08 4.4 Frasers Trilogy Oct-18

Adelaide Industrial Sales 2009 - 2019 by sub-market - >$5 million

$0

$50

$100

$150

$200

$250

$300

$350

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

INNER NORTH OUTER NORTH

INNER WEST INNER SOUTH

OUTER SOUTH LE FEVRE PENINSULA

10 YR AVERAGE

YTD

5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

8.00%

8.50%

9.00%

9.50%

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19

Sydney Melbourne Brisbane Adelaide

6

Inner West

• Sales & leasing transactions

have been limited over the past

six months in Inner West. This

is due to the market being

tightly held and the high

underlying land value is driving

a change from industrial to

mixed use, which is evident

through Thebarton (former

Coca-Cola site).

• Notable leasing deals include

30 Charles Road, Beverley,

leased for a 5 years initial term

at a commencing rent of

$535,125 p.a. net (equivalent

to $75/m² p.a. net).

Inner North

• Veolia has started to fill the

18.7ha low lying site

purchased from Renewal SA

(Lot 403 Hanson Road, Dry

Creek) and plans to build new

HQ, a solar farm and waste to

energy power plant.

• Charter Hall & Aretizs Group

(JV) plans to construct a circa

68,000m² purpose-built

distribution centre for Metcash

at Gepps Cross.

• Positive outlook for the former

GMH site, with new businesses

setting up on the site such as

Genis Steel, SA Power

Networks, Sonnen and Levett

Engineering.

Land

Avg <5,000 sqm:

Avg 1-5 ha: $233/m²

$143/m²

Rents:

Avg Prime:

Avg Secondary: $92/m²

$60/m²

Yields:

Avg Prime:

Avg Secondary: 6.75% - 7.75%

8.00% - 9.00%

Land

Avg <5,000 sqm:

Avg 1-5 ha: $80/m²

$54/m²

Rents:

Avg Prime:

Avg Secondary: $71/m²

$48/m²

Yields:

Avg Prime:

Avg Secondary: 8.00% - 8.75%

9.50% - 10.50%

Land

Avg <5,000 sqm:

Avg 1-5 ha: $430/m²

$270/m²

Rents:

Avg Prime:

Avg Secondary: $122/m²

$77/m²

Yields:

Avg Prime:

Avg Secondary: 6.75% - 7.75%

8.25% - 8.75%

Outer North

Address: Unit 1, 2 & 4, 35-37 Max-

well Road, Pooraka

Price: $13.60 million

Sale Date: February 2019

Vendor: APD

Purchaser: Realside

Yield: 6.65%

Comment: The property transferred off

market in three (3) separate

transactions. W.A.L.E of

4.0 years.

Address: 1118-1146 Port Wakefield

Road, Burton

Price: $61.25 million

Sale Date: October 2018

Vendor: Ascot Capital

Purchaser: Soilbuild Business Space

Yield: 6.28%

Comment: Sold following off market

negotiation with a lease

term certain of 16.1 years.

Address: 65-85 Deeds Road, North

Plympton

Price: $13.18 million

Sale Date: January 2019

Vendor: Ascot Capital

Purchaser: Bidfood

Yield: Vacant Possession

Comment: The property was pur-

chased by an owner occu-

pier/sitting tenant following

an off-market transaction.

7

RESEARCH

• Le Fevre Peninsula is now

recognised as a defence

precinct, in light of the

submarine and frigates to be

built at Osborne

• The $535 million shipbuilding

yard is well underway and is

scheduled for completion by

March 2020. Once completed,

the development will comprise

four (4) new major buildings,

with the largest building being

approx. 13,500m² and 55

metres in height (approx. 14

storeys high).

• The 61 hectare Mitsubishi plant

site closed down in 2008.

Since then the area has been

redeveloped into an innovation

district called “Tonsley”.

Tonsley currently has more

than 70 business including

TAFE, Flinders University, ZEN

Energy and Siemens.

• Limited sales, however there is

high demand for industrial

property under $1 million, with

the majority of buyers being

owner occupiers.

• Local manufacturers (Redarc

Electronics and Rowlands

Metalworks) located at

Lonsdale have enjoyed flow on

contracts for defence projects.

