Sydney's industrial construction pipeline to hit pre-GFC levels in 2017: LJ Hooker
Construction in Sydney’s industrial sector is likely to reach pre-GFC levels over 2017 as retail habits change and and the entry of giants like Amazon being a potential game changer, according to a forecast by LJ Hooker.
Planned industrial construction across Sydney this year is set to rise 28% from 2016 to more than 720,000 square metres, says the firm's latest Industrial Market Monitor report.
The outlook represents continued confidence from developers who delivered 560,000 square metres of new stock in Sydney in 2016, a 25% increase on 2015.
Developers have been reinventing the industrial sector over the last five years to address the changing economy, said LJ Hooker’s head of commercial Christopher Mourd.
“We’ve seen somewhat of a new industrial revolution, especially through Sydney,” said Mourd.
Despite the rise in construction, rents were largely stable across the city last year, as net absorption offset the withdrawal of stock for residential repurposing, except in the city’s south where prime rents rose 9% to $161 per square metre due to a scarcity of stock.
Until 2020, rents are tipped to grow 5.5% on average across the city’s Outer, Inner-West and North industrial hubs, which finished 2016 with average rents of $113 per square metre, $133 per square metre and $168 per square metre, respectively. Rents in the city’s south, however, could grow at twice that rate over the period, says the report.
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As an example of the boom, stage one of Charter Hall’s M5/M7 Prestons logistics park in Western Sydney became the latest distribution facility to be fully-committed ahead of completion.
Specialist FMCG distributor BAM Wine Logistics has committed to 10,300 square metres of logistics space in the park on a seven-year lease term. The lease, secured by LJ Hooker’s Marcel Elias, is for $1,163,900 net (excluding GST) equating to $113 per square metre.
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The wave of construction is also continuing in Victoria. Warehouse commitments from major operators including Woolworths, Target and The Reject Shop were set to maintain healthy construction levels.
Last year Melbourne attracted nearly $1 billion worth of development across 500,000 square metres. Nearly 100,000 square metres was commenced without a tenant pre-commitment.
In Brisbane, at the smaller end of the market, the lack of construction since the GFC has seen the large surplus of industrial units absorbed and the emergence of the first signs of pent-up demand.
“The retail sector has undergone a structural change in response to consumer habits, and that has reinvigorated the industrial market. Retailing has joined logistics in driving the change and developers have responded with a program of large warehouse developments focused on maximising efficiencies,” said Mourd.
“With the likes of Amazon planning a major foray into Australia, the industrial sector is attracting major developer activity.”
He said that LJ Hooker’s agents have reported strong levels of enquiry from private landowners looking to sell to developers to realise the capital growth in their assets, while existing landlords are seeking guidance on re-purposing.
“In 2016, not a single speculative development within Western Sydney was completed prior to securing a commitment from a tenant which is unprecedented,” added Elias, who is director, LJ Hooker Commercial Silverwater.