Developers aren’t building enough industrial stock in Sydney’s west, according to CBRE research pointing out that demand will outstrip supply for the medium term.
“Speculative industrial construction is expected to hit an historic low in Sydney’s outer west,” the agency forecasts, adding that there is a shortage of zoned serviced industrial land readily available for development.
CBRE said that speculative construction in the outer west – Sydney’s largest industrial sector – will remain limited “until at least the first quarter of 2021”.
“In previous years, the average take-up of spec buildings in Sydney’s outer west has been circa 110,000 sqm per annum,” the agency said.
“However, CBRE’s data shows that only 27,000 sqm of approved projects are currently available for delivery in 2019.
“In 2020, there is currently only one building approved and scheduled for completion totaling 32,000 sqm”.
Cameron Grier, CBRE Regional Director, Industrial and Logistics Services added “this presents a real window for developers to capitalise on the lack of supply and provide high quality projects that meet occupiers’ design requirements.”
Frasers Property this week announced it “capitalised on pent-up demand” with a 15,900 sqm commitment to TTI at a speculative project that was recently completed at Eastern Creek.
The five year deal was inked prior to practical completion of the $45 million office and warehouse complex, Frasers general manager Ian Barter said.
TTI will relocate from a nearby, smaller site.
“Spec buildings in Western Sydney have performed strongly in recent times and we see this trend continuing as supply decreases as a result of the lack of development opportunities across the broader market.”
Mr Grier said an analysis of lease deals over the past three years highlighted that developers had achieved an average 5 per cent premium on the face rental and needed to pay an average of 17 per cent less on incentives when signing deals in speculative projects as opposed to pre-lease deals.
“We believe the low supply of speculative projects will keep upward pressure on rents and lead to a further tightening of incentives in the outer west.
“It may even force some tenants to look to the south west and central metropolitan markets, where there is going to be more available speculative stock, with stock totally 106,000 sqm and 208,000 sqm respectively planned and under construction in these markets for delivery prior to 2020,” the agent added.
CBRE publishes regular industrial research including a report on the national sector, released five weeks ago. It can be obtained by following this link.