Sydney tenants needing to plan years ahead

Colliers says tenants in Sydney’s southwest industrial market will be forced to plan one-to-three years ahead at a minimum due to the extreme lack of land vacancies.

It notes with restricted supplies and high demands, almost 75 per cent of tenants searching for space are not securing a spot in the region.

“In the last six months, we recorded a total demand area of 1,674, 700 sqm with over 650,000 sqm searching specifically in southwest Sydney,” Fab Dalfonso, Colliers National Director of Industrial, says.

“This means of the close to 174,000 sqm that we have leased, most of the market or around 74 per cent, is missing out,” he adds.

“As a result of this, we could see rental growth of up to 20 per cent as well as reduced incentives.”

Colliers says lease renewals previously within the market, which stretches from Padstow in the inner southwest out to Smeaton Grange in outer southwest Sydney and Badgerys Creek were tracking around 65 per cent.

Fab and Adrian Balderston, Director of Industrial say this has now jumped to 90 per cent on the back of supply issues and unprecedented demand.

The investment management company adds having many off-market deals means the supply of 5000 sqm plus warehouses coming to market in the region is less than three per cent. This means while there are buildings with leases expiring, supply is significantly low.

“We are currently working with a tenant who may shortly have no home to accommodate their business as their existing building has been leased, and they are facing a complex situation finding temporary accommodation whilst their pre-leased building in southwest Sydney is due for completion in early 2023,” Adrian says.

“They began their search for a new facility six months prior to their current lease ending, and we suggest the timeframe for obtaining new premises now needs to be around 12-36 months as a minimum to avoid this scenario,” he adds.

Colliers notes of all the enquiries received, 95 per cent require an existing facility or completion within six to nine months, with the remaining five per cent looking for pre-leases as they require major changes to suit their needs.

It adds tenants seeking greater incentives should consider pre-lease options as the average difference between spec and pre-lease incentives is around 10 per cent.

It also says lessors are often granting incentives close to 10 per cent to occupants who are seeking pre-lease opportunities and have time to plan their movements.

“The pre-lease market is now becoming the most active portion of the industrial sector,” Fab says.

“Incentives are tightening with rates on the increase leading to tenants adjusting their business operations and deliverables to suit the evolving market.”

For more information on Colliers, click here.

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