Logistics & Industrial Capital Markets 2024 Outlook Report

Strong financier/leverage appetite in the industrial space following generational tailwinds In terms of asset specific lending opportunities, L&I assets continue to drive strong lending appetite as they benefit from the acceleration in structural shifts and supply and demand imbalance. Given these market characteristics, some financiers are now requiring much lower, even close to zero, presales/leasing prior to the approval of industrial asset development funding, enabling developers of these assets to benefit from any future rental growth and so highlighting the strong debt appetite for L&I assets in Australia. Borrowing costs and terms remain tight on ‘core’ assets and strong asset portfolios In terms of pricing and leverage, stemming from the strong market conditions, interest margins and interest-coverage-ratio (‘ICR’) covenants remain extremely competitive across funders. Historically, ICR covenants, covenants which show the ability of a borrower to service the interest on its outstanding debt from the income of the underlying property or portfolio, were routinely set by major funding institutions at 1.5x ICR. However, following the significant growth in benchmark rates, major banks are now exploring appetite below these servicing levels to ensure they are not missing out on lending opportunities to quality borrowers. Tying in with the competition growth via non-bank lending and the overall perceived strength of the Australian L&I sector, pricing for ‘core’ L&I investment assets (with strong tenants on acceptable covenants/ lease terms and leverage) can drive interest margins below traditional pricing benchmarks.

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