The demand for warehouses in Sydney is pushing up rents for these premises at a faster rate than at any time in recent years, a new report has found.
According to Knight Frank’s latest Sydney Industrial Market Brief, prime net face rents for industrial real estate increased by 3.2 per cent year-on-year, the highest level of growth in 10 years.
This had largely been driven by logistics companies, and e-commerce and consumer goods retailers, said Knight Frank’s head of industrial NSW, Tim Armstrong, adding that this demand was not expected to slacken off any time soon.
“Sydney has had significant growth,” he said. “Third-party logistics groups like DHL and Linfox are picking up contracts and that will continue as we go forward. There will be big growth going forward.”
Prime net face rent is the rental rate excluding incentives, increases and building costs, for a building with a modern design in good condition, with office space taking up 10-30 per cent of the asset.
The report found that along with a strong state economy, the big expansion from international players like Aldi and Costco has also driven this growth.
There are currently more than 540,000 square metres of new industrial space being completed across Sydney, up 18 per cent year-on-year, with most of this space already ”pre-committed”.
Sydney’s outer-west has led the way in terms of industrial space, with up to 342,000 square metres already completed.
“That’s where the land is – the industrial market just continues to sprawl and push further out,” Mr Armstrong said.
Speculative developments – unused land bought for a potential development – have been achieving favourable leasing results in Sydney, with more than 70 per cent leased prior to or at completion.
The report found that investor demand in Sydney has remained strong in 2016, but a lack of industrial space on the market has seen the volume of sales drop 22 per cent year-on-year.
The 12-month period ending in November saw just over $2 billion worth of industrial properties traded.
But the supply side is set to quickly increase to match the demand on the back of solid pre-commitments and leasing requirements for larger spaces covering more than 10,000 square metres.
“It’s more of a blip on the radar,” Mr Armstrong said. “There are a number of significant deals in the wings that we expect to be finalised in the next quarter.”
“Nothing lasts forever but we don’t see 2017 softening in any respects. We think we’ll see it as a continuation of 2016,” he said.
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