Yields are sharpening in Melbourne's huge industrial property sector as investors at all levels compete for properties to underpin their portfolios.
Transaction volumes are yet to gain momentum in 2015 following the $1.31 billion worth of industrial property that changed hands last year. It was the largest sales total since 2007 – on the eve of the global financial crisis – when nearly $1.8 billion of property sold.
Savills Victorian head of research Glenn Lampard said yields for prime industrial property had fallen to between 6.5 and 7.75 per cent in 2014 – down from 7.25 to 8.5 per cent in 2013 when only $808 million worth of industrial property sold.
Mr Lampard said there are signs that we could be in for another big year despite the lack of big portfolios on the market.
"We noticed at the end of 2013 that our valuations team were busy and they are again. While they are unable to tell us much about what they're doing, it certainly suggests there's a fair bit in the pipeline," he said.
Knight Frank's Victorian managing director James Templeton said the year has started off "patchy", with many potential vendors unwilling to sell without a solid place to spend the proceeds.
"There's limited opportunities. People are saying to us: we can achieve a record yield but then we have to buy back in to the same market," Mr Templeton said.
"There's plenty of demand from both local and offshore investors. And there's been some opportunity at the smaller sub-$10 million end of the market," he said.
Mr Lampard said competition from institutions and offshore investors had priced many private investors out of the $20 million-plus market so they are creating portfolios of smaller assets.
"Usually when the market gets this hot, the privates disappear and come back when the cycle changes. This time, they are staying around but in the cheaper end of the market where the yields are usually a bit higher," he said.
Savills had struck $128 million in deals this year, many at the lower end of the market, including the sale to a private investor of an 8222-square-metre property at 60-72 Harcourt Road, Altona, for $6.825 million on a 7.75 per cent yield.
Other recent deals include 84 Hunter Road, Derrimut, which fetched $3 million on 7.8 per cent yield; and 67 Calarco Drive, Derrimut, which sold for $8.1 million on a 7.73 per cent yield.
Colliers International will test the market with the 12.1-hectare Nexans-Olex site at 207 Sunshine Road in Tottenham, which market sources suggest could be worth between $15 million and $20 million.
Just 500 metres from Tottenham railway station and seven kilometres from the CBD, the site's warehouses are up to 50 years old and cover around 62,600 square metres.
Colliers International agent Stephen Newsham said the European vendor, Nexans-Olex, will sign a six-month leaseback deal.
"We've had a lot of interest in the past week, particularly from high net worth individuals and some bigger users who want to use it for warehousing now," Mr Newsham said.
