An extreme lack of stock in the southwest Sydney industrial market has forced tenants to pre-empt their moves one to three years in advance at a minimum.
Previously, lease renewals within the market, which stretches from Padstow in the Inner South West out to Smeaton Grange in Outer South West Sydney and Badgerys Creek, were tracking at around 65 per cent, according to Colliers National Director of Industrial Fab Dalfonso and Director of Industrial Adrian Balderston. This has now jumped up to 90 per cent on the back of both supply issues and unprecedented demand.
A large number of off-market deals means the supply of 5,000sqm plus warehouses coming to market in the region is less than 3 per cent, meaning that whilst there are buildings with leases expiring, supply is significantly diminished.
“In the last six months we recorded a total demand area of 1,674,700sqm with over 650,000sqm searching specifically in Southwest Sydney,” Mr Dalfonso said. “This means of the close to 174,000sqm that we have leased, most of the market or around 74 per cent, is missing out. As a result of this, we could see rental growth of up to 20 per cent as well as reduced incentives.”
Of all the enquiries received, 95 per cent require an existing facility or completion within 6-9 months, with the remaining 5 per cent looking for pre-leases as they require significant modifications to suit their needs.
“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,” Mr Balderston added.
“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.”
Tenants seeking greater incentives should consider pre-lease options as the average difference between spec and pre-lease incentives is circa 10 per cent. Lessors are often granting incentives in the vicinity of 8-10 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. Incentives are tightening with rates on the increase leading to tenants adjusting their business operations and deliverables to suit the evolving market,” Mr Dalfonso said.