Tenant demand pushes industrial vacancy to below 1% in Sydney’s outer west: CBRE
Sydney’s outer west is seeing a wave of speculative development in industrial property as tenant demand outstrips supply and A-grade vacancy shrinks, according to an analysis by commercial real estate firm CBRE.
CBRE’s Peter Blade said demand for new industrial space across the outer west market was at a record high, and upward pressure on rental rates would continue.
As vacancy levels for A-grade industrial stock in the area dip below 1%, the demand-supply imbalance is driving upward pressure on rents.
“In the outer west, we are continuing to see strong levels of demand from third party logistics (3PL) providers, which have multiple existing contracts coming up for tender and renewal,” Blade said.
“Meanwhile, we are also seeing a number of corporate occupiers looking for greater efficiencies within their supply chain in a bid to remain price competitive with their customer base.”
This means they are either consolidating multiple sites into a single, bigger distribution facility or by outsourcing storage and distribution operations to a 3PL provider.”
According to CBRE, pre-leases averaged $104.50 per square metre, while speculative developed buildings averaged $115 per square metre across all industrial leasing transactions undertaken in Western Sydney from 2013 – 2016,
“As we continue to see demand outstrip supply of new industrial properties in the outer west, we expect to see pressure remain on the rental rates PSM and an easing of incentives,” Blade explained.
Evidencing the tenant demand, Blackmores recently inked a new lease on a 17,000 sqm facility at 647 Great Western Highway in Eastern Creek. The supplement specialist has committed to a five-year term for an annual rental of $122.50 per square metre.
Meanwhile, GML has signed a 10-year lease on a 5,345 sqm property at Greystanes from DEXUS, to accommodate its Western Sydney operations. The annual rental for the property at E4 Quarry is $124 per square metre.
YES Shop has committed to a 4,250 sqm property at 1-5 Interchange Drive in Eastern Creek. The Goodman property was negotiated for an annual rental of $123 per square metre over five years.
CBRE’s Greg Pike said to meet rising demand for new industrial property, there was currently 120,000 sqm of speculative development under construction from owners including Goodman, DEXUS, Frasers, Stockland, Logos, Charter Hall and GPT.
While there had been a lot of speculation that the demand-supply imbalance was a flow on effect of the 2015 ANZAC day hail storms, more factors were at play, added Blade.
Constraints in existing building stock (5,000 sqm plus), limited land supply across the Western Sydney market and the continued pressure occupiers are facing in the central west and South Sydney markets are some of those factors, he said.
“This is stemming from the redevelopment of traditional core industrial markets for either government infrastructure expansion projects or redevelopment and conversions,” Blade said.
“We don’t expect to see this trend ending any time soon, and as result, those owners speculatively developing are the major beneficiaries. Speculatively developed sheds are on average achieving rental premiums of between 8% and 10% for the same, if not less, incentive then those who wait to secure pre-commitments.”
A significant pipeline of stock is expected to enter the market in the next six months, mainly in the suburbs of Eastern Creek, Erskine Park and Greystanes, added Pike.