Industrial landlords resume balance of power
Competition for Sydney industrial tenancies is set to rise as tenants look to secure their futures before rising bond rates place further pressure on rents, according to LJ Hooker Commercial’s Industrial Market Monitor.
Tenants have enjoyed favourable lease conditions but once the influence of improving US Bonds takes effect in Australia, developers – who are already absorbing high land costs – will no longer offer generous deals, with rising rents for new builds to also flow into the established market.
predicted rents to grow by eight percent in Sydney’s northern, inner and outer west industrial markets over the next three years, and by up to 10 percent in southern areas against a backdrop of withdrawals for residential repurposing and Metro Line acquisitions.
Although the Victorian economy is tipped to endure strong headwinds over the coming three years, commercial building and private engineering will support industrial demand, with rents tipped to rise seven to 10 percent over the period. Rents for secondary assets will be more modest, at around five percent, the Monitor
LJ Hooker Commercial Managing Director Mathew Tiller said the shifting global environment created a dynamic leasing market over the short term.
“Effective rents have been low across much of Australia for a prolonged time but macro-economic conditions have placed an imminent sunset for that period,” said Mr Tiller.
“Tenants should be looking at locking in leases for as long as they can before the market movements restrict their options, negatively affecting their operational efficiencies.
“Warehouse demand shows little sign of slowing in the short-term as the transport and logistics and retail / wholesale sectors continue to make major contributions to the economy.”
In Sydney, average rents for prime grade properties reached $117psm at June, with prime yields at an average of 6.25 percent. Scarcity of stock in the secondary market continues to compress yields further, with the Monitor predicting yields to fall to four percent in the city’s Central West and Southern markets over the coming two years.
LJ Hooker Commercial Bankstown Director Jon Orsborn said he ‘hadn’t seen the market this tight on both selling and leasing in the last 15 years’.
Mr Orsborn and Paul Byrne are managing the lease of an office / warehouse in Greenacre with convenient access to the M5 and King Georges Road. The property offers 2,452sqm of warehouse with 149sqm of office. Enquiry for the facility – available in 2019 – had been ‘significant’, said Mr Orsborn.
“There’s definitely pressure coming through in rents,” he said. “In the South-West, 10,000sqm warehouses that were renting out for $100psm three years ago are now fetching $125-$130psm.
“At the entry level, we’ve seen a big influx of owner-occupiers purchasing through their SMSF and residential investors who have been priced out (of the residential market).”
In Melbourne, foreign investors were responsible for many of the larger investments over FY18 including Ascendas, Investec and ESR. Cache Logistics was also represented in the foreign push, acquiring a six-property portfolio throughout the state for $178 million.
Prime yields firmed around 40bps over the 12-month period in Melbourne to average six percent, the Monitor
Around 70,000 square metres of recent completions were commenced without a tenant pre-commitment, however, the strength of demand ensured these projects did not add to overall vacancies. Major developers such as Frasers Property Australia are developing a number of speculative projects ahead of demand in an effort to secure tenants who need space with limited notice.
Mr Tiller said: “Over the coming two years, construction and approvals data suggests new additions will taper off over the next two years, settling back to levels commensurate with subdued demand created by Victoria’s economic challenges”.
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