The NSW government’s decision to fast track the rezoning of 850 hectares of land for industrial use near the future Western Sydney Airport is already leading some landlords of existing serviced sites nearby to drop rents in order to lock in tenants before a wave of new space comes on the market.
The rezoning was announced in June as part of the expedited approval of the $2.6 billion Mamre Road Precinct – one of 12 key precincts in the Western Sydney Aerotropolis – in response to the COVID-19 economic downturn.
The announcement led ASX-listed developer Mirvac to confirm that it would push ahead with an application for expedited planning approval for its planned Aspect Industrial Estate in the Mamre Road precinct.
The precinct is located within the Penrith local government area and includes large parts of the suburb of Kemps Creek as well as the north-western portion of Mount Vernon. It is located directly south of the Erskine Park industrial area and currently consists of primarily rural residential allotments, including small farms and market gardens.
It has been rezoned to allow for a range of industrial uses, including the establishment of freight and logistics facilities.
The government said the move would pave the way for “a significant boost to jobs and investment in the region” as part of its Planning System Acceleration Program.
“This land release will provide opportunities for international and domestic businesses to invest in Western Sydney, enabling major warehousing, logistics, manufacturing and circular economy operations to be established,” NSW Premier Gladys Berejiklian said at the time.
“It will also bring a huge jobs boost to the region, creating opportunities for more than 5200 jobs during the construction phase alone.”
Pressure to complete deals
Jack Moroney, a director at supply chain and property consultancy TM Insight, said news of the rezoning had already been contributing to an increase in leasing activity in the area, with owners of existing serviced sites ready for warehouse development willing to offer increased incentives and reduced face rents to get a deal over the line before the new supply comes online.
The rezoning, combined with the economic environment created by COVID-19, had “flipped” the dynamics in Sydney’s industrial market, with tenants now in the box seat in markets such as Marsden Park, Eastern Creek and Erskine Park, he said.
“Tenants who are willing to invest now can secure short-term commercial and delivery benefits, but also long-term operational upside as they will be ready and well positioned for the economic recovery,” he said.
“This mass rezoning is seeing owners of pre-existing serviced industrial sites in Western Sydney now being highly competitive to finalise transactions over the next six to 12 months to mitigate their exposure to the increased land supply.”
These new dynamics were already arising in the market, according to Mr Moroney, who said TM Insight – which represents tenants – had negotiated more than 88,000 square metres of transactions in the western Sydney market in a single fortnight in July, with clients hailing from the pharmaceutical, retail and e-commerce industries.
These transactions included “two new highly bespoke purpose-built distribution centres both over 30,000 square metres in North Western Sydney”.
He said the firm had another 100,000 square metres of enquiries “looking to transact soon”.
In addition to incentives and rent reductions, Mr Moroney is witnessing landlords who are also willing to bear the brunt of costs associated with bespoke tenant fit-outs, he said.
Ray White head of research Vanessa Rader said COVID-19 would probably push up the vacancy rates of some industrial properties as companies were forced to the wall, but incentives offered in coming months would probably be restricted to smaller-scale warehouses in older estates in areas such as Silverwater and surrounds, she said.
“[It is] small business-type accommodation which may be affected. We know that distribution and logistics is having a beneficial impact by COVID-19 as we have a greater need for storage and delivery not to mention cold storage impacted by our increase in supermarket retailing consumption.”
Welcome addition of supply
Ms Rader said the rezoning announcement was a welcome boost to a market that had been increasingly constrained in recent years.
“I think that the rezoning to industrial is actually much needed. Sydney’s vacant developable industrial land is very limited and we are approaching an undersupply position for quality, well-located-to-infrastructure industrial land,” Ms Rader said.
“Let’s remember the huge reduction in industrial land over the last 15 years which Sydney has seen around the Sydney Airport and Sydney South precincts, with the movement to residential development.”
She said that the focus on e-commerce during the COVID-19 pandemic had created increased demand for the large-scale automated facilities likely to be constructed in the new precinct.
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