APPD Market Report Article

Sydney

May 26, 2024

Annabel McFarlane, Head of Strategic Research, Australia

8.2%

AUD 210

Growth
Slowing

Leasing activity slows

  • Occupier activity in Sydney’s industrial market slowed in the quarter, reaching 71,200 sqm, significantly below the ten-year quarterly average of 231,900 sqm.
  • Demand was led by the transport, postal and warehousing sector, accounting for 44.4% of activity for the quarter, followed by manufacturing at 22.8%. Of the nine occupier moves recorded in the quarter, the largest deal was the three-year lease of 15,941 sqm in Eastern Creek by ACFS Port Logistics.

New stock decreases q-o-q but remains above historical averages

  • Nine projects reached practical completion in the quarter, adding 191,200 sqm of stock to the Sydney industrial market. Although this was a 44.8% decrease q-o-q, supply delivery exceeded the ten-year quarterly average (141,100 sqm).
  • JLL is tracking 699,400 sqm of supply currently under construction, of which 42.4% is pre-committed. New stock delivery will be concentrated in the Outer Central West, with 67.8% of developments under construction located in the precinct.

Rent growth persists

  • Rent growth has persisted but slowed in the Sydney industrial market, with single-digit q-o-q growth recorded across all precincts, which has been offset by rising incentives. South Sydney’s growth has remained the strongest in 1Q24, with 6.4% quarterly growth and 41.0% y-o-y growth.
  • Investment market activity was strong in 1Q24, totalling more than AUD 1.3 billion, more than triple the ten-year quarterly average (AUD 404.6 million). New development sites accounted for 89.9% of total transaction volumes for the quarter, largely due to two significant land sales to institutional investors.

Outlook: Slowing rent growth with incentives normalising

  • Rent growth is expected to continue. However, incentives are expected to rise as developers compete to secure tenants at current rent levels. Despite a robust supply pipeline, high construction costs and land servicing issues are likely to delay the delivery of projects that currently have approved plans, particularly speculative developments, as pre-lease activity has slowed.
  • Industrial transaction volumes are expected to remain strong due to a narrowing between buyer and vendor expectations and a more stable economic outlook. Yield decompression is expected to end, with yields expected to begin stabilising over the long term in 2024.

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

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