NSW MARKET OVERVIEW
NEW SOUTH WALES
Peter Macadam - Director In Charge - Newcastle
Thinking specifically about commercial and industrial property, where has the demand been coming from? Locational interest is relative to the offering, however investments and development sites in our region are certainly now attracting more interest from Sydney and national based parties than ever before. Sydney based developers have accounted for 62% of englobo sites since 2020, whilst interestingly 73% of suburban mixed-use sites have been acquired by local developers given their knowledge and confidence in those locations. Development sites in the Hunter Region trade at prices well below metropolitan Sydney, relative to Gross Realisations. Our market is therefore quite appealing and with strong population growth prospects and an ever-diversifying regional economy we expect continued demand from Sydney groups. In the industrial sector, the highest demand has come from construction, port related users, recycling, and transport and logistics users, whilst renewables are forming the new frontier with growing demand. SME’s demand for industrial units continues across all locations, with strong pricing experienced from Morisset to Maitland. The office market has started strongly in 2024 with north of 10,000sqm of A-Grade office being committed to in the CBD compared to a total A-Grade office take up of 5,300sqm in 2023 and average net absorption over the last 10 years of 3,900sqm per annum. How has feasibility for residential development sites been impacted by interest rate instability and building costs in regional areas? And have you seen developers moving away from residential into other sectors like industrial or mixed-use development? The construction cost and interest rate increases has put pressure on land values in our market, as
Regional real estate market saw a surge in activity and demand during Covid. How have these markets fared in more recent times? Business confidence is strong and as a result we are not only seeing increased leasing enquiry, but owner-occupiers are also active as companies are predominately looking to expand and attract staff. There is more certainty around the interest rate environment with inflation falling, and cost of construction pressures will see a slowdown of new supply, and as a result we are seeing increasing demand for existing assets with repurposing and repositioning opportunities. The industrial market remains the strongest performing asset class across the Hunter and Central Coast, with continued low vacancy as demand outstrips supply. The paucity of serviced industrial land available to purchase has seen strong revenue growth, and yields remain comparatively low given the anticipated rental reversion in the sector. We have also seen increasing vacancy rates however that has been a function of new supply of over 54,000sqm since 2021. Office occupiers have a better understanding of how they will use their office post Covid, and given the fight for talent in the low unemployment market are taking the opportunity to upgrade their premises. In fact, since 2021, tenants upgrading their premises represented 49% (by area) of the new deals, with 22% expanding their office footprint in the Newcastle CBD. Suburban office has also had strong demand, given the relative affordability and convenience offered in fringe locations. Our residential project marketing team have also seen continued demand, particularly for well- appointed apartments in good locations. Sales rates have come off in suburban markets, which has been partly a function of increasing cost of capital but also caution around builders and increases in construction costs.
PETER MACADAM
26 – April / May 2024
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