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Rents to rise as developers recoup land costs

Rents to rise as developers recoup land costs

By Ryan Ellem on Feb 27 2019

Booming land costs in Sydney’s western industrial corridor are forcing developers to lift rents, ending a prolonged period of stagnant rental growth for landlords.

But costs are still below the premiums for land and rental prices being paid in Brisbane, which is constrained by the limited amount of land in the city.

Elsewhere, industrial rents have stabilised in Perth after declines in the first half of 2018, while Adelaide is in the midst of a development boom following state and federal government employment initiatives.

LJ Hooker Commercial’s Industrial Market Monitor predicted rents in the outer west Sydney corridor will rise by 10% over the next three years with pent-up demand already generating improved returns for large-scale, high quality assets.

The rental outlook comes as average prime capital values increased to $2,100psm at the end of 2018 – a year-on-year increase of 16% for the sector.

LJ Hooker Commercial Managing Director Mathew Tiller said 2019 would kickstart the ‘catch-up’ in rents following several years of flat results.

“The scarcity of land for development and subsequent costs in establishing quality tenancies have finally set the tipping point for growth in industrial rents,” said Mr Tiller.

“While Sydney’s residential market is undergoing a correction after several years of unprecedented growth, the industrial market is being propelled by strong economic fundamentals. New South Wales still boasts low unemployment and many of the nation’s big-ticket infrastructure projects are situated in the Western Sydney basin such as the Badgerys Creek Airport, the Northern Road project and M12 Motorway.”

Global changes in the retail and logistics industries also influenced market conditions, said Mr Tiller.

“Aside from food processing and buildings materials, the demand for factory-based facilities has been contained in the immediate term,” said Mr Tiller.

“Warehouse facilities continue to be the growth sector as the popularity of online retailing continues to rise. Subsequently, transport and logistics operators are requiring larger, more modern premises which is lessening the number of smaller storage spaces being developed and encouraging amalgamation and redevelopment of existing boutique facilities.”

LJ Hooker Commercial Silverwater Director Marcel Elias recently secured a lease for Charter Hall in its Building 1, Wetherill Park. The 11,460sqm of space was secured for $115psm net by tenant TLS over a five-year lease.

Mr Elias said: “Tenant enquiry for new and existing premises has been strong of late. Land is now incredibly tight in prime industrial locations - particularly for large contiguous lots to accommodate large-format users – and that is now being reflected in asking rents.

“There’s a lack of functional product available in proximity to infrastructure and landlords with these assets are well-positioned for tenant enquiry.”

LJ Hooker Commercial Managing Director Mathew Tiller said the relationship between prime and secondary grade industrial property had come to the fore.

“Between the GFC and 2015, the disparity in yields between secondary and prime grade stock blew out from 50bps to 190bps,” said Mr Tiller.

“That gap has closed in the last three years to an average of around 110bps in Sydney, which is indicative of the popularity of industrial as an overall asset.”

To download the lastest Industrial Market Monitor report please visit our Research Centre.

For media information:
Ryan Ellem
PR & Communications Consultant
LJ Hooker Commercial
M: 0427 916 020

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