An extreme lack of stock in the southwest Sydney industrial property market has forced warehouse tenants to pre-empt their moves one to three years in advance.
Lease renewals within the market, which stretches from Padstow in the inner southwest out to Smeaton Grange in outer southwest Sydney and Badgerys Creek, were tracking at around 65% previously, according to Colliers.
This has now jumped up to 90% on the back of both supply issues and unprecedented demand.
The supply of 5,000 sqm-plus warehouses coming to market in the region was less than 3% following a large number of off-market deals.
Colliers National Director of Industrial Fab Dalfonso said they recorded a total demand area of 1,674,700 sqm over the past six months, with over 650,000 sqm searching specifically in southwest Sydney.
“This means of the close to 174,000 sqm that we have leased, most of the market or around 74%, is missing out,” Dalfonso said.
“As a result of this, we could see rental growth of up to 20% as well as reduced incentives.”
Of all the enquiries received, 95% required an existing facility or completion within 6-9 months, with the remaining 5% looking for pre-leases as they required 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,” Colliers Director of Industrial Adrian Balderston said.
“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.”
Colliers suggested that tenants seeking greater incentives should consider pre-lease options as the average difference between spec and pre-lease incentives was circa 10%.
Lessors were often granting incentives in the vicinity of 8-10% to occupants who were seeking pre-lease opportunities and had 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,” Dalfonso said.