ESR, Frasers Take on $595M Melbourne Logistics JV on Former Salta Site

ESR, Frasers Take on $595M Melbourne Logistics JV on Former Salta Site

The seller is developing the adjacent 60 hectare site into a separate industrial estate (Image: Salta)

Hong Kong-listed ESR and Singapore’s Frasers Property are teaming up to develop an A$900 million ($595 million) industrial estate in suburban Melbourne as global investors look to Australia’s logistics market as a reliable source of returns in a challenging market.

Having acquired a 64.4 hectare (159 acre) parcel from local developer Salta Properties late last year, an ESR-Frasers joint venture is developing the site southeast of the Victorian capital into a logistic park, the companies announced on Thursday.

“The 50:50 structure of the JV with Frasers Property Industrial provides both parties access to the highly desirable Hall Road location and enables the combined might of the JV to deliver much-needed prime logistics facilities to Melbourne’s severely supply constrained southeast market,” said Phil Pearce, chief executive office of ESR Australia.

Gross take-up of Australian logistics facilities reached 648,596 square metres in the fourth quarter, exceeding the 10-year pre-covid average, with average rents rising 18.1 percent across the country, according to JLL with fund manager Abrdn in a September report attributing the sector’s attractive fundamentals to “a supply-demand imbalance exacerbated by a rapid reconfiguration of supply chains during the Covid-19 pandemic.”

2026 Opening Eyed

Construction on the site at 635 Hall Road in the suburb of Cranbourne is set to commence later this year, with the partners having acquired the site for over A$220 million, according to market sources. The first buildings in the developer are scheduled for completion in 2026.

ESR Australia CEO Phil Pearce (left) and Frasers Property Industrial managing director Ian Barters (right)

Salta said the disposal will support the firm’s growth plans and diversification strategy, with the company retaining an adjacent 60hectare plot which it plans to develop into a separate industrial estate.

Owned by Australia’s Tarascio family, Salta had earlier stated that it is embarking on an A$3 billion build-to-rent strategy in a bid to expand its existing $3.5 billion portfolio of commercial, industrial and residential developments in the country.

After the Melbourne shed market closed out 2023 with an average vacancy of just 1.2 percent, according to Cushman & Wakefield, ESR and Frasers are focusing their new project on development of logistics facilities, with a small portion of the land earmarked for sale as separate lots, according to the joint statement,

“Australia’s logistics and industrial sector has the lowest vacancy rate and highest rental growth in the world, so for many investors, it’s pretty hard to find an alternative compelling opportunity for investment,” Luke Crawford, head of Australia logistics and industrial research at Cushman & Wakefield told Mingtiandi in an interview last month.

During last year tenants leased over 1.4 million square metres of warehouses in the Melbourne area, with rents for prime facilities jumping by an average of 23.2 percent, the agency’s data shows.

Together Again

The Cranbourne project brings ESR and Frasers together again after the two real estate heavyweights in 2020 completed the sale of an eight-storey office block in the Victorian capital’s Mulgrave suburb to what is now CapitaLand Ascendas REIT in a A$110.9 million forward-funded deal for the development project.

Through their separate ventures the partners have delivered a combined 320 hectares of industrial estates in southeast Melbourne.

Ian Barter, Frasers Property Industrial’s managing director in Australia, said the development will integrate sustainability features and access to amenities to boost operational efficiency for its occupiers.

Pearce said the latest project builds on the success of ESR Greenlink industrial estate, an ongoing project located less than three kilometres from the Holland Road site, where it secured France-based CEVA Logistics as an anchor tenant two years ago.

Expected to yield eight to 10 warehouses across 79 hectares of land along Western Port Highway in Cranbourne West, Greenlink forms part of an A$1 billion logistics investment partnership ESR established with Singapore sovereign fund GIC.

Ramping Up Down Under

The upcoming industrial estate by ESR and Frasers is situated within a mature industrial hub about 50 kilometres (31 miles) from both Melbourne’s central business district and the city’s main port, providing advantages for e-commerce, manufacturing, logistics and distribution companies, according to the partners.

Occupiers also gain access to southeast Melbourne via the Western Port Highway, South Gippsland Freeway, EastLink and the future Dandenong South Inland Port being developed by Salta.

Andrew O’Connell from GO Commercial Industrial brokered the sale of the Hall Road site.

Industrial rents in Melbourne’s southeast are set to outperform the rest of the metro area this year, thanks to limited supply and vacancy of 0.7 percent in the entire eastern region at the end of 2023, according to a report by Cushman & Wakefield.

The project adds to Frasers 2.2 million square metres (23.7 million square feet) of industrial land bank in Australia which includes a 23.4 hectare plot in the city of Melton in Melbourne’s west that it is currently developing into a A$215 million logistics estate.

ESR has also been expanding its Aussie portfolio with the Melbourne project coming soon after the company acquired a logistics complex at Erskine Park in western Sydney from M&G Real Estate for A$107 million in November.

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