Frasers Property has wrapped up a five-year lease on an industrial property that it developed speculatively in Sydney’s outer west, amid a downturn in the supply of speculative projects in the area that may last into 2021.
The 15,900-square-metre warehouse and office facility in Eastern Creek will be leased to TTI Logistics, who are upscaling from a smaller nearby site. Annual net rent is just under $2 million for the property, which has an estimated end value of $45 million.
CBRE regional director Cameron Grier, who brokered the deal, said the lease was signed prior to practical completion and that this was becoming increasingly common in Sydney’s industrial heartland.
The area’s demand for speculative projects, which are properties that developers build without having secured a tenant, owed to the combination of two factors.
On one hand, some tenants did not plan sufficiently far in advance to secure a pre-commitment lease, forcing them to look at the limited pool of existing properties or to speculative developments.
“We think there’s about 90 per cent of tenants who don’t leave enough time to do a pre-commit,” Mr Grier said.
At the same time, the overall shortage of zoned industrial land in Western Sydney had restricted the supply of of speculative properties.
CBRE’s research found that 27,000 square metres of approved projects in the area were available for delivery in 2019, whereas the average take-up of speculative projects in previous years has been closer to 110,000 square metres. This reduction in supply was projected to last beyond 2020, in which only one building totalling 32,000 square metres has been approved and scheduled for completion.
Mr Grier said this was a “unique, tight period of time” for developers, who could receive a financial benefit for the risk they incurred by building on speculation.
Over the past three years, developers had achieved an average 5 per cent premium on face rental and paid 17 per cent less on incentives on speculative projects as opposed to pre-lease deals, according to CBRE.
“We believe the low supply of speculative projects will keep upward pressure on rents and lead to a further tightening of incentives,” Mr Grier said.
CBRE estimated that limited supply of industrial properties in Western Sydney may lead tenants to turn to the south west and central metropolitan markets, where speculative stock totalling 106,000 square metres and 208,000 square metres, respectively, are planned for delivery prior to 2020.
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