Western Sydney industrial vacancy drops below 1%

Industrial vacancy at A-grade properties in Sydney’s outer west is at historic lows, with less than 1% of space in the region now available for lease.

Demand for industrial space in the outer west is far outstripping supply, according to CBRE data, with rents subsequently ballooning.

CBRE’s Peter Blade says third party logistics providers are driving much of the demand, with established buildings currently attracting rent premiums of between 8% and 10%.

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“In the outer west, we are continuing to see strong levels of demand from third party logistics (3PL) providers, which have multiple existing contracts coming up for tender and renewal,” Blade says.

“The pressure is coming from a combination of factors, including constraints in existing building stock (5000sqm-plus), limited land supply across the western Sydney market and the continued pressure occupiers are facing in the central west and south Sydney markets,” he says.

Major industrial property players are shooting for a bigger piece of the market in western Sydney.

“This is stemming from the redevelopment of traditional core industrial markets for either government infrastructure expansion projects or redevelopment and conversions.”

According to CBRE analysis of all industrial leasing transactions in western Sydney from 2013 to 2016, preleases averaged $104.50 per square metre, while speculative developed buildings averaged $115 per square metre.

We expect to see pressure remain on the rental rates per square metre and an easing of incentives

CBRE’s Greg Pike says major industrial property players are already moving to take advantage of the demand, with Goodman, DEXUS, Frasers, Stockland, Logos, Charter Hall and GPT currently constructing 120,000sqm of speculative development.

“Over the next six months, we are going to see a significant pipeline of stock enter the market, mainly centred in the suburbs of Eastern Creek, Erskine Park and Greystanes,” Pike says.

Demand for industrial space in Sydney’s outer west is far outstripping supply.

But for now the lack of supply will continue to put upwards pressure on rents.

Among recent western Sydney leasing deals, Blackmores signed a new five-year lease on a 17,000sqm facility at 647 Great Western Highway in Eastern Creek, for an annual rental of $122.50 per square metre.

GML has signed a 10-year lease on a 5345sqm DEXUS property at Greystanes, to house its Western Sydney operations.

And in another deal, YES Shop has committed to a 4250sqm property at 1-5 Interchange Drive in Eastern Creek, at an annual rental of $123 per square metre over five years.

Blade says he expects to see rents continue to increase, with incentives to keep dipping.

“As we continue to see demand outstrip supply of new industrial properties in the outer west, we expect to see pressure remain on the rental rates per square metre and an easing of incentives,” he says.