The Goodman Group (ASX: GMG) share price has soared more than 30% over the past year. Is it the best ASX property share to buy?
This business is an integrated property group with operations in Australia, New Zealand, Asia, Europe, the UK and the Americas. It owns, develops and manages industrial properties in its various markets.
Strong market fundamentals
The business mainly owns large warehouses, with tenants like Amazon. But, it’s also expanding into data centres.
In-fact, 25% of Goodman’s work in progress relates to data centres. There are several sites owned by the group and partnerships currently under review for potential data centre use.
The pipeline’s opportunities are geographically spread across 12 cities and are in locations consistent with its approach to logistics, being large consumer-focused ‘infill’ markets with “high barriers to entry”.
In terms of its main industrial warehouse strategy, Goodman recently said:
Underlying structural drivers within the digital economy are continuing to support property fundamentals across our portfolio as industrial demand normalises post pandemic. Our customers are prioritising location and quality as they require more productive, modern and efficient space in an increasingly uncertain economic environment.
Thanks to supply-constrained markets, Goodman was able to report portfolio occupancy of 99% for the September 2023 quarterly update and a weighted average lease expiry (WALE) of 5.4 years. In other words, those tenants are signed up for a number of years. It also reported 12-month like for like net property income (NPI) growth of 4.9% – that’s a solid growth rate.
Goodman is expecting strong rental growth in the future as contracts are renewed, which should be helpful for Goodman shares.
While higher interest rates may impact the ASX property share’s real estate values, it’s not really affecting the operating profit. It could present opportunities “given the strength” of its capital position.
Big development pipeline
Competition for land from a wide range of alternative uses is “continuing to provide opportunities”, including multilevel industrial and data centre development.
At 30 September 2023, it had work in progress of $12.7 billion, with $7 billion of annualised production. It already has 62% of its WIP committed by future tenants – the business has a yield on cost on commencements of 6.5%.
This will add to its existing assets under management (AUM), which reached $82.9 billion at September 2023.
Final thoughts on Goodman shares
Goodman is probably one of the best ASX property shares out there, along with a name like Brickworks Limited (ASX: BKW).
Its ongoing project completions will help push up the value of the business, while rental income look set to keep growing strongly in the years ahead. I’m not sure if it’s great value today, considering the share price rally and the high interest rates. But, I wouldn’t be surprised if the Goodman share price kept rising over time.