Record transaction volumes and investment yields for Sydney industrial market

Industrial assets of all sizes, prices, and locations were in demand across Sydney in 2021, with the market seeing a huge volume of transactions.

With sales turnover well in excess of rates achieved in prior years, Ray White Commercial head of research Vanessa Rader said the yields which had been achieved were unprecedented.

Ms Rader said there had been a total turnover of $6.148 billion across 1,104 sales in 2021, with the highest volume of sales in the sub $5 million price point, accounting for over 900 of the 1,104 sales recorded.

“The depth of demand for industrial property has been unlike ever before, with a high volume of sales in the $5 million price range indicative of new players in the market,” Ms Rader said.

“Similarly larger transactions have increased with institutional investors and foreign buyers identifying long term value in this asset class.

“Land values have shown an uplift of five to 10 per cent over the last year due to the scarcity of vacant, developable industrial land together with the continued appetite by occupiers and investors alike.”

Ms Rader said investment yields had reached record lows for industrial property.

“Investment yields continue to set new benchmarks with tenanted stock recording yields within the 3.50 per cent  to 6 per cent range, new record lows for industrial property.

“The longer term confidence in this asset class is driving yields down with demand projections expected to remain elevated keeping occupancy levels high and future returns up.”

There is currently 4.11 million square metres of industrial supply in the development pipeline across Sydney, represented by 160 major projects, and Ms Rader said despite growing construction costs, the strong demand for industrial properties meant a strong pipeline of potential supply would continue to be added to the market.

“Despite the increased appetite to occupy stock, new construction starts have seen some lag and have been heavily demand led given the huge increases to construction costs over the past 18 months,” Ms Rader said.

“The bulk of new supply in the pipeline is in the Outer West market notably in Penrith LGA, this region represents 67.8 per cent of all new projects and includes the active Kemps Creek area.

“There is 130,000sqm of new stock under construction in the Central South West region (dominated by Liverpool LGA) expected to be completed over the next 12 months.

“There is a further 301,000sqm of development approved land which is anticipated to be advanced quickly given it includes the Western Sydney Aerotropolis zone.

“Given the lack of vacant, developable land in the South and North, these markets have only 316,000sqm and 111,000sqm respectively in the development pipeline ensuring occupancy levels remain high.”

One recent sale included 421 Park Road, Regents Park (pictured above), which sold for $4.45 million, a land rate of $3784/sqm.

Mr Assaf said there were a number of drivers behind the increased demand and prices seen in the Sydney industrial market.

“Owner occupiers have been very active throughout the pandemic, driving up sale prices and outbidding investors who are purchasing on a yield basis,” he said.

“Re-zoning of industrial sites to mixed-use developments, especially in key locations near train stations, has reduced the supply.

“Increases in rents have resulted in tenants being very active in the market to acquire their own premises.

“Plus most logistics during COVID performed extremely well and saw business growth during this period resulting in additional space requirements.”

Mr Assaf said he expected the industrial market to remain strong as it enters 2022.

“Industrial properties are unreservedly the best performing asset class of 2021, with pent-up demand from investors, owner-occupiers, and tenants looking to secure a stronghold in the heartland of the booming Western Sydney region, delivering some outstanding results to our vendors this year,” he said.

“With the easing of COVID-19 restrictions further exacerbating the demand for goods and services, industrial locations to house these production locations are fiercely sought after.

“We expect buyer demand to intensify in the lead up to 2022.“This level of heat in the market means we are witnessing record rates per square metre being achieved on our most recent sales.”