Sydney Industrial Market Sydney prime industrial market indicators South North Central West Outer Net face rent ($ sqm) 302 252 191 181 Incentive (%) 5 10 7 7 Yield (%) 4.0 4.3 4.1 4.1 Capital value ($ sqm) 7,633 5,806 4,705 4,467 3 Occupier demand for industrial property across Sydney remained strong in 2022, after reaching record levels in 2021. That said, net take up last year was constrained by an acute shortage of available space. Gross take-up was between 850,000 to 900,000 square metres over last year and net absorption reached 860,000 square metres during the 2022 financial year (in buildings > 5,000 square metres) and tracked lower to around 600,000 square metres for calendar year 2022, but both still well above the long run average. Enquiry has been strong across the South, South West, Outer West, North, North West and the Inner West. Overall, businesses are needing to make quick decisions when they come to the market looking for space because of the lack of available options. Demand is coming from a broad range of sectors as businesses invest in supply chains. However, the most active groups in the market looking for space last year were transport and logistics (including those servicing on-line retailers) and manufacturers. Even though the value of online retail spending nationally peaked around the start of 2022 and has fallen back, it is still at historically high levels and e-commerce operators are a notable source of demand, but not across all the regions. We surmise that many businesses have recently stopped taking extra space to stockpile inventory as supply chain disruptions start to ease and concerns about the economic outlook mount. This has reduced expansion space demand from this source. However, surveys suggest that a substantial proportion of wholesalers, retailers, building suppliers and manufacturers still see the potential for supply chain disruption as a significant issue. Demand for space is stronger from tenants than owner occupiers, the latter constrained by an acute shortage of available options and an increasingly challenging funding environment as interest rate rise. Robust net absorption continues to outstrip completions, reducing vacancy rates across the metropolitan area. At June last year, the total vacancy rate was extremely tight at 0.3% (in buildings >5,000 square metres) marking the lowest vacancy rate on record. The total vacancy rate ended 2022 just as tight. Vacancies amongst all the regions are very tight with limited options available across the size spectrum for those looking for space. The combination of strong demand and very low vacancies underpinned a sharp increase in prime net stated rents in 2022. Prime grade rents saw an average growth of 34% in the Outer West, 28% in South Sydney, 19% in the Central West and 15% in the North. Secondary rental growth in the South and Central West was just as impressive at 26% and 22% respectively. Recent movements in incentives in Sydney reflects how low vacancy rates are across the regions. Overall leasing incentives amongst existing buildings fell further last year with average prime leasing incentives ending 2022 at 5% in the South, 7% in the Central West and Outer West, and 10% in the North. Leasing market Industrial Market Monitor | 1st Half 2023
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