The rise of “New industrial occupiers” in Sydney

December 2, 2014 / By

New Industrial Occupiers is a label that we’ve coined for firms that take up traditional industrial space but are not considered typical industrial space users. Examples of New Industrial Occupiers include showroom / bulky goods retailers, hospitality companies, alternative office boutiques, and recreational firms. New Industrial Occupiers are becoming increasingly prevalent in the older established industrial precinct of South Sydney as the area undergoes gentrification.

South Sydney is an industrial precinct that was once heavily associated with logistics and manufacturing. However, it is now becoming a recognised residential growth hub, with a high level of residential and mixed-use development. In order to service the expanding residential population, New Industrial Occupiers have moved into the market and are beginning to compete against traditional industrial occupiers for industrial space, albeit with some adaptive re-design. This is driving an up-lift in market pricing, in two ways in particular.

Firstly, adaptive re-use to cater for New Industrial occupiers has further reduced the traditional industrial stock base, thereby placing upward pressure on rents for the remaining existing traditional stock. Secondly, the alternative uses employed by New Industrial occupiers generally command a higher rental rate per square metre per annum (sqm p.a.).

Table 1 highlights the rent differential between New Industrial and traditional industrial usage. On a typical lease over a GLA of around 5,000 sqm, traditional industrial occupiers in South Sydney would expect to pay between AUD 130 and 160 per sqm p.a.. This is well below the achievable rents for New Industrial occupiers. To illustrate, firms in the hospitality sector will generally pay an average of between AUD 300 and 400 per sqm p.a.; while showroom users or bulky goods retailers will pay between AUD 200 and 300 per sqm p.a..

Table 1

Source: JLL

Significant value upside is clearly achievable for existing owners through adaptive re-use. However, this adaptive re-use can often incur significant capital expenditure from owners and must be weighed against the risks. Consideration must be given to a site’s suitability to adaptive re-use such as zoning, existing built form, location and street frontage, car parking allowances, site accessibility, existing competition and the effects of clustering. All of these factors will impact the viability of creating a product suitable for New Industrial occupiers.

Nonetheless, a valid question to ask now is whether the rise of the New Industrial Occupier is unique to South Sydney, or if this trend will occur elsewhere in Sydney, particularly with the rising density around Urban Activation Precincts? Indeed, could New Industrial Occupiers become more of a presence in other industrial precincts globally? While a number of factors are required in order for market conditions to be supportive of New Industrial Occupiers, the rise of New Industrial Occupiers could clearly occur in other markets. This trend will be particularly relevant to older industrial precincts that are undergoing significant gentrification and with an expanding population base.

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