APPD Market Report Article


November 29, 2022

Annabel McFarlane, Senior Director - Research, Australia


AUD 179


Increasing take-up returns amid low vacancy and strong supply

  • Occupier activity in the Sydney industrial market was below the 10-year quarterly average for the second consecutive quarter in 3Q22, totalling around 193,000 sqm. Although this was 16.2% below the 10-year quarterly average (about 230,200 sqm), total take-up increased by 40.9% relative to 2Q22.
  • Demand was led by the Transport, Postal and Warehousing sector, which accounted for 62.8% (about 121,200 sqm) of total take-up, followed by the manufacturing sector, which comprised 20.3% (about 39,200 sqm).

Level of stock under construction show record supply in 2022

  • Nine projects reached practical completion in the quarter, totalling about 187,600 sqm of new stock, a level (43.2%) above the 10-year quarterly average (around 131,000 sqm). Diminishing land availability and continued construction delays from supply chain issues and rising construction costs have caused the delay of several projects that were due to complete in 3Q22.
  • JLL currently tracks about 684,600 sqm of stock under construction in the Sydney industrial market, 46.5% of which has been pre-committed to. Over the next six months, about 281,400 sqm of completions are due to come to market, 50% of which is already pre-committed. New stock delivery over the next six months will be concentrated in the Outer Central West (42%) and the Outer South West (41%).

Display of strong rental growth across all grades and precincts

  • Limited speculative supply delivery, increasingly low vacancy and persistent occupier activity have applied upward pressure on rental rates. Prime rental rates grew across all precincts in 3Q22, with the Outer North West experiencing the most significant growth at 21.0% (q-o-q). In the secondary market, the Outer South West produced the strongest quarterly growth at 15.2%.
  • Transaction volumes declined moderately in 3Q22, totalling AUD 488.8 million, a level (13.3%) below the 10-year quarterly average (AUD 563.7 million). New development sites accounted for 56% of transaction volumes. Investment transactions accounted for 30%, a significant decrease relative to the prior six months, while owner-occupier sales accounted for 14% of transaction volumes.

Outlook: Yield decompression and heightened rental growth to remain

  • Despite below-average gross take-up, occupier demand remained strong but was ultimately restricted by increasingly low vacancy and a low level of speculative stock delivery. The existing structural tailwinds and sustained level of occupier demand will likely support confidence and higher new stock delivery in the Sydney industrial market, despite supply chain delays and rising construction costs.
  • Transaction volumes are likely to decline over the short term as investor demand slows, due to a mismatch between buyer and vendor expectations. Yields are expected to soften further over the short- to medium-term amid strong rental growth in a high bond rate environment.

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

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