Think the industrial market is heating up?

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How heated is the industrial property market, and what measures can brokers take to meet their customers’ demands for loans to acquire and refinance these assets?

RECENT MEDIA coverage has highlighted the ongoing demand for industrial properties, coupled with a scarcity of supply. However, the question remains: How heated is the industrial property market, and what measures can brokers take to meet their customers' demand for loans to acquire and/or refinance these assets? As is customary at the beginning of each year, commercial real estate, property valuation and research firms release various sector reports summarising the market’s performance over the past 12 months and outlining expectations for the year ahead. These insights hold particular significance for Thinktank, given that over half of our commercial lending portfolio comprises loans secured by industrial properties distributed across the nation. The past year has been challenging due to inflation, rising interest rates and a changing economic environment, all of which have affected consumer sentiment and the business sector. However, despite these negative influences, we have continued to see solid commercial property lending activity.

Thinktank is an independent non-bank financial institution specialising in the provision of commercial-property mortgage finance of up to $8 million and residential-property mortgage finance of up to $2.5 million in the Australian self-employed, PAYG and SME sectors. Since 2006, Thinktank has provided over $10 billion of commercial, residential and SMSF lending solutions, which have enabled thousands of borrowers to achieve their goals of acquisition, refinancing and equity release. Thinktank offers a range of lending solutions, which include Full Doc, Mid Doc (Alternate Income Verification), Quick Doc and SMSF loans.

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Belinda Wright, Thinktank

The March edition of Thinktank’s Monthly Market Focus report showcases insights sourced from prominent industry leaders, including Jones Lang LaSalle (JLL), Knight Frank Research and CBRE. These reports meticulously analyse both the national market and key capital cities, serving as pivotal data in shaping the assessments we formulate for our Ratings and Trends analyses. Despite market fluctuations, all major indicators for the industrial sector remain favourable nationwide, primarily driven by exceptionally low vacancy rates. These low vacancy rates translate to minimal incentives required for new tenants and attractive net effective rents. However, borrowers should exercise caution, considering factors such as WAULT (Weighted Average Unexpired Lease Term) or WALE (Weighted Average Lease Expiry), as they could impact borrowing power, future rollovers and asset retention plans.

At times borrowers may overlook that commercial property investment loan terms are often tied to the lease term for a period equal to or less than the actual term of the lease. Often WAULTs and WALEs are at play that not only restrict the committed proposed loan term but may also impact potential exit strategies on expiry of the loan. Increased vacancy rates and short-term WALEs can cause a level of concern and refinancing difficulties. To address these concerns, Thinktank offers lending terms unrestricted by WAULT or WALE, reflecting our commitment to supporting borrowers’ needs. Furthermore, our confidence in the commercial/industrial investment market has led us to introduce our Lease Doc offering, providing standalone servicing and a committed loan term of up to 30 years, without rollovers, annual reviews or reassessments, provided the lease has at least two years remaining from the settlement date. In recognition of the robust rental market, we also consider 100% of the rent for servicing without applying shading. While the prospect of lower interest rates may exert pressure on commercial property yields, industrial properties have largely offset this through rental factors. For instance, vacancy rates have fallen across all Australian states, with average net face rents experiencing quarterly increases in Q4 2023. This supply–demand disparity, coupled with the ongoing demand for modern warehouse spaces, may continue to drive upward pressure on rents for the more sought-after properties and areas. According to our research, numerous articles underscore the industrial property sector’s attractiveness as a sound investment across Australia. Although certain markets, such as greater Sydney, have outperformed others, all regions have witnessed some degree of uplift. Notably, the current performance of markets such as Perth and Brisbane indicates further growth potential.

As demand for commercial property rises, so does the likelihood of price increases, especially with falling interest rates on the horizon. Anticipating market shifts, Thinktank has raised its maximum loan sizes to cater for Full Doc Commercial and SMSF transactions up to $8 million, offering committed 25-year loan terms without performance covenants or fees. Additionally, our Mid Doc Loan now provides lending solutions of up to $6 million, based on self-certification and minimal income documentation. The industrial market’s performance has unlocked numerous opportunities for Thinktank to assist brokers and their customers with purchases, refinancing and equity release. We look forward to making available our expanded offerings to help brokers capitalise on emerging opportunities and navigate market dynamics effectively.

Thinktank was originally established nearly 20 years ago as a specialist commercial lender, so we have deep commercial experience and offer a range of education sessions based around empowering brokers to successfully diversify into the commercial space.

“Anticipating market shifts, Thinktank has raised its maximum loan sizes to cater to Full Doc Commercial and SMSF transactions up to $8 million, offering committed 25-year loan terms without performance covenants or fees”

How heated is the industrial property market, and what measures can brokers take to meet their customers’ demands for loans to acquire and refinance these assets?

Published 02 Apr 2024

“The Thinktank Relationship Manager team are ready to discuss potential transactions. Engaging with a trusted partner who can quickly workshop a scenario or application and provide support through the process can make all the difference”

Belinda Wright, Thinktank

We recommend that brokers establish a partnership with their Thinktank Relationship Manager and reach out to them in the first instance. Engaging with a trusted partner who can quickly workshop a loan scenario or application and provide support throughout the process can make all the difference. Our L&D team comprises Regional Sales Executives and other senior members in our business. Each has more than 25 years’ experience in commercial and business lending that enables us to adapt our training to suit and meet each individual broker’s training requirements and preferences. Our team is always on hand to discuss potential transactions and guide brokers from workshop to settlement, ensuring a seamless experience.

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Belinda Wright, Thinktank

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People

Firms

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E-newsletter

Australian Broker Talk

Events

White papers

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Australian Broker Talk

Resources

Sector Focus

Power Panel

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Investment Loans

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