This fund invests in ‘ugly duckling’ property, and that’s just how they like it

David Thornton

Livewire Markets

One could be forgiven for assuming that investments in commercial property don’t make much sense at the moment - in light of COVID, inflation and rising rates. While this may be the case in many corners of the property market, industrial property has remained largely unaffected.

Property is a physical asset that’s easy for people to visualise. And when they do, they picture luxury property, office buildings and retail complexes housing high-end brands.

Yet COVID and rising rates have made many of these investments, shall we say, unreliable. We all know what COVID did to the retail sector, while the new age of hybrid work arrangements has fundamentally shifted office occupancy rates.

Indeed, as of August 9, the S&P/ASX 200 A-REIT Index is down 18.55% over the calendar year.

The industrial property Trilogy Funds invests in stands in stark contrast. It’s boring, but in a turbulent market, boring is good.

“Pre-covid, industrial assets were considered the ugly duckling area of the property market,” says Philip Ryan, Managing Director at Trilogy Funds.

“People think of those things as beach sheds and single tenant; not as sexy as retail with high end brands, nor is it an office building.”

The headwinds noted above have barely been a blip on the radar for industrial property.

“Through covid, industrial property has had very little vacancy,” says Ryan. “We’ve got no rent arrears in our portfolio, nor have we had to pay any incentives or rent assist. And we have full occupation.”

This is borne out in the data.


H2 2021 vacancy rate H1 2022 vacancy rate
Sydney 0.4% 0.3%
Melbourne 1.3% 1.1%
Brisbane 2.3% 1.4%
Adelaide 1.6% 0.9%
Perth 1.8% 0.5%

Source: CBRE. Based on 5,000sqm-plus NLA buildings in Sydney and Melbourne and 3,000sqm-plus NLA buildings in Brisbane, Adelaide and Perth

“From 6.3% at the end of 2019, Australia’s I&L vacancy rate has trended down, to its current record low of 0.8%,” Sass J-Baleh, CBRE’s Head of Industrial & Logistics Research Australia, stated last month.

“Although vacancy rates around the globe have also fallen over the past 12 months in particular, Australia now has the lowest national vacancy rate globally, and Sydney the lowest vacancy rate of any city.”

This has put the ball squarely in the court of owners like Trilogy Funds.

“The depth in demand is giving owners and developers significant choice, and only occupiers with the strongest covenants are winning the right space,” adds Cameron Grier, Regional Director of CBRE Industrial & Logistics in Pacific.

This sentiment is echoed by Ryan.

“At the end of the day, it’s the quality of the tenant that’s paramount.”

“That’s our number one focus, buying assets to fill with tenants like Komatsu, Tempur Sealy and Stoddart Group.”

Insulated against inflation

The rents paid for these assets move with rates.

“Rent reviews are generally tied not just to inflation but also a fixed rate, and they can be ratcheted up depending on what’s the higher rate. In the past, if the fixed rate was 3% or 4%, that’s the amount that would be applied in low inflationary times, while in high inflationary times it’s reflected in the CPI.”

There’s also the affect inflation is having on the construction industry – with many builders going bust due to rising input costs and labour problems associated with COVID.

But this is yet another bullet Trilogy Funds have avoided.

Gaining exposure

Trilogy Funds runs three trusts that each include exposure to industrial property, to varying degrees.

The Trilogy Industrial Property Trust is the pure play of the three, a pooled fund with holdings in 14 industrial properties across Queensland, New South Wales, Victoria and South Australia.

Source: Trilogy Funds

As of July 31, the trust has returned 7.55 cents per unit per annum since it was launched in January 2018.

The Trilogy Monthly Income Trust is a pooled mortgage investment, providing investors with exposure to returns available through loans secured by registered first mortgages over Australian property, including residential, commercial, industrial, and retail property sectors in Australia.

It’s delivered an annual net distribution rate of 7.47% per annum since it was launched in 2007, with 5.05% per annum over the past year.

Finally, the Trilogy Enhanced Income Fund occupies the middle ground and is “designed for people who would like exposure to the mortgage sphere, with a 35% exposure to the mortgage fund at any one time, but with the balance of the monies invested in fixed interest securities.” It’s achieved 3.53% per annum since inception in 2017, and 2.59% per annum over the past year.

About Trilogy Funds

Trilogy Funds is one of Australia’s leading fund managers and financiers of property-based investments. Click here to find out more. 


David Thornton
Content Editor
Livewire Markets

David is a content editor at Livewire Markets. He currently hosts The Rules of Investing, a half hour podcast where he sits down with leading experts across equities, fixed income and macro.

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