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There are positive signs that the Sydney industrial market has moved past the effects of the global financial crisis and looks set to improve on the back of strengthening import and export volumes, limited supply and increased demand from; tenants, owner occupiers and investors. |
We have provided below a summary of key aspects of the Sydney industrial market which highlight the current state of the market, the effects of the recent global financial crisis and the outlook for Sydney industrial property.
The map below shows the 6 different industrial regions within the greater Sydney metropolitan area.
The table below provides an indication of the market values within each region up to March 2010.
Market indicators
• The March 2010 Trade Statistics Bulletin from the Sydney Ports Authority showed container trade had increased 10.3% on the volumes recorded at the same period last year.
• According to the Australian Bureau of Statistics, national exports increased by 9.5% during the month of March while imports increased 16.1%.
Supply
• No new supply was completed in Q1 2010 in Sydney.
• Approximately 237,000 m2 of new projects are under construction and due to complete in 2010, and a further 50,700 m2 are in planning stages for possible 2010 completion.
• The average annual supply over the last 5 years has been approximately 700,000m2.
• Based on the current lack of supply this year Sydney is set to experience the lowest level of industrial supply in over a decade.
• With demand improving and a lack of supply coming to the market with vacancy, speculative development is more likely as developers look to leverage the demand/supply imbalance in the short-term.
Demand
• Gross take-up activity has been subdued due to the lack of existing vacant warehouses.
• The western and south western Sydney industrial markets are currently experiencing very low vacancy rates for large quality properties above 5,000m2.
• Based on the current lack of supply there is expected to be more pre-lease and design & construct deals throughout 2010.
Land Values
• Land values declined considerably in 2009 due to limited demand from owner occupiers and developers and the lack of available funding. In some areas land values have declined by as much as 40%-50% over the past 12 to 18 months.
• Average serviced land values have recorded some upward movement recently as markets normalize and development conditions improve. Improvements have been seen across most land sizes and most precincts, albeit bouncing off a very low base.
Rents
• Average prime grade and secondary grade net face rents for existing stock have remained relatively stable over the last twelve months.
• One of the main factors that have kept rents stable has been the increase in incentives. The most notable increase was in Sydney’s Northern industrial market which saw incentives increase by up to 10% over the second half of 2009.
• Across Sydney both prime grade and secondary grade incentives now range from 8% to 22% and average 12% across all grades and markets. This is up from an average of 9% in August 2008.
• Industry experts believe there will be a return to moderate growth in 2010+ as demand conditions improve.
Yields and investment activity
• Investment sales are expected to be more subdued in 2010 as landlords look to hold onto assets in a growing rental environment and capture some capital growth.
• Buyers (both private and institutional) remain active and will continue to compete for product that becomes available. Length of lease and strength of covenant continue to be the main focus for investors.
• Prime grade yields have stabilized in the range of 8% to 9.0%, averaging around 8.6%. This is a significant increase since the pre-GFC peak average prime grade yields of 7% in Q4 of 2007.
• Secondary grade yields are typically one or two basis points higher than prime grade yields due to the perceived risks relating to older style buildings and short term leases.
• Many industry experts believe that we have past the bottom of the market and yields are expected to firm moderately in 2010 due to solid investor demand, improving supply and demand fundamentals, and the outlook for a return to positive rental growth.
| If you are looking to buy a commercial investment property and are thinking of using a buyers agent to gain more advantages with your purchase, call Prosper Group now on 1300 664 373 or email us on enquiries@prospergroup.com.au |
Information in this article was obtained from various sources including; Jones Lang Lasalle, Colliers International, CBRE, Savills, Knight Frank, Sydney Morning Herald, and Australian Financial Review.
