APPD Market Report Article

Sydney

May 31, 2022

6.3%

AUD 138

Rents
Rising

Elevated take-up continues for eighth consecutive quarter

  • Occupier activity in the Sydney industrial market was above the 10-year quarterly average for the eighth consecutive quarter in 1Q22, totalling 230,800 sqm. Whilst this was a 21% decline quarter on quarter (q-o-q), it is still 2% above the 10-year quarterly average (226,900 sqm).
  • Demand was led by the Retail Trade sector, which accounted for 35% (81,600 sqm) of total take-up, followed closely by the Transport, Postal and Warehousing sector (31%).

Strong stock pipeline will deliver supply record in 2022

  • Four projects reached practical completion this quarter, totalling 101,440 sqm of new stock, a 60% increase from 4Q21, however, a level still 18% below the 10-year quarterly average (123,200 sqm). Diminishing land availability and continued construction delays from supply chain issues, ongoing COVID-19 problems as well as the recent floods, have all hindered new stock delivery in 1Q22.
  • We are currently tracking 1,123,400 sqm of stock which is under construction in the Sydney industrial market, 60.2% of which has been pre-committed to. Over the next six months, 735,900 sqm of completions are due to come to market, although availability is limited with 71% of stock already pre-committed.

Accelerating rent growth evident across all precincts and grades

  • Subdued stock delivery, heightened occupier activity and strong land value growth, have applied upward pressure on rents. Prime rental rates grew across all precincts in 1Q22, with the Outer South West exhibiting the highest quarterly growth at 6.0%. Secondary rental growth outpaced the prime market, with the Outer Central West recording the strongest growth at 8.3% q-o-q.
  • Transaction volumes declined from record levels in 4Q21, totalling AUD 1.12 billion in 1Q22. Despite the 18% quarterly decline, transaction volumes for 1Q22 were still 111% above the 10-year quarterly average (AUD 530.8 million). Investment transactions accounted for 49% of transaction volumes, while new development sites comprised 44%.

Outlook: Strong rental growth and elevated supply delivery expected

  • Occupier demand has remained elevated despite low vacancy, with more groups seeking short-term leases while waiting for larger facilities to complete. Supply delivery is expected to increase sharply over 2022 after several consecutive quarters of delays. Strong rental growth is likely to continue over the short term amid low vacancy and strong occupier demand.
  • Yields are expected to remain relatively stable in the short-to-mid term amidst strong rental growth and elevated transaction volumes. Heightened levels of investor demand and existing structural tailwinds are likely to drive confidence and activity in the Sydney industrial market.

Note: Sydney Logistics & Industrial refers to Sydney's industrial market (all grades).

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