7 Sydney is currently in the midst of a significant supply cycle, with completions well above the long run average. Completions (greater than 5,000 square metres) reached around 590,000 square metres in 2021, tracking towards 725,000 square metres for this year across 35 projects. Project delays caused by material and labour shortages as well as weather disruptions are having a notable impact on delivery timetables, with several developments due for completion last year, pushed into this year as well as others due in 2022 delayed to 2023. The ultimate impact will see a smoothing out and prolonging of the current supply cycle. The Outer region dominates activity, accounting for 80 per cent of metropolitan completions this year – 587,000 square metres across 28 projects. This is followed by the Central West with 107,000 square metres (6 projects and a 15 per cent share). The majority of completions due this year and next have been underpinned by pre-leases or have secured tenants during construction. Major developers continue to compete hard for large pre-commitments, keeping pre-lease rents competitive with (or below) existing prime rents, although both are rising notably. Pre-lease deals also typically include higher leasing incentives. However, our understanding is that there is also a significant proportion of speculative development occurring, with developers looking to benefit from low vacancies and strong demand from occupiers who can’t wait for a pre-lease. Cost escalations coming from labour and material disruptions have not yet reached a point of derailing the current phase of completions yet. Our assessment is that construction costs alone increased 30 per cent to 35 per cent on average in Sydney in the 2022 financial year. As a result, rents required for new builds are notably rising. Supply 14 Mildon Road, Tuggerah NSW 2259 Industrial Market Monitor | 2nd Half 2022
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