Rental as anything: Record prices bid as ‘eager’ industries chase space

Industrial rents in New South Wales have hit new highs as businesses engage in a bidding war for scarce space, with rents reaching well over $200 per square metre in some well-located industrial precincts.

E-commerce, third party logistics providers, food manufacturers and other warehouse-dependent sectors are all competing for the same spaces, and landlords are naming their price.

With little new stock coming to the market, tenants can expect conditions to continue well into 2023, JLL Executive – Industrial, Alexandra Nakhoul, said.

“Rents are reaching unprecedented levels. High rental prices are being dictated by who needs the space the most and what the demand is like at the time that the asset becomes vacant,” Ms Nakhoul, who is based in JLL’s Parramatta office, said.

“Due to the sheer lack of available properties on the market, we are now seeing major occupiers place a larger emphasis on their supply chain efficiencies as they reassess their strategies on a national level.

“The disruption has been particularly acute in e-commerce. Suppliers have moved from their usual ‘just in time’ model to a ‘just in case’ model, overhauling and holding onto more stock,” Ms Nakhoul said.

Owners of industrial assets are capitalising on the hot market and locking in long lease terms with higher rent review structures, JLL Director, Miguel Lee said.

“Over the past year, the industrial and logistics sector returns reached their highest level on record, significantly outpacing inflation. More recently, we are witnessing annual fixed rent increases latch onto Consumer Price Index (CPI) as inflation drifts higher.

“For example, the average annual rent increase structure of a long-term lease in an industrial property average around 3%. In the current market, we are seeing these jump to 5%.

“Additionally, incentives have sharpened drastically across all Australian industrial markets. It’s clear that these commercial transaction proponents are likely to remain at elevated levels throughout 2023,” said Mr Lee.  

Mr Lee, also in Parramatta, said 2022 could be the year industrial rents meet retail rents in Sydney.

“Unfortunately for tenants, there’s no relief coming in the next 12 months,” Mr Lee said. “We expect this compelling demand – caused by supply chain disruption – to continue into the back end of 2023, if not longer.

“The lack of new stock is a huge problem. There are a few developments coming, but these won’t come anywhere near to meeting tenant demand. Rents will still be at elevated levels and construction costs are now being passed onto the tenant,” Mr Lee said.

JLL’s latest Research figures capture the rental price surge. Prime rents increased in all tracked NSW precincts over the previous quarter, with quarterly rental growth reaching 8.27% in Sydney’s Outer South-West against a whole-market prime average rental rate increase of 6.22%. Nationally, year-on-year rental growth has averaged 14.9%.

JLL is tracking 1,123,350 square metres of stock under construction in the Sydney market. Of this, 735,880 square metres (71% of which is pre-committed) is due for completion this year.

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