The factors changing the shape of Sydney’s industrial marketOctober 28, 2015 / By
I recently took a plane trip where I flew right over the heart of Sydney, heading west across the Great Dividing Range. My travel companion and I stared from the window as we swept across the easily recognisable industrial suburbs clustered on the M7 Motorway and the western Sydney land belt that will eventually become home to new industrial and business precincts, homes for tens of thousands of residents and Sydney’s second airport at Badgerys Creek.
Reflecting on this glimpse of the Sydney metropolitan landscape from the sky, it confirmed (to me at least) that Sydney is at a crossroads in its evolution as Australia’s largest city. A new phase of growth has recently begun and political and business investment decisions have been made that will shape the industrial property sector over the coming decade.
We have previously shared brief posts on facets of this changing landscape (NSW getting serious about infrastructure with WestConnex and The rise of “New Industrial Occupiers” in Sydney). However, the whole picture is often difficult to comprehend and envision the future state of the market.
The two major forces changing the shape of Sydney’s industrial landscape are:
- Governments committed to the construction of significant infrastructure projects that aim to ensure Sydney’s rapidly growing population can efficiently commute and the associated freight task can be met. Three of these major projects are centred in western Sydney.
- WestConnex is one piece of the puzzle that will complete Sydney’s motorway network and efficiently link the Port and Sydney Airport with the Central West suburbs (visit WestConnex).
- Moorebank Intermodal Terminal will eventually accommodate up to 750,000 sqm of warehouse and logistics space and lead to reduced congestion on Sydney roads from container trucks (visit Moorebank Intermodal Company).
- Sydney’s second major commercial airport at Badgerys Creek is expected to be pivotal in opening up a new outer fringe of development land in Sydney’s west as the airport is constructed and associated road and rail infrastructure is planned (visit Western Sydney Airport).
- The rezoning of Priority Precincts is significantly increasing the potential resident population density in many former industrial suburbs located along transport routes. The stock of industrial property being withdrawn from the market for redevelopment is creating activity from its former occupants and creating tighter industrial vacancy conditions right across the Sydney market (visit Priority Precincts).
The tight vacancy environment is leading to an increase in commitments from large corporate occupiers to purpose built solutions in the outer western suburbs. Figure 1 highlights the increase in commitments to new construction; more than 60% of major occupier moves in 2015 have been pre-lease or design and construct deals.
As a result, new warehouse and distribution centre construction in Sydney has troughed in 2015 and is expected to increase significantly over the next few years, supported by evidence of rising market rents and the weight of lease expiry from tenants committing to 10 year leases in 2006 and 2007.
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