For investors aiming to strengthen and diversify their property portfolio, industrial and retail real estate could be a highly effective combination.
Individually, each offers distinct benefits; together, they create a complementary investment strategy that can reduce risk, increase resilience and generate steady returns.
Industrial: essential infrastructure for the e-commerce era
Industrial properties have seen significant investor interest, with Australia’s logistics and industrial market recording $3.8 billion in transactions by early September 2024, a 50% rise from the previous year, according to Cushman & Wakefield.
This surge is largely driven by the unstoppable growth of e-commerce.
With Australians increasingly shopping online, the need for warehouses and distribution centres close to population hubs is rising. Additionally, supply chain diversification and re-shoring trends mean businesses are investing in more storage and logistics spaces locally, creating steady demand for industrial assets.
“Industrial assets give investors a foothold in a sector that’s becoming more critical by the day,” Tas Costi, co-founder of Costi Cohen, explains.
“From a tenant perspective, demand is high, and leases are often long-term, which offers stability for landlords. Plus, the ongoing demand means industrial properties are generally easy to lease and can provide steady income.”
Industrial spaces are often low-maintenance, with tenants typically taking on responsibilities for repairs and upkeep. Additionally, they have low vacancy rates, especially in high-demand areas close to transport hubs or major cities, where available land is limited.
The retail revival
Retail properties have faced some hurdles, especially during the pandemic, as the shift to online shopping accelerated. However, traditional retail isn’t going away; it’s evolving.
Many retailers are leaning into the experience economy, offering in-store experiences that online shopping can’t replicate. Think boutique stores, niche cafes, gyms and experiential spaces. The rise of mixed-use developments has also helped reinvigorate retail spaces, combining shops with residential and office areas to create vibrant, multi-use neighbourhoods.
“Neighbourhood retail centres, particularly those focused on essential services and convenience, tend to perform well regardless of economic fluctuations, as people will always need access to grocery stores, pharmacies and other essential services,” Tas Costi says.
Investor sentiment in the retail property market is showing signs of improvement, according to Knight Frank’s latest Australian Retail Review. Deal volumes surged 46% year-on-year to $3.9 billion in the first half of 2024, signalling growing confidence in retail as a resilient investment.
Retail assets offer investors several benefits. For one, retail leases tend to include annual rent escalations, providing a built-in hedge against inflation. Tenants in these spaces also often invest in fit-outs, making the space more attractive and functional – at their own cost. And with retail centres designed for foot traffic, tenants benefit from visibility, which helps keep occupancy rates high.
Balancing risk and reward with a mixed portfolio
Combining industrial and retail properties in your portfolio can be an effective way to balance the risks and rewards associated with each asset class. Industrial properties bring stability with lower management costs, while retail properties provide higher potential yields and adaptability in changing markets.
Tas Costi says another benefit of pairing these assets is geographical diversification.
“Industrial properties are often located in industrial precincts on city outskirts, while retail properties are typically situated in high-traffic areas closer to urban centres. This geographical spread means you’re less exposed to the risks of any single area and can benefit from broader economic trends across multiple locations,” he says.
Key considerations when investing in industrial and retail properties
If you’re considering adding industrial and retail to your portfolio, it’s important to approach each with a tailored strategy.
However, as with every property investment, remember:
- Location matters: For industrial properties, proximity to transport links and urban centres is key. For retail, focus on established neighbourhoods with good foot traffic and local spending power, ideally near residential areas.
- Quality tenants bring stability: In industrial, tenants often require specialised facilities, which can mean longer tenancies. For retail, aim for a mix of essential services and experiential offerings to draw a steady flow of visitors and support lease renewals.
As a leading commercial buyer’s agency, Costi Cohen helps investors acquire premium properties in key markets nationwide. Contact us today to find out how we can support your investment goals on [email protected] or 02 8934 3414.
