Subdued demand displayed amid low availability

• Gross take-up in the Sydney industrial market was below average for the third consecutive quarter in 4Q22, totalling about 116,100 sqm. Total take-up decreased by 42% relative to 3Q22 and was 50% below the 10-year quarterly average (about 230,200 sqm).
• Demand was led by the Manufacturing sector for the first time since 3Q19, accounting for 47% of gross take-up (54,600 sqm). The balance of the quarterly gross take-up figure came from activity in the Retail Trade and Transport, Postal & Warehousing sectors, accounting for 23% (26,200 sqm) and 21% (24,500 sqm), respectively.

Record supply delivered in 2022 despite ongoing constraints

• Five projects reached practical completion in 4Q22, totalling about 108,800 sqm of new stock, a level (19%) below the 10-year quarterly average (about 134,800 sqm). Despite supply chain disruptions easing, new stock delivery continues to be restricted by high construction costs and increasingly limited land availability.
• JLL is currently tracking about 706,000 sqm of stock under construction in the Sydney industrial market, 39.3% of which is pre-committed. Over the next six months, about 281,200 sqm of new stock is due to come to market, 51% of which is already pre-committed. New stock delivery over the next six months will be heavily weighted towards the Outer South West precinct (59%).

Rental growth persists following record year

• Low speculative stock delivery and increasingly tight availability continue to place upward pressure on rents. Average prime rental rates grew across all precincts in 4Q22, with the strongest quarterly growth recorded in the Outer Central West precinct (3.8% q-o-q). Secondary rental growth outpaced the prime market, with the highest quarterly growth recorded in the Outer Central West (8.4% q-o-q).
• Transaction volumes increased substantially in 4Q22, totalling AUD 745.9 million, 31% above the 10-year quarterly average (AUD 567.2 million). Investment transactions accounted for 73% of transaction volumes, while new development sites comprised 20%. Owner-occupier sales accounted for the remaining 8%.

Outlook: Further yield decompression and rental growth ahead

• Despite subdued gross take-up, demand for space remains strong. However, leasing activity is ultimately restricted by a lack of available space and limited speculative stock delivery. Sustained demand for industrial facilities, coupled with easing supply chain delays and existing structural tailwinds, is likely to support confidence and strong new stock delivery in the Sydney industrial market.
• Rental growth is expected to stabilise over the short to medium term, following a record year of growth in 2022. Further yield softening is expected amid an environment of increasing domestic interest rates, higher bond rates and the expectation of lower global economic growth over the short term.