covid-19 the valuers’ view · 2020. 7. 8. · valuers at m3property have contributed their...

COVID-19 The Valuers’ View Industrial Marketsm3property | Winter 2020

J U N E 2020

D E C E M B E R 2020

Service Stations (neutral)

Self Storage (neutral)

Prime Industrial (neutral)

Prime Residential Subdivisions

(neutral)

The Valuers’ ViewIn times of uncertainty where transactions are limited and new trends establishing, industry participants place even more reliance on Valuers to provide market guidance.

To assist lenders, investors and owners, the Valuers at m3property have contributed their opinions on the current state of the property markets and where they expect those markets to head over the next 12 months.

This is the second report in a series of papers on the major sectors of the Australian property market and focuses on Industrial property.

Key Sector Insights

Time Frame for Property Value Recovery(Expected Changes in Property Values over COVID-19)

Comparison of Value Impact of COVID-19, by Sector

The spread between prime and secondary yields is expected to widen as risk is re-priced.

Expect minor movement in face rents, with stronger movement in incentives, particularly for secondary stock.

Prime well located assets are likely to largely hold their value, whereas secondary assets are likely to see values decrease as investors re-assess risk.

J U N E 2022D E C E M B E R

2021

Neighbourhood Retail

(-5% to 0%)

Prime Office (-10% to 0%)

Prime Residential Unit Developments (-5% to 0%)

Prime Hotels (-10% to 0%)

Secondary Hotels (-25% to -10%)

Health Care/Medical (neutral)

Prime Child Care (-10% to 0%)

Secondary Residential Subdivisions (-10% to -5%)

Secondary Child Care (-15% to -10%)

Secondary Residential Unit Developments

(-15% to -10%)

Secondary Office (-15% to -10%)

Secondary Industrial (-15% to -10%)

Regional Retail (-20% to -5%)

Sub Regional Retail (-20% to -5%)

J U N E 2021

Page 1 | COVID-19 The Valuers’ View

Changes to Industrial Property Indicators

Shutdown Immediate impact on the economy and businesses and therefore on the property markets.

The impact of this phase is covered under the Current column, which indicates the impact of COVID-19 until June 1, 2020.

Opening upAs businesses activity increases, the capacity to pay rent commitments will improve, although the withdrawal of government support and phasing out of landlord and other supports will provide additional challenges.

This phase is likely to continue until the end of 2020.

Y I E L D S

» The spread between prime and secondary yields is predicted to widen as risk is re-priced in the industrial markets.

» We are yet to see a material change to pricing for secondary assets. Agents and sentiment suggest a softening by 25 to 50bp.

» There has been a small shift in the investment market over the last few weeks with an increase in potential purchasers looking to enter the market.

Stages of the COVID-19 recessionThe COVID-19 crisis is likely to have three distinct stages:

I R R s

» IRRs are likely to soften for industrial property due to lower growth rates and longer letting-up periods.

STAGE 1 STAGE 2

RecoveryMore positive economic news as the economy improves and unemployment levels stabilise. Spending is still likely to be low as businesses rebuild cash flows and productivity remains constrained.

This phase is expected to start in 2021. The Survey results for this stage have the widest range. Some

R E N T S

» Prime net face rents have been stable across most markets over COVID-19 to date. However, we expect effective rents to decrease due to the increase in incentives landlords will be required to offer to attract new tenants.

» Secondary rents may decrease due to rising vacancy.

I N C E N T I V E S

» There has been no material change in incentives to date with minimal deals. When renewals start filtering through after the code of conduct ends, an increase in incentives to keep the current tenant or attract new tenants is likely.

P R I M E Y I E L D SS E C O N DA RY

Y I E L D SP R I M E I R R s S E C O N DA RY I R R s P R I M E R E N T S

S E C O N DA RY R E N T S

P R I M E I N C E N T I V E SS E C O N DA RY I N C E N T I V E S

P R I M E VA L U E S

S E C O N DA RY VA L U E S

STAGE 1

COVID-19 to current

StableSoften1-50bp

Soften1-50bp

Soften1-50bp

-5% to 0%

marginally

moderately

-5% to 5%

Recovery Period

3-6 months

-15% to -10%

Recovery period

12-18 months

STAGE 2

Jun 20 to Dec 20

StableSoften1-50bp

Soften1-50bp

Soften1-50bp

-5% to 0%

marginally

marginally

STAGE 3

Dec 20 to Jun 21

StableSoften

51-100bpSoften1-50bp

Soften51-100bp

-15% to -10%

marginally

marginally

markets are likely to start on the path to recovery earlier than others and, therefore, not show further decline in the property indicators, while other markets will continue to be impacted as a legacy of the recession.

VA L U E S

» Changes to industrial property values are likely to be mixed.

» Prime properties are expected to witness minimal changes while secondary assets are anticipated to see falling values.

» Recovery for secondary assets is expected to take up to two years in some locations due to the reassessment of risk by many owners and investors.

STAGE 3

“Yields for prime industrial property are holding, whereas secondary yields have started to soften”

Daniel McGrath - National Director Industrial

Page 3 | COVID-19 The Valuers’ View

Our Services

Industrial

From our four state offices, the industrial valuations team provides property advice for industrial property throughout Australia.

We conduct valuations across all classes of industrial property including standard office/warehouse facilities, large scale distribution centres, hi-tech industrial buildings, industrial development sites, strata title industrial unit development sites and specialised asset types including manufacturing and production buildings (e.g. food production and meat processing facilities), climate controlled facilities and intermodal terminals.

Our clients include institutional investors such as funds managers (both local and offshore), financiers, corporations (both private and public), insolvency practitioners, private investors and the government sector. Our industrial valuations team is represented on the panels of all major institutions, fund managers and financiers.

Daniel McGrath QLD| NATIONAL DIRECTOR INDUSTRIAL

+61 7 3620 [email protected]

Josh Phegan VIC | DIVISIONAL DIRECTOR


Neil Bradford SA | DIRECTOR


John Rasaku NSW | MANAGING VALUER


Joel DuceyNSW | DIRECTOR


Andrew Cash NSW | VALUER


DISCLAIMER © m3property Australia. Liability limited by a scheme approved under Professional Standards Legislation. This report is for information purposes only and has been derived, in part, from sources other than m3property and does not constitute advice. In passing on this information, m3property makes no representation that any information or assumption contained in this material is accurate or complete. To the extent that this material contains any statement as to the future, it is simply an estimate or opinion based on information available to m3property at that time and contains assumptions, which may be incorrect. m3property makes no representation that any such statements are, or will be, accurate. Any unauthorised use or redistribution of part, or all, of this report is prohibited.

m3property.com.au /m3property

Our team

covid-19 the valuers’ view · 2020. 7. 8. · valuers at m3property have contributed their...

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