Industrial investors shunning soft NSW regional markets
Owner-occupiers are taking advantage of slumping industrial property prices to buy up properties in the regional NSW industrial markets of Newcastle and Wollongong.
In Wollongong, 95km south of Sydney, heavy and light industrial prices have fallen significantly in recent years, according to market analysis contained in the July 2011 Herron Todd White report.
Properties which sold prior to the GFC have subsequently changed hands at discounts of up to 40%.
Price falls have been greatest in land zoned for heavy industrial, with few recent sales available to establish current values.
The market has bas been “subdued for some time”, according to the report, with occupier demand effectively limited to companies which have a specific business need to be located within the Illawarra.
A lack of interest in Wollongong industrial space from outside the Illawarra region, combined with its inability to compete with Sydney, suggests rental growth is unlikely.
Consequently, there is little demand for industrial properties in the area with owner-occupiers accounting for the greatest proportion of sales in the area.
Industrial properties within Wollongong are achieving net face rental rates between $70 and $125 per square metre, in line with the rental rates achieved by properties within Western Sydney.
A similar story is being played out about 260 kilometres up the coast in Newcastle, where owner-occupiers are dominating an industrial market characterised by falling rental rates.
Herron Todd White’s Newcastle valuation team reports an increase in incentives offered for difficult-to-lease stock and rental rates “regularly below $100 per square metre “specialised in nature or with overhead gantry cranes”.
Two owner-occupier trends are emerging in Newcastle: the use of self-managed superannuation funds to purchase industrial properties, and smaller professional firms buying industrial units, fitting them out as offices and having an area of storage and parking in the warehouse component.
“This also allows for easy expansion, should they require more office space. We know of many set-ups like this as the entry price is cheaper than buying office space and usually parking is easier for staff,” the report says.
The expansion of the mining sector in Newcastle is having a small trickle-down effect, with some leasing deals and sales occurring “but not significantly so”.
An exception in the Newcastle market is the port area, where significant investment in coal infrastructure is being made in light of the mining boom.
However, according to Herron Todd White, it remains uncertain whether this investment will have a flow-on effect into the greater Newcastle area.
Similar softer market conditions are in play in Byron Bay on the NSW far north coast, where industrial property owners are being forced to accept low returns on their investments.