Sydney, 3 August 2014 – A flurry of new infrastructure developments slated for Sydney will underpin growth in the city’s industrial property market, according to new research by CBRE.
The 2014 Industrial MarketView Q2 report predicts strong commitment from the federal and state governments to undertake major infrastructure projects in the New South Wales capital will provide a strong base growth for the surrounding industrial market.
By the end of 2014, 600,000sqm of new supply over 5,000sqm is forecast to be added to Sydney’s industrial market.
CBRE Research Manager Mark Lafferty said the scheduling of key infrastructure projects would provide a welcome boost of confidence to the sector.
“While there is some uncertainty around the funding for some projects, the strategic direction and priority appear to be clear,” Mr Lafferty said.
“As a result, the surrounding industrial markets are positioned to benefit from a lift in investor sentiment levels, as well as stronger demand for industrial space.”
Major projects earmarked for Sydney include the $11.5 billion WestConnex project, which will connect Western Sydney with the airport/Port Botany, the $3 billion F3 – M2 tunnel link and a potential second airport.
Mr Lafferty said firming confidence levels was supporting the large supply pipeline, with a particular focus on transport and logistics in the western industrial market.
“The greatest additions of new supply are in Sydney’s outer west, where 58% of the 2014 supply pipeline is being delivered,” Mr Lafferty said.
“Future supply is being built to best service the growing transport and logistics sector, with a focus on super prime logistics facilities that have sound accessibility to existing and planned transport infrastructure.”
Mr Lafferty said the increase in supply was expected to be absorbed by an improving occupier market.
CBRE National Director, Industrial Brokerage, Jason Edge said the logistics sector was the biggest growth pocket of the market.
“Whilst far western Sydney continues to be the major focus for greenfield development, more central locations such as Chullora and Rosehill have seen strong demand with over 117,000sqm leased in this precinct year-to-date,” Mr Edge said.
Sydney also experienced an uplift in sales activity during the quarter, with $395 million in industrial property changing hands during the three month period – a 73% increase from the same quarter in 2013.
Mr Edge said despite this increase in sales, a number of buyers were finding pricing too aggressive and now looking to acquire land to grow funds via development.
“This has been highlighted by Stockland’s recent acquisition of 26ha in Ingleburn and Australand’s purchase of 20ha at Horsley Park,” Mr Edge explained.
“Greenfield development sites are now becoming more feasible, with continued yield compression allowing purchasers to meet vendors’ price expectations.”
According to the report, transactional activity for the quarter highlights improved investor sentiment driven by prospects of a rental growth recovery in 2015 and an improving economic cycle.
During the quarter, Super Prime and Prime yields compressed 20 basis points to 7.4% and 7.9% respectively, while secondary yields dropped 10 basis points to 9.0%. Market yields are expected to continue on a tightening trend driven by improving growth expectations.
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