Centuria Snaps Up 10th West Melbourne Asset

Major industrial and logistics landlord Centuria Industrial REIT has acquired a tenth property at Derrimut in Melbourne’s western suburbs in a further sign rentals in the sector are set to skyrocket.

The additional 5331sq m property, acquired for $12 million, means Centuria (CIP) now controls assets covering 25.3ha in west Melbourne worth an estimated $241 million. Six of those assets are adjoining.

It was one of three acquisitions the listed investor announced this week.  Two other development sites—one north of Adelaide and the other south of Perth—further boost CIP’s holdings in a market short on supply.

Centuria cashed out of a passive investment—a 6020-sq m property in Eastern Creek, New South Wales—for $34.5 million, delivering a 37 per cent premium.  It redeployed the proceeds into the three new acquisitions.

“Divesting of a non-descript asset presents an opportunity to recycle capital into higher yielding strategic acquisitions and developments,” head of industrial for Centuria Capital Jesse Curtis said.

Industrial rents are at their highest rate in 25 years as investors reposition in the post-pandemic landscape and Curtis says there was no better example than West Melbourne.

“If we have a look at the latest CBRE data, Melbourne has been one of the top performing cities in terms of rental growth in the country,” Curtis told The Urban Developer.

“And west Melbourne has actually outperformed all other markets within the Melbourne precinct,” he said.  “Melbourne has certainly seen very strong rental growth during the past 12 months.”

Curtis said the growth was being driven by e-commerce and tenant-demand for short drive times to big population bases, that include a skilled labour force.  Their tenant base is involved in manufacturing or production, distribution centres, transport and logistics, cold storage, and data centres.

Centuria’s Derrimut clients include Silk Contract Logistics, a port-to-door logistics provider; Beacon Lighting’s distribution centre, and Scott’s Refrigerated Logistics.

“We have seen e-commerce penetration double over the last two years, so there is a very strong correlation between e-commerce adoption and the amount of industrial space that is required to be taken up,” Curtis said.

▲ Cabot Properties has paid $41 million for a site at Campbellfield, north of Melbourne.

He also pointed to supply chain disruptions caused by the pandemic, shipping problems in the Suez Canal and the war in Ukraine.

“That’s all creating supply-chain disruption so it is taking longer for products manufactured overseas to get to Australia, so what a lot of businesses are doing is establishing larger footprints to store more goods in order to continue to run their businesses.”

Consolidating land holdings in urban infill markets also allows Centuria to better cultivate and control tenant relationships.

“One of the biggest costs in real estate is downtime between tenants,” Curtis said.  “When you control the number of tenants within that market you can move your tenants around and really drive your retention, while getting higher returns from your assets.”

Centuria’s other acquisitions included a 2.5ha brownfield site in Canning Vale, south of Perth, bought for $10.1million with an estimated value on completion of $31.1million.  The fund’s forecasting a 5.25 per cent yield on cost.

The third purchase was a 1.25ha site in Direk, South Australia, for $2.3 million.  It adjoins another Centuria site, with a combined area of about 3 hectares.  Centuria plans a 6900sq m industrial facility as a stand-alone tenancy.

Meanwhile, US private equity real estate firm Cabot Properties has paid $41 million for 93,074sq m in Campbellfield, 13km north of the Melbourne CBD.

The acquisition on Somerton Road is Cabot’s fifth in Australia alongside two projects in Truganina, west of Melbourne, and two projects in the Victorian capital’s south east.

Cabot will transform the new site into a 55,000sq-m logistics estate with an estimated on-completion value of $130 million.  They plan three buildings on the site.

“The acquisition complements our existing portfolio and directly aligns with our strategy to develop high quality, sustainable logistics assets in core infill locations,” Cabot director of investments Jonathan Herb said.