Sydney, 22 August 2013-Sydney’s outer-west continues to drive growth in the city’s industrial sector, with developers taking advantage of the region’s low rents, supporting infrastructure and availability of land.
CBRE’s Q2, 2013 Australia Industrial MarketView report found that while hesitation in the marketplace and lending mandates had restricted development projects in recent years, positive activity within the transport and logistics sector would underpin strong supply levels of prime distribution and warehouse assets.
Over the course of 2013, 541,428sqm of industrial space is expected to be completed in Sydney, with 634,365sqm due in 2014.
CBRE Senior Research Manager of Industrial Markets Luke Dixon said the outer-west would see the lion’s share of new developments, with the region’s profile rising due to the abundance of industrial land on offer and its good connectivity to major arterial roads.
“Sydney’s outer-west will contribute over 40% of the Sydney industrial supply pipeline for 2013,” Mr Dixon said.
“Ready access to infrastructure, such as arterial roads, has made the outer-west a popular market for developers, enabling them to target rising demand from the transport, logistics and storage sector.”
The report showed that Sydney’s industrial market remained balanced for the first half of 2013, with growth in the transport and logistics sector counteracting the decline in manufacturing.
Despite a slow five months, annual container trade for the 12 months to May 2013 experienced 2.9% growth, with total imports driven by miscellaneous manufactured items.
“While import growth will drive further future demand in the transport and logistics space, this will have a knock on effect to state-based manufacturing,” Mr Dixon explained.
With transport and logistics sentiment and economic drivers set to strengthen, prime rents are expected to see continued, albeit slower growth in the short to medium term, while secondary grade rents are forecast to remain unwavering as manufacturing deteriorates.
The outer central-west enjoyed the highest rental growth over the year to June 2013, with an 8% jump, followed by the central-west and north-west with 2% and the outer-west, south-west, south, outer-south and Macquarie Park all experiencing 1% rises.
The north shore, north shore west and upper-north remained unchanged over the same time period, while the outer south-west was the only area to experience a decrease, with a 0.1% fall in rents.
A cautious leasing market has seen incentive levels increase over Q2 in a bid to entice and retain tenants. This increase in incentive levels resulted in net face effective rentals falling over the three month period.
Land values in the Sydney metropolitan market remained flat over the quarter, with the average cost of a 0.25ha lot commanding $532 per square metre and larger 1.6ha lots sitting at $432 per square metre. Industrial land values are expected to remain flat as limited depth in the buyer pool remains prevalent.
CBRE Senior Director of NSW Industrial Jason Edge said despite occupier risks, investor confidence in Sydney’s industrial market had strengthened.
He commented: “While a large number of investors continue to seek long term leases with strong covenants, many are now more accepting of shorter lease terms assuming the core property fundamentals exist.”
Mr Edge said despite an increase in investment interest however, a lack of suitable opportunities was restricting the market.
“In terms of investment opportunities, the market is tight, with owners holding onto assets in hope that yields will tighten further,” Mr Edge explained.
Yields in both A and B Grade warehouse sectors tightened over the quarter, with primary yields ranging 7.75% and 10.50% - a tightening of between 25 basis points at the lower end.
By comparison, secondary yields currently range between 8.50% and 11.00% - a 20 basis point tightening at the lower end and a 25 basis point tightening at the upper end of the range.
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CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website atwww.cbre.com.au.