Sydney industrial gross take-up hits highest levels since 2017

Gross take-up increased 79% to 1m sqm in 2020.

The Sydney industrial market recorded 230,100 sqm of gross take-up (for deals >5,000 sqm) in 4Q20 – 13% higher than the 10-year quarterly average (203,900 sqm). According to JLL, the quarter’s total brought full-year gross take-up for 2020 to 1.0 million sqm, which is 79% higher than the previous year. It is the first time the Sydney market has reached that milestone since 2017.

Leasing activity was concentrated in the Outer West precincts, which accounted for 83% of the quarterly total. This was led by the Outer North West, for the second consecutive quarter, accounting for 36% of gross take-up in the Sydney market. The Outer Central West (74,900 sqm) and Outer South West (32,200 sqm) contributed strongly, albeit recording figures below their 10-year quarterly averages.

Supply delivery below average for the quarter, above for the year

New supply delivery remained below the 10-year quarterly average (126,200 sqm) for the second consecutive quarter, as four projects added 104,400 sqm to the market. These completions brought the full-year total to 549,800 sqm, which is 15% higher than the previous year total and the 10-year annual average.

Development completions were concentrated in the Outer North West precinct, accounting for 55% of total new floorspace delivered. The balance was delivered in the Outer Central West (34,000 sqm), and Inner West (13,100 sqm) which is the only precinct to record completions in all four quarters this year.

Sydney continues to lead the nation in rental growth

All six precincts in the Sydney market recorded some positive prime rent growth in 4Q20, as continued robust occupier activity and declining land availability continues to place upward pressure on rental rates. Quarterly growth rates ranged from as high as 1.8% in the North precinct to as low as 0.2% in the Outer North West, pushing the whole market average up by 0.9% to AUD 158 per sqm per annum.

Transaction volumes were relatively subdued in 4Q20, totalling AUD 290.2 million across 13 sales. The ongoing strength of investor appetite for exposure to industrial and logistics assets has continued to place upward pressure on pricing, with the average prime yield midpoint in Sydney sharpening by 14 bps to a new record low of 4.80%.

Outlook: Occupier and investor interest to continue to fuel activity

Whilst some speculative projects were deferred amid the uncertain economic climate in 2020, industrial development in the Sydney market is expected to remain above average in 2021, with 590,900 sqm of stock due to complete over the next 12 months.

Although the situation surrounding COVID-19 remains fluid, the continued strong response from governments has managed to keep the economy relatively open throughout 2020. Whilst there is expectation that some industries will look to continue expanding their industrial footprint, there is some uncertainty around the impact of the Federal Government’s ‘JobKeeper’ subsidy which ends in March 2021.

Note: Sydney Industrial refers to Sydney's industrial market (all grades).