Sydney has the largest infrastructure pipeline of any state in Australia, and according to the government's own forecasts, there will be an estimated $74 billion in transport infrastructure spending just in NSW over the next four years, according to Colliers International.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
Due to this, Sydney's western industrial precinct continues to have strong investment conditions with strong interest from offshore investors – Singapore, Hong Kong, Japan, and Kwap from Malaysia.
Director of research at Colliers International, Luke Dixon said the United States-based investor Blackstone has broken the previous investment record held by Ascendas, after acquiring $1.3 billion of Goodman's industrial assets across the East Coast, in just two transactions.
Mr Dixon said this sale will provide Goodman with strong financial support to fund future land acquisitions and developments globally.
"Domestically, real estate investment trusts (REITs) such as Charter Hall and Mirvac, as well as fund management group AMP are actively pursuing industrial opportunities," Mr Dixon said.
"In June, AMP acquired JP Morgan's industrial portfolio worth over $250 million, on a portfolio weighted average yield of 6.5 per cent. Prime initial yields in the west compressed by a further 15 basis points from June to September on the back of strong investment volumes."
According to Gavin Bishop, National Director of Industrial at Colliers International, developers are also speculatively developing due to tight vacancy rates in the Western market, and limited opportunities for tenants in the 10,000sqm plus market.
"Tenant demographics are becoming more diversified in the western market, with 40 per cent of tenants being from storage, transport and logistics businesses, however the strong performance of retail discretionary spending by consumers is driving demand from retailers looking for storage and distribution facilities," Mr Bishop said.
Mr Bishop said rental growth performance is strong, with net effective rents up by 3 per cent year on year, higher than their 10 year average growth rate of 2.3 per cent.
"We are forecasting industrial effective rents to rise in the next 12 months by between 3 to 5 per cent, due to asset and land scarcity, and rising demand from tenants with exposure to discretionary retail".
This will augur well for the two large industrial estates at Greystanes and Minchinbury has signalled the return of speculative development in Western Sydney.
Price increases of 10 per cent over the past year, from around $1,800 to $2,000 per square metre per annum, mean developers can achieve acceptable profit margins, and have the financial confidence to re-enter the market.
Greystanes project is one that was was re-started in mid-2014 and re-launched as Gateway Estate Greystanes through Coutts and Link Property Services.
Newly completed, all 30 industrial units, eight hi-tech offices and the childcare facility have sold, leaving just five offices and 13 retail lots remaining, which continue to attract significant interest.
Gino Cavallaro and Ray Mayer of Coutts both said the Western Sydney industrial market has tightened.
"Demand is now at its strongest in 10 years – back to pre-GFC levels," Mr Cavallaro said.
"Prices have increased rapidly, and many of the purchasers who bought off-the-plan have already enjoyed a significant paper profit."
