With the Sydney industrial market encountering an extreme tightening of stock, market experts have warned that anyone looking to secure a space in the south-west should be setting their sights 12 to 36 months into the future.
Colliers’ national director of industrial Fab Dalfonso and director of industrial Adrian Balderston have said that as many as three-quarters of tenants seeking space in the region are unable to secure spaces that meet their needs.
As a result, many are choosing to stay put when they had previously planned to expand into a larger or more fitting space at the end of their lease.
As Mr Dalfonso and Mr Balderson reported, lease renewals within the market – which stretches from Padstow in the inner south-west out to Smeaton Grange in outer south-west Sydney and Badgerys Creek – were previously tracking at around 65 per cent. This year, that figure has jumped up to 90 per cent on the back of both supply issues and unprecedented demand.
“In the last six months we recorded a total demand area of 1,674,700 square metres with over 650,000 square metres searching specifically in southwest Sydney,” Mr Dalfonso said.
“This means of the close to 174,000 square metres that we have leased, most of the market or around 74 per cent, is missing out. As a result of this, we could see rental growth of up to 20 per cent as well as reduced incentives,” he explained.
Mr Balderson expanded on the dire circumstances many industrial tenants are now facing in the city’s south-west.
“We are currently working with a tenant who may shortly have no home to accommodate their business, as their existing building has been leased and they are facing a complex situation finding temporary accommodation whilst their pre-leased building in southwest Sydney is due for completion in early 2023,” Mr Balderston added.
“They began their search for a new facility six months prior to their current lease ending, and we suggest the timeframe for obtaining new premises now needs to be around 12 to 36 months as a minimum to avoid this scenario.”
The vast majority of inquiries Colliers has been receiving are either for existing facilities or those that will be completed in six to nine months. The rest – roughly 5 per cent – are for pre-leases on industrial properties that require significant modifications to suit tenants’ needs.
The duo advise that tenants seeking greater incentives should set their sights on the pre-lease market, as the average difference between spec and pre-lease incentives is now roughly 10 per cent.
“The pre-lease market is now becoming the most active portion of the industrial sector. Incentives are tightening with rates on the increase leading to tenants adjusting their business operations and deliverables to suit the evolving market,” Mr Dalfonso said.
ABOUT THE AUTHOR
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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