The industrial sector has been recognised as a “sleeping giant” due to steady price increases over the last 3 years as a result of a surge in e-commerce, supply chain disruptions, and lack of upcoming stock. However, have we reached the peak of prices?
Throughout 2023, the industrial sector has remained the strongest-performing asset class with the highest volume of transactions holding 29.4% of the commercial market, a 4.4% increase from 2022 where this market sat at 25%.
We saw prime industrial assets averaging yields of sub 4% at the peak of the market in September 2021, however, have since softened to an average of around 5.25% as per September 2023 reports.
The soon to be completed International Airport in Badgerys Creek has stimulated growth throughout Western and South Western Sydney areas by investors and developers seeking to acquire quality assets and large land holdings. Investors are seeking secure assets which they can lease for a stable cash flow on a relatively strong yield, whereas developers are actively seeking large industrial land holdings to capitalise on the shortfall of supply.
Market Predictions
TRANSACTIONS & CAPITAL RELEASE
- Anticipate transaction prices to stabilise as owners release capital, leading to an influx of opportunities in the market.
- Inflation is stabilising, with major banks predicting no further rate rises and possible rate cuts later in the year.
- Expected increase in buyer confidence within the industrial sector as investors seek safer assets for their portfolios.
PREFERENCE FOR URBAN INFILL AREAS
Urban infill areas will remain more sought after than outer metropolitan and regional areas.
Proximity to higher density areas offers efficiency for business operations, supply chain logistics resolutions, and quicker delivery of goods to end users.
IMPACT ON LANDLORDS
Landlords with tenants on gross leases may face challenges due to increased land tax assessments and associated outgoings.
Difficulties in holding assets may result in a surge of industrial assets coming to market.
Market Trends in Leasing
The industrial rental market has grown significantly in the past 3 years due to supply chain disruptions and e-commerce growth. Record-low vacancy rates at the end of 2023 have driven up rental rates as tenants compete for strategic warehouse locations. Sydney’s vacancy rates were at 0.5%, indicating high demand for quality industrial assets. However, early signs of softening in 2024 are emerging due to rising interest rates, consumer sentiment declines, and inflation. Anticipated increases in subleasing may further impact vacancy rates and rental prices.
High Demand for Industrial Warehousing
High demand by both owner occupiers and tenants.
Reflects the ongoing trend of e-commerce growth, logistics expansion, and supply chain optimisation.
Reflects the ongoing trend of e-commerce growth, logistics expansion, and supply chain optimisation.
Tenants are actively seeking suitable locations to establish or expand their operations.
Competitive terms being offered to secure desirable spaces.
Preferred Warehouse Sizes
Warehouses within the range of 200 to 1500 sqm are in high demand due to their versatility and suitability for various industrial purposes.
These spaces are often preferred by tenants looking for efficient storage and distribution facilities.
These spaces are often preferred by tenants looking for efficient storage and distribution facilities.
Interest in Larger Warehouses
While warehouses above the 1500 sqm threshold still attract interest, the demand tends to be relatively lower compared to mid-sized facilities.
Larger warehouses are typically sought after by businesses with substantial storage requirements or those engaged in bulk distribution activities.
Larger warehouses continue to play a significant role in the industrial market, however evidence suggests that it can take a little longer for vendors or lessors to secure the desired outcome.
Key Factors Influencing Decision Makers
High clearances are crucial for accommodating storage racks and facilitating efficient material handling operations.
High power capacity is essential for powering heavy machinery and equipment.
Easy access to major arterial roads is another critical factor.
If the property is being offered for lease, terms without demolition clauses are highly desirable for tenants, providing them with security and stability for their business operations.
The landscape of the industrial market is undergoing rapid change. By staying informed about these shifts and preparing for what lies ahead, investors and developers can position themselves as leaders in this dynamic environment. For further discussion or to share insights, feel free to contact our industrial team below.
Andrew Sacco
Industrial Sales Executive
0452 234 653
Joseph Assaf
Director
0401 397 696
Owen White
Industrial Sales Executive
0435 555 344
Robert Napoli
Industrial Senior Leasing Executive
0421 412 799
Kevin Galwey
Industrial Sales Executive
0482 510 554