1,000 1,800 2,600 3,400 4,200 5,000 5,800 100 120 140 160 180 200 220 240 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 $/psm $/psm Values (Right axis) Net stated rents (Left axis) Forecast 4 Occupier demand for industrial property in Sydney is expected to remain strong over the next 6 to 12 months, before pandemic related drivers dissipate. Besides these drivers, the outlook for industrial demand will also be influenced by economic growth nationally and in New South Wales, both of which are facing near term headwinds as interest rates rise and consumer spending tapers. Demand for industrial space will continue to be influenced by the structural shift to servicing e-commerce. However, the extraordinary pace of growth that was heightened by the pandemic has already slowed and is likely to slow further as people balance spending on goods back towards services. Food retail spending has settled since the pandemic boosted spikes in 2020 but remains an important demand driver. Going forward, growth in this sector to more closely mirror population growth. Furthermore, we do not think that industrial property occupiers’ propensity to carry additional storage space for higher inventory levels will persist long term. Our assessment is that supply chain disruptions are likely to linger this year but then should normalise. Beyond this point, the costs associated with carrying extra storage space will trigger a rationalisation, but not to the point of returning to pre-COVID operating methods. Lastly, a pick-up in completions expected from the first half of 2023 should allow for a release of pent-up demand that has been constrained by extremely low vacancies amongst existing buildings. Near term rental growth forecasts have been revised up significantly, due to low vacancy rates and rising pressures flowing from pre-lease rents. Annual growth rates of 19% to 35% for prime net stated rents are expected across the regions in the 2023 financial year and 10% to 12% in the 2024 financial year. Low vacancies in secondary markets are supportive of 20% per annum growth rates in the 2023 financial year and 9% to 11% in the 2024 financial. Rises in long bond rates over the last 12 months have flowed through to softer property yields, removing a key suppresser of pre-lease rents (and in turn market rents). Higher land values, construction costs and a forecast phase of yield softening all point to higher rents needed for pre-leases. The outlook for leasing incentives is heavily influenced by forecast movements in vacancy rates. Over the next six to 12 months, we forecast incentives across the regions to tighten slightly, reflecting very tight market conditions before softening through the middle of the decade as vacancy rates rise. Leasing outlook Sydney Outer Western region industrial rents and capital values Industrial Market Monitor | 1st Half 2023 1,000 1,800 2,600 3,400 4,200 5,000 5,800 100 120 140 160 180 200 220 240 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 $/psm $/psm Values (Right axis) Net stated rents (Left axis) Forecast
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