APPD Market Report Article

Sydney

December 1, 2021

4.8%

AUD 132.9

Rents
Rising

Take-up from logistics sector reaches record high in Sydney

  • Occupier activity in the Sydney industrial market was above the 10-year quarterly average for the sixth consecutive quarter in 3Q21, totalling 379,500 sqm. Whilst this was a 17% q-o-q decline, it is still 77% above the 10-year quarterly average (214,200 sqm).
  • Demand was led by the transport, postal and warehousing sector, which recorded 213,100 sqm of gross take-up for the quarter, 20% higher than the previous record high for the sector. This illustrates the continuing impacts that logistics and supply chain challenges are having upon the industrial sector.

Construction industry restrictions hinders new supply delivery

  • Four projects reached practical completion this quarter, totalling 83,800 sqm of new stock, 33% below the 10-year quarterly average for the Sydney market. A number of projects that were due to complete this quarter were delayed as a result of COVID-19-related construction industry shutdowns and have been pushed to 4Q21.
  • There was no speculative space delivered in the quarter, with all four projects fully pre-committed prior to completion. This lack of space is a consequence of reduced development volumes throughout the pandemic. We are currently tracking 505,500 sqm of completions which are due to come to market over the next six months, although availability is limited with 68% of stock already pre-committed.

Prime market yield midpoint falls below 4% for first time

  • Below-average asset delivery and expanding occupier activity when coupled with growing land values, has applied upward pressure on rental rates. Prime rental rates grew across all precincts both over the past 12 months and throughout 3Q21, with the Inner West experiencing the most significant growth at 4.0% q-o-q.
  • Transaction volumes increased sharply from 3Q21 to AUD 1.18 billion, more than doubling the 10-year quarterly average (AUD 478.7 million). The quarter’s transaction volumes were the highest on record, surpassing the AUD 1 billion mark for the first time since 4Q15. Investment transactions accounted for 50.8% of total volume for the quarter, closely followed by new development sites (45.8%).

Outlook: Confidence and activity to increase amidst lockdown exit

  • Demand has continued to climb despite prolonged lockdowns in Greater Sydney, while the effects on supply of an earlier construction ban are still being felt. However, the existing structural tailwinds coupled with the recently expedited exit from lockdown throughout 4Q21, is likely to further encourage confidence and activity in the Sydney industrial market.
  • Strong investor demand continues to be evident for assets in the Sydney logistics and industrial market. Yields are expected to compress further over remainder of 2021 due to a considerable volume of capital seeking exposure to the Sydney industrial market. Yields are expected to remain at record low levels for longer than previous cycles, supported by record-low bond rates.

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

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