GIC-Backed ESR Fund Acquires Five Melbourne Industrial Properties for $73.5M

Industrial specialist ESR has expanded its footprint in Greater Melbourne with the acquisition of five income-producing properties via a GIC-backed fund for A$106.5 million ($73.5 million).

The assets in the suburbs of Truganina, Kilsyth, Keysborough, Port Melbourne and Dandenong in the Australian state of Victoria were purchased over the past two months on behalf of the core-plus ESR Australia Logistics Platform II (EALP II). The properties have a weighted average lease expiry of 5.69 years and a weighted average capitalisation rate of 4.46 percent, Hong Kong-listed ESR said Tuesday in a release.

The Australian business has been experiencing robust leasing enquiry, particularly from customers in Melbourne seeking quality sites in prime locations, said ESR Australia CEO Phil Pearce.

“The Victorian industrial market is proving to be a source of great opportunity, and ESR Australia is delighted to be ramping up our presence and capitalise on these opportunities,” Pearce said. “Given the record high occupancy and record levels of demand being experienced across the major markets we expect rental to compensate for any expansion in cap rates following substantial compression over the past year.”

Port of Intrigue

The Port Melbourne asset, acquired for A$28.1 million, consists of two sites at 102-130 Turner Street that were combined into a single parcel. The property is ESR’s closest to the Melbourne CBD and has three warehouses leased by multiple tenants.

“Port Melbourne is going to see a major transformation over the next 10 years, and when a rare opportunity presented itself to acquire assets within the Fishermen’s Bend ‘Employment Precinct’ we seized the opportunity,” Pearce said.

The Dandenong South property at 4 Healey Road, acquired for A$15 million, comprises a 1.8 hectare (4.4 acre) site with two years of holding income. The site provides the option to either re-lease or redevelop when the tenant vacates.

The 22,850 square metre (245,955 square foot) Kilsyth site at 147-153 Canterbury Road, acquired for A$22.2 million, has undergone more than A$1 million in infrastructure upgrades over the past five years. It is fully leased to B&D Australia, a subsidiary of paint maker Dulux Group, which has occupied the site for 50 years and recently renewed its lease to 2027.

The 1.9 hectare Keysborough site at 321-327 Greens Road was built in 2021 and acquired for A$25 million off-market. The four-unit logistics estate is fully leased to embedded tenants on first-generation leases.

“The acquisition of the sites in Dandenong South, Kilsyth and Keysborough play into EALP II’s core-plus strategy to acquire sites in Melbourne’s land-constrained Southeast,” Pearce said. “These three income-producing sites will further establish ESR Australia’s presence on the ground, and with the sustained growth of demand, we anticipate healthy returns.”

Partnerships Progress

EALP II is the follow-up to ESR Australia Logistics Partnership, an open-ended vehicle also backed by Singapore sovereign fund GIC, with EALP comprising A$1.2 billion in assets under management across 25 hectares of industrial development land.

In late 2021, EALP II acquired a 13,290 square metre logistics property at 18 Fairchild Street in Melbourne’s Heatherton suburb, further boosting the second fund’s portfolio in Victoria.

ESR and GIC also have a develop-to-hold logistics fund, ESR Australia Development Partnership, which has four projects on the country’s eastern seaboard and a forecast completion value of A$1 billion.