ADELAIDE INDUSTRIAL AUGUST 2019

Le Fevre Peninsula Inner South Outer South

Land

Avg <5,000 sqm:

Avg 1-5 ha: $369/m²

$253/m²

Rents:

Avg Prime:

Avg Secondary: $115/m²

$75/m²

Yields:

Avg Prime:

Avg Secondary: 7.00% - 8.00%

8.25% - 9.25%

Land

Avg <5,000 sqm:

Avg 1-5 ha: $98/m²

$60/m²

Rents:

Avg Prime:

Avg Secondary: $75/m²

$50/m²

Yields:

Avg Prime:

Avg Secondary: 8.25% - 9.00%

9.25% - 10.25%

Land

Avg <5,000 sqm:

Avg 1-5 ha: $110/m²

$83/m²

Rents:

Avg Prime:

Avg Secondary: $100/m²

$70/m²

Yields:

Avg Prime:

Avg Secondary: 7.75% - 8.50%

9.00% - 10.00%

Address: Lot 102, Coghlan Road,

Outer Harbor

Price: $8.75 million

Sale Date: August 2018

Vendor: Frasers Logistics

Purchaser: Qube Logistics

Comment: Sold off market to the sit-

ting tenant. The property

has direct access to the

national rail network via a

siding agreement with

ARTC.

Address: Unit 8, 3 Selgar Avenue,

Tonsley

Rent: $80/m² p.a. net

Start Date: December 2018

Tenant: Black Mango

Landlord: Private

Term: 3 Years

Comment: Nil

Address: Portion 51-85 Morrow

Road, O’Sullivan Beach

Rent: $49/m² p.a. net

Start Date: February 2019 (Lease

Extension)

Tenant: Orrocon Steel

Landlord: Private

Term: 4 Years

Comment: The original lease com-

menced February 2014

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Important Notice

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RESEARCH

Yee Ng Research Analyst, SA

+61 8 8233 5217

Yee.Ng@sa.knightfrankval.com.au Ben Burston Partner,

Chief Economist

+61 2 9036 6756

Ben.Burston@au.knightfrank.com

INDUSTRIAL

Garry Partington Sales & Leasing Executive, SA

+61 8 8233 5282

Garry.Partington@au.knightfrank.com

NATIONAL

Rob Salerno Partner,

Head of Industrial, Australia

+61 2 9761 1871

Rob.Salerno@au.knightfrank.com Greg Russell Partner,

Head of Industrial Investments, Australia

+61 7 3246 8804

Greg.Russell@au.knightfrank.com

VALUATIONS & ADVISORY

James Pledge Partner,

Head of Valuation & Advisory, SA

+61 8 8233 5212

James.Pledge@sa.knightfrankval.com.au Nick Bell Partner,

Valuation & Advisory, SA

+61 8 8233 5242

Nick.Bell@sa.knightfrankval.com.au Tom Walker Associate, Industrial, SA

+61 8 8233 5239

Tom.Walker@sa.knightfrankval.com.au

SOUTH AUSTRALIA

Guy Bennett Partner,

Head of Institutional Sales, VIC & SA

+61 8 8233 5204

Guy.Bennett@au.knightfrank.com Bobbette Scott Partner,

Head of South Australia

+61 8 8233 5211

Bobbette.Scott@au.knightfrank.com

Australian

Residential Review

Q2 2019

Eastern Seaboard

Industrial

Development July

2019

Adelaide Office

Market Overview

March 2019

Definitions:

Prime Grade: Asset with modern design, good condition & utility with an office component 10-30%.

Located in an established industrial precinct with good access.

Secondary Grade: Asset with an older design, in reasonable/poor condition, inferior to prime stock,

with an office component between 10-20%.

Core Market Yield: The percentage return/yield analysed when the assessed fully leased net market

income is divided by the adopted value/price which has been adjusted to account for property

specific issues (i.e. rental reversions, rental downtime for imminent expiries, capital expenditure,

current vacancies, incentives, etc).

WALE: Weighted Average Lease Expiry

Active Capital

2019