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The market, Australia’s highest performing industrial market, currently possesses just 2.7 years’ worth of developable land, according to a new report from Colliers.
New information released in Colliers’ Western Sydney Industrial Development Update for the first quarter of 2023 found that while the burgeoning region boasts 1,615 hectares of zoned industrial land yet to be developed, just 70 hectares, or 4 per cent, can support the completion of assets in the next 12 months.
Gavin Bishop, Colliers head of industrial capital, believes it is “imperative” the region’s land potential be realised in order to match ever-increasing demand, which has resulted in land take-up by industrial occupiers reaching 54 per cent above the five-year average and established at a record of almost 290 hectares last year.
He revealed developers already control almost half (47 per cent) of the 1,615 hectares of land available to industrial assets, adding that the “balance [is] dominated by private groups who have shown limited urgency to progress development in recent years.”
“There are also only 70 hectares of land in Western Sydney that are serviced by foundation infrastructure such as roads, enabling the completion of industrial assets this year, but they primarily consist of lots below two hectares, which are not suitable for big box demand,” he said.
Planning, servicing, and road infrastructure delays over the last 18 months have hindered the Mamre Road and Western Sydney Employment Area (WSEA) precincts, which hold 60 per cent of available land, with this region unable to deliver an additional 414 hectares to the market until at least 2024.
The Aerotropolis could provide an additional 2,920 hectares of gross area from 2025 onwards, which can be leveraged for industrial, amongst other uses, though this depends on the precinct plans and their implications for the enterprise and agribusiness zones, according to Colliers’ senior executive of industrial, Jock Tyson.
Mr Tyson explained, “Since industrial users have shown a greater desire to accommodate newer, more modern premises, there has been a recent increase in activity from industrial occupiers acquiring Aerotropolis sites, including DHL, who obtained 24 hectares for almost $600 per square metre in early 2022.”
Network director of research, Luke Crawford, revealed developers have fast-tracked master plan staging to accommodate speculative development and capitalise on favourable leasing conditions in an effort to answer increasing demand for new assets.
He noted that while the speculative development pipeline for Western Sydney had increased from 270,000 square metres to currently stand at just under 60,000 square metres for 2023, this was “outweighed by current market demand for 1.6 million square metres in Western Sydney.”
Sydney’s outer-west and south-west submarkets will remain the most active for speculative supply this year, according to Mr Crawford, who said this trend was aided by the “delivery of major facilities such as the Moorebank Intermodal Terminal (around 100,000 square metres) and the Light Horse Business Hub (around 43,300 square metres).”
Colliers anticipate rents for new developments could potentially jump up to 10 per cent in some instances due to the supply shortage, adding pre-commitment rents could range from $190 to $220 per square metre by year’s end.
On the rental front, the region has experienced sharp, 40 per cent increases in prime rents, levels described by Colliers as “unprecedented.”
In the last year, demand driving rents has been largely attributed to the retail sector, which accounted for 40 per cent of land take-up in Western Sydney throughout 2022, including deals with Winning Appliances, Bunnings, and Woolworths.
Increasing rent and tightening supply underpinned investment volumes for land in the region in 2022 — $1.2 billion last year, down from $1.5 billion in 2021 — with investor caution regarding market fluctuations and capital constraints labelled as drivers of this decrease.
“Following a rise in land values in 2022 by around 27 per cent, there has been a lack of sales evidence this year to demonstrate softening land values in Western Sydney in response to rising yields and elevated construction costs,” Mr Crawford concluded.
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