CBRE Market Outlook details Sydney’s cross-sector outlook for 2020
Villawood, Auburn, South Granville, Smithfield and Wetherill Park are among the locales set to benefit from an influx – circa 200,000sqm worth – of speculative infill industrial development this year.
This is one of the key takeaways from CBRE Australia’s recent Real Estate Market Outlook 2020 research series, which provides year-ahead commentary on the retail, hotels, office, residential and capital markets sectors.
Michael O’Neill, CBRE Senior Director, Industrial & Logistics, said that infill rental growth had triggered institutional developers to start unlocking infill brownfield sites to cater for last mile logistics.
“In recent times, speculative development has occurred predominantly in greenfield locations, including Eastern Creek, Erskine Park, Prestons and Ingleburn, but the amount of future infill stock will be unprecedented.”
“We expect these speculative infill sites will be very well received, based on occupancy rates in existing stock; success of recent infill developments, like Enfield Intermodal and 2-8 South Street in Rydalmere; and substantial pre-commitments, including Winit 21,500sqm at South Granville.”
Mr O’Neill added that the reduction in outer-west speculative activity was expected to trigger continued pre-lease activity, similar to what LOGOS has recently experienced at Marsden Park.
> View the full CBRE Australia Real Estate Market Outlook 2020
> View the full Sydney City Outlook 2020
Ben Martin-Henry, CBRE Research Associate Director, noted that while the Sydney industrial economy was in recession due to a decline in residential construction, this was having little impact on tenant and investor demand.
“The industrial sector will continue to perform strongly over the next 10 months, with investors looking to reweight portfolios by increasing allocations towards industrial and logistics,” Mr Martin-Henry said.
“While the office sector will continue to be Sydney’s most sought-after commercial asset class, we expect prices to increase across both office and industrial assets and an increasing shift by investors to move up the risk curve.”
CBRE’s NSW Capital Markets State Director Michael Andrews added; “If a quality office asset in the Sydney CBD changes hands, we may see it transact below a circa 4% cap rate and we are expecting new benchmarks to be set.
“This is resulting in capital paying tighter cap rates in non-CBD Markets, including North Sydney, Macquarie Park and Parramatta.
“This will be underpinned by the market’s strong underlying leasing fundamentals, existing low and forecast decrease in interest rates and a growing capital queue from both on and offshore investors.”
On the residential front, Mr Martin-Henry said improving market conditions and high levels of government infrastructure spending in 2020 would drive an economic uptick in New South Wales – with a bounce back in residential prices and sales volumes, despite COVID-19.
Another rate cut is expected in 2020, which will reduce the cost of debt for both commercial and residential loans and have positive impacts on prices in both markets.
The retail sector, meanwhile, will continue to face challenges, given the ongoing closures of retailers who have struggled to adapt to changing shopping patterns. However, CBRE’s Outlook report said this will present opportunities for owners to reposition assets and change the tenant mix in centres to offer more retail experiences to attract key customer demographics.
The retail investment sector is also expected to see more action this year as more non-traditional retail owners enter the market.
Villawood, Auburn, South Granville, Smithfield and Wetherill Park are among the locales set to benefit from an influx – circa 200,000sqm worth – of speculative infill industrial development this year.
This is one of the key takeaways from CBRE Australia’s recent Real Estate Market Outlook 2020 research series, which provides year-ahead commentary on the retail, hotels, office, residential and capital markets sectors.
Michael O’Neill, CBRE Senior Director, Industrial & Logistics, said that infill rental growth had triggered institutional developers to start unlocking infill brownfield sites to cater for last mile logistics.
“In recent times, speculative development has occurred predominantly in greenfield locations, including Eastern Creek, Erskine Park, Prestons and Ingleburn, but the amount of future infill stock will be unprecedented.”
“We expect these speculative infill sites will be very well received, based on occupancy rates in existing stock; success of recent infill developments, like Enfield Intermodal and 2-8 South Street in Rydalmere; and substantial pre-commitments, including Winit 21,500sqm at South Granville.”
Mr O’Neill added that the reduction in outer-west speculative activity was expected to trigger continued pre-lease activity, similar to what LOGOS has recently experienced at Marsden Park.
> View the full CBRE Australia Real Estate Market Outlook 2020
> View the full Sydney City Outlook 2020
Ben Martin-Henry, CBRE Research Associate Director, noted that while the Sydney industrial economy was in recession due to a decline in residential construction, this was having little impact on tenant and investor demand.
“The industrial sector will continue to perform strongly over the next 10 months, with investors looking to reweight portfolios by increasing allocations towards industrial and logistics,” Mr Martin-Henry said.
“While the office sector will continue to be Sydney’s most sought-after commercial asset class, we expect prices to increase across both office and industrial assets and an increasing shift by investors to move up the risk curve.”
CBRE’s NSW Capital Markets State Director Michael Andrews added; “If a quality office asset in the Sydney CBD changes hands, we may see it transact below a circa 4% cap rate and we are expecting new benchmarks to be set.
“This is resulting in capital paying tighter cap rates in non-CBD Markets, including North Sydney, Macquarie Park and Parramatta.
“This will be underpinned by the market’s strong underlying leasing fundamentals, existing low and forecast decrease in interest rates and a growing capital queue from both on and offshore investors.”
On the residential front, Mr Martin-Henry said improving market conditions and high levels of government infrastructure spending in 2020 would drive an economic uptick in New South Wales – with a bounce back in residential prices and sales volumes, despite COVID-19.
Another rate cut is expected in 2020, which will reduce the cost of debt for both commercial and residential loans and have positive impacts on prices in both markets.
The retail sector, meanwhile, will continue to face challenges, given the ongoing closures of retailers who have struggled to adapt to changing shopping patterns. However, CBRE’s Outlook report said this will present opportunities for owners to reposition assets and change the tenant mix in centres to offer more retail experiences to attract key customer demographics.
The retail investment sector is also expected to see more action this year as more non-traditional retail owners enter the market.
For Australian/international news or global stories, follow us on Twitter: @cbreaustralia
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
