Australian industrial and logistics property is currently the most sought after property asset class, underpinned by favourable
structural tailwinds which continue to positively impact the sector. With investment in the sector remaining significant at or during
the COVID-19 period, headlined by 11, $100 million + acquisitions, capitalisation rates continue to compress, evidenced by the
completion of the June 2020 A-REIT reporting season.

The rapid increase in e-commerce penetration coupled with
expansion requirements from supermarkets and pharmaceutical
companies has had a positive impact on Australian REITs
(A-REIT) with exposure to industrial property, despite headwinds
as a result of COVID-19. The impacts of the pandemic on the
Australian industrial and logistics sector have been modest to
date, particularly when compared to other real estate sectors. The
largest impacts have stemmed from supply chain disruptions and
the inability of some occupiers to pay rent; however, this has been
concentrated at the smaller end of the market and from an overall
portfolio perspective, they have accounted for only a minor share
of tenants.

While share prices experienced large falls at the depths of
COVID-19, they have since recovered. Prior to the pandemic, the
S&P/ASX200 A-REIT Index reached 1,706 points and fell to a low
of 877 points in late March as both global and domestic economic
conditions deteriorated. By mid-August, the index was up at
around 1,260 points and represents growth of 44% from the low
point in March.

Following the completion of the June 2020 A-REIT reporting
season, the data highlights the resilience of the industrial sector
with a modest level of firming in capitalisation (cap) rates
being recorded over the six months to June 2020. Notably,
this contrasts to steady or modest levels of softening in some
cases within the office and retail sectors. Cap rate compression
has been driven by continued favourable fundamentals and a
significant weight of capital chasing defensive industrial assets
with strong demand from both domestic and offshore investors.

The weighted average capitalisation rate (WACR) of the major
A-REITs industrial assets firmed by 12 basis points (bps) over
the past six months and 37 bps over the past year to currently
average 5.4%.
Where information at an individual asset level is available, all
states recorded cap rate compression over the six months to June
2020, led by Queensland (-9 bps) and New South Wales (-7 bps).
The rate of compression in Victoria was more modest at 3 bps