Home Our insights 14 August 2019 Savvy and experienced investors know that the key to a successful investment portfolio with healthy returns is diversification. A portfolio that is overly weighted towards residential property or stocks will be at the mercy of market slumps or booms, not to mention the vagaries of foreign recessions, global confidence and changing government policy. Many sophisticated investors and institutions are turning their attention to the industrial property market to diversify their asset allocation and ensure their money is invested in a sector that is buttressed by strong macro fundamentals and healthy returns. Laverton North Property Fund is KordaMentha Funds Management’s first industrial investment offering. The fund acquired the Austco Polar Cold Storage Facility warehouse and office, which will be bought for $21 million in an off-market sale-and-leaseback transaction and the fund will be opened to wholesale investors later this month (August). Austco Polar Cold Storage Facility is a leader in the food infrastructure and exporting sector, with the capacity to provide blast freezing, storage and distribution into both the domestic and international markets. The Laverton North Property Fund will be actively managed by KM Property Funds, with a forecast initial distribution yield of 8.25% pa. In demand A recent JLL Australian Industrial Investment Report identified the Australian industrial property sector “as one of the most sought after sectors by both domestic and global players, as it is driven by solid fundamentals”. As the report noted, high demand for industrial property, coupled with the limited supply of stock, have translated to strong appreciation in land, rent and capital values, and made the sector an attractive beacon for both onshore and offshore investors. Industrial property is now also considered an institutional-grade investment owing to its relatively high and stable returns; super fund-backed ISPT and listed A-REIT GPT Group are just two examples of institutional investors that have purchased major tracts of industrial property in recent times. Food Exports Australia’s high forecast population growth and our investment in infrastructure helps fuel the demand for the import and of export goods, directly impacting the business of Austco Polar Cold Storage. Port container movements were up by 7.2% year on year, aided by a relatively low Australian dollar, combined with solid growth from Australia’s major trading partners, especially Asia. This trend shows no sign of abating. The International Monetary Fund (IMF) has forecast that Australia’s rate of growth in the volume of import and export of goods to 2023 will increase relative to historical trends, with the average annual rate of growth in imports forecast at 5.5% and exports at 5.9% between 2018 and 2023. The Victorian Government has created the Agriculture Infrastructure and Jobs Fund (AIJF) in recognition of the vital role food infrastructure, and companies such as Austco, play in bringing Australian goods to international markets. The Infrastructure Stream will provide $175 million for capital works and improve local connectivity and freight routes to markets. As a self-described “one-stop-shop for manufacturers”, Austco Polar Cold Storage Facility sits at the nexus of this focus on seamless logistics and easy access to markets. Their storage facilities are capable of both bulk and order picking, with a focus on feeding into distribution centres and container loading in a strategic partnership that enables their food and agricultural customers to scale up their business quickly and efficiently. Land scarcity Industrial property is hugely land-intensive, and while there is a high demand for investment in this style of property there is limited investment-grade stock available, in the right locations, to satisfy investor appetite. Numerous strategic JV partnerships in the industrial sector during 2018 point to the high level of demand for land that will allow the successful roll-out of strategic logistical operations and warehousing for business stock and products, while optimising the supply chain network. Prime land in Melbourne’s west is particularly attractive to investors and tenants. The Laverton North Austco Polar Cold Storage Facility, for example, is strategically located close to the Western Ring Road, Westgate Freeway interchange and the Port of Melbourne, which is ideal for Austco’s storage and food export business. Laverton North is dominated by large freight forwarding companies and third-party logistics providers that require substantial building footprints, and gaining a foothold in this highly valuable and strategic location represents a rare investment opportunity. Colliers has reported enquiry for industrial investments in Melbourne’s west outweighs supply, with more than 350,000 square metres of requirements compared to the long-term average take up of approximately 90,000 square metres per year. Infrastructure A high level of national infrastructure investment has a positive spill-over effect for the industrial sector and, right now, Australia is in the middle of an infrastructure boom. Sydney and Melbourne are enjoying high levels of investment in major roads and freeways, which enable greater efficiencies of logistics and freight throughput. The Federal Government is investing $75 billion under its 10-year National Infrastructure roll-out, while Victoria’s state government has also committed to several infrastructure projects that will be highly advantageous to Melbourne’s western industrial precinct, where the Austco Polar Cold Storage Facility is located. In particular, the West Gate Tunnel Project will provide an alternative bridge crossing to the West Gate, opening a second transport artery for the efficient movement of commodities and goods to the Port of Melbourne. All these elements combined make the burgeoning industrial sector one to watch, and in particular, highlight the rare blend of factors that underpin high-value investments, such as Austco Polar Cold Storage Facility in Laverton North. Other insights Fully subscribed fund shows investors hungry for industrial property Strong investor interest in industrial property fuelled the fast filling Laverton North Property Fund and resulted in the fund being fully subscribed within just a few days. KordaMentha Funds Management enters robust industrial sector with launch of $21 million commercial property fund KordaMentha Funds Management acquires cold storage facility at Laverton North. KM Property Funds will actively manage the investment for investors.