Podcast
SCAN OR CLICK TO LISTEN TO THE INTERVIEW IN FULL 10 MINUTES
MATTHEW ALESSI & BRENDAN WEIN
With Rob Langton
MANAGERS, INDUSTRIAL & LOGISTICS - CBRE
and low site coverage users. For this reason, developments constructed without pre-commitments are much more popular because they’re typically generic buildings with deals that are being struck closer to completion to secure true current market rents. So we’ve certainly seen the rise in building cost impacts smaller developers with larger developers, they’re more willing to take on risk associated with construction costs, with this being reflected back in the rental rates. With regard to the Western Sydney airport, land around the new airport has been rezoned, which will provide future supply. However, there are planning issues currently being experienced, which will likely delay the availability of when it can be occupied, lease planning difficulties experienced. The only supply that is available within the Mammary Road precinct is currently only accommodating larger requirements because of this. Occupies are much more cautious around timing and when they can occupy the building. Previous deals have fallen over because of the blowout and timing and complexities around the DA approvals. That all being said, we’ve certainly seen an increased interest from users that would benefit from being close to the airport because the reduced travel time and associated cost savings. From a global standpoint, Australia currently has the lowest recorded vacancy rate in the world. Australia has experienced substantial rental growth coming off a low base in comparison to other global markets. So we are working with an adverse bipole with a good mix of international and domestic groups purchasing industrial assets. And we’re also seeing population growth, which is accelerating demand for more warehouse space We’re seeing local groups sell and reinvest into value add opportunities or high quality assets allowing for new private investors to purchase lower price point opportunities. There’s certainly been a massive push to increase funds under management by larger institutional groups such as Centuria, the Goodman’s, your charter halls the last five years evidenced a larger proportion of the commercial investment weighted towards the industrial sector. We’ve also experienced an increase in investors improving existing assets to capture higher rental growth and then also an increase in owner occupier sale and leasebacks locking in capital and reinvesting it back into the businesses. Because Sydney is so straight. I think we’re starting to see the emergence of regional locations located within two hours of Sydney. So areas like Sby and Barfield that are north of Sydney are really becoming popular locations because of the low rates to acquire land, but they’re also well accessible to local amenity and major hubs via the motorways. And we’ve also seen increased activity around the Aerotropolis with more land being rezoned and slowly becoming available to develop and occupy.
Earlier this year in Q1, we were experiencing leasing vacancy well below 1%. So the leasing terms that were being achieved were considered extremely strong. And now late this year in Q3 four, we’ve seen a slow down in leasing transactions and this is mainly due to increased stock levels and competition available Because of the current economic uncertainty, we’ve seen a spike of more subleasing becoming available. Owners have become more selective on covenants that they’re leasing their buildings to, and we’ve also seen a substantial increase in asking rents and statutory outgoings associated with the land. Interestingly, we’ve seen more sale stock this year compared to the stock levels available last year, which I think can be contributed to owners trying to capitalize on the rising values. We’ve also seen the impacts of rising construction costs and increasing land rates with land values now stabilizing due to margins available on developments. But we still have strong engagement from owner-occupiers, especially from tenants who have been paying higher rents over the past two years. The four fundamental drivers are low leasing vacancy rates experienced this year with competition for space from tenants needed to occupy buildings, an increase in e-commerce activity resulting in more high clearance warehouse space that is needed from a sales perspective, the lack of stock including service land to develop and a constrained land supply available throughout Western Sydney. We’re still seeing strong engagement from private owner occupies who would typically engage on available within 12 months to occupy, and we consider them our strongest buyers. Economic conditions have reduced the level of engagement from developers. However, we are seeing participation for assets with shorter whales, surplus lands, and value-added opportunities. We’re also seeing many investors sitting on the sidelines because of the economic uncertainty and lack of investment stock available for long whale assets. The major preference for these buyers has been short whale assets where rents can be repositioned. We’re experiencing increased purchase behaviour mainly because of the lack of sales stock has driven owner-occupied demand. Investors are seeking high yields because of the higher debt costs and landlords being more selective on covenants for their buildings. We’re experiencing noise rental growth over the last two years. So looking ahead, we expect to see a potential increase in leasing vacancy, which will most likely stabilize rental growth. We’re expecting to see an increase in sales stock because of the economic UNC to you, which will provide probably benefits and disadvantages for buyers and sellers. Pre-lease are typically struck 12 to 18 months in advance, and they’re more catered for specialized requirements such as food manufacturing, high office
26 – February /March 2024
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