4 Demand for industrial property in Sydney has been extremely strong over the last 18 months, driven by a robust economic rebound across NSW from last year’s lockdowns as well as factors heightened by the pandemic. Overall, gross take-up of industrial space exceeded 1.1 million square metres last year, reaching as high as 1.8 million square metres. Momentum slowed during the first half of 2022, with take-up only constrained by very tight vacancy amongst existing buildings. Most of the take-up in recent times has focused on the Outer West, followed by the South West and Central West. The strength in occupier demand is being driven by transport & logistics users, retailers (pure play, e-commerce, food and cold storage), manufactures, and pharmaceuticals. The trend of occupiers taking more space for higher domestic inventories to counter supply chain disruptions is still evident. Supply chain disruptions and delays in securing stock has driven a shift by occupiers from storing sufficient inventories to satisfy immediate customer requirements (known as ‘just in time’) to higher stock levels and storage requirements (referred to as ‘just in case’ or ‘onshoring’). We estimate metro net absorption reached a record high 1.2 million square metres (in buildings greater than 5,000 square metres) in 2021 and around 900,000 square metres for the 2022 financial year, close to double the long run average. There are many examples of larger footprints being negotiated in pre-lease deals, including a doubling of size by Cameron Group (6,200 square metres in Marsden Park), Kumho Tyres (11,300 square metres also at Marsden Park) and Allied Express (20,000 square metres at Bankstown Airport). Business confidence surveys around the middle of this year show the ongoing pandemic is expected to have minimal impact on industrial property occupiers in NSW and that confidence is positive in the state. Indeed, the strong take-up of above average completions levels and speculatively commenced projects (reflected in very low vacancy rates) shows businesses are broadly confident about their prospects. Based on our assessment, the vacancy rate for buildings greater than 5,000 square metres tightened at a rapid pace through 2021, as record net absorption outpaced above-average completions. At December, the total vacancy rate fell to an estimated 0.5 per cent (the lowest rate in over 15 years) from 3.0 per cent at the start of 2021. Since then, the vacancy rate has remained very low, ticking down to around 0.4 per cent at June 2022. Available evidence suggests vacancy rates are very low across all the regions, although there does appear to be more options available in the North, particularly for smaller occupiers. The combination of strong demand and very low vacancies underpinned a sharp increase in prime net stated rents. Overall leasing incentives amongst existing buildings have fallen this year. We estimate average prime leasing incentives ended the 2022 financial year at 7 per cent in the South, 8 per cent in the Central West and Outer West, and 11 per cent in the North. Leasing market 20 Investigator Drive, Unanderra NSW 2526 Industrial Market Monitor | 2nd Half 2022
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