Sydney industrial takeup declines 41% in Q2

Takeup only totalled 137,000sqm.

After eight consecutive quarters of take-up above the 10-year average, take-up in Sydney’s industrial market has fallen by 41% q-o-q to 137,000 sqm, according to a JLL report. 

This is, however, not a function of falling demand in the industrial sector, but rather a lack of available space for tenants.

Here’s more from JLL:

In line with national trends, demand in 2Q22 was led by the transport, postal and warehousing sector, accounting for 53% (72,000 sqm) of total take-up. The e-commerce boom in conjunction with supply chain issues have led businesses to occupy more space and maintain higher inventory levels.

Completions increase on the back of major Amazon completion

Fifteen projects reached practical completion in 2Q22, totalling 588,600 sqm of new stock, over five times the amount delivered in 1Q22. Notably, Amazon’s distribution facility at the Oakdale West Estate reached completion, delivering 207,000 sqm of stock. Negating this outlier still shows that the quarter’s completions were well above the 10-year average of 120,400 sqm.

Out of 719,500 sqm of stock under construction in the Sydney industrial market, 62% has been pre-committed to. Over the next six months, 377,000 sqm of completions are due to come to market.

Rental growth is accelerating

Rental growth continues to increase, most notably in the South Sydney and Outer Central West precincts where rents grew 8.0% q-o-q (AUD 250 per sqm per annum) and 8.3% q-o-q (150 per sqm per annum), respectively. Availability constraints continue to be the largest contributor to rental growth, forcing tenants to pay a premium to occupy space.

Transaction volumes decreased substantially in 2Q22, falling to AUD 595.9 million, a 47% decrease q-o-q. With the macroeconomic environment changing through increasing costs of capital, the feasibility of transactions at record low yields becomes increasingly uncertain. Investment sales accounted for 65% of all sales, in line with recent investment trends in the sector.

Outlook: Yield softening imminent for 2H22

Upward pressures on rents have accelerated through persistent issues of a lack of available supply and demand in the sector, as well as in developing inflationary pressures and supply chain constraints. New leases are factoring in higher rental reviews. This, in conjunction with a lack of supply, should continue to push rents upwards.

A yield softening cycle is on the horizon for the industrial sector in Sydney, likely coming as soon as 3Q22. With rising cost of capital, the justification for investments on current record low yields becomes clouded.