Sydney industrial transaction volumes up 9% to AUD851m in Q1

This figure is 67% above the 10-year quarterly average.

Transaction volumes in Sydney’s industrial property market increased by 9% in 1Q23, totalling AUD 850.8 million. According to JLL data, this is 67% above the 10-year quarterly average (AUD 510.7 million). 

New development sites accounted for 44% of transaction volumes, while investment sales comprised 32%. One owner-occupier acquisition accounted for the remaining 25%.

Here’s more from JLL:

Subdued speculative stock delivery and increasingly tight availability continue to place upward pressure on rental rates. Prime rental rates grew across all precincts in 1Q23, with the Inner West experiencing the most significant growth at 8.7% q-o-q. Secondary rents outpaced the prime market in 1Q23, with the Outer South West experiencing the highest growth at 10.5% q-o-q.

Subdued take-up continues amid low availability

Gross take-up in the Sydney industrial market was below average for the fourth consecutive quarter in 1Q23, totalling 110,150 sqm. Total take-up reduced by 5% relative to 4Q22 and was 51% below the 10-year quarterly average (225,520 sqm).

Demand was led by the Transport, Postal & Warehousing sector accounting for 35% of gross take-up (38,150 sqm). The Manufacturing and Construction sectors were responsible for the majority of remaining take-up, accounting for 19% (21,330 sqm) and 13% (14,720 sqm), respectively.

New supply continues to be impacted by construction delays

Three projects reached practical completion in 1Q23, totalling 68,970 sqm of new stock, a level 49% below the 10-year quarterly average (135,970 sqm). Despite supply chain disruptions easing, new stock delivery continues to be restricted by high construction costs and increasingly limited land availability.

JLL is currently tracking about 617,200 sqm of stock under construction in the Sydney industrial market, 38% of which has been pre-committed to. Over the next six months, 299,900 sqm of new stock is due to come to market, 38% of which is currently pre-committed. New stock delivery over the next six months will be heavily weighted towards the Outer South West precinct (64%).

Outlook: Further rental growth and yield softening to remain

Despite subdued gross take-up, demand for space from occupiers remains strong. However, this is ultimately restricted due to continued low vacancy and limited speculative stock delivery. Easing supply chain delays, tempering construction costs, and existing structural tailwinds are likely to support confidence and strong new stock delivery in the Sydney industrial market.

Rental growth is expected to remain strong over the remainder of the year before stabilising in 2024. Further yield softening is expected amid continued rental growth in a high bond rate environment.

Note: Sydney Logistics & Industrial refers to Sydney's industrial market (all grades).