Foreign Investment In Sydney Industrial Market Surges 200%

A surge in offshore buyer activity is fuelling growth in New South Wales’ industrial and logistics sector, with foreign investment increasing by 200% to $734 million in 2015.

CBRE’s 2015 Q4 Industrial MarketView reveals foreign buyers made a strong push for industrial assets during the 12 month period, with foreign buyers accounting for 37% of all sales nationally in 2015, compared with only 10% in 2014.

In Sydney, industrial sales across Sydney in 2015 totaled $1.7 billion, more than $1.1 billion down on 2014, fuelled largely by a 62% decline in domestic purchaser activity.

CBRE Senior Director, Industrial & Logistics, Capital Markets, Matthew Lee attributed the strong surge in foreign investment to the attractive economic climate.

“The Sydney industrial and logistics market will continue to be a sought after market from an international perspective, with the lower Australian dollar and higher comparative yields strengthening its appeal,” Mr Lee explained.

“Limited land supply and a near zero vacancy rate for prime logistics products across Sydney’s industrial hubs will continue to underpin strong investment appetite in the sector.”

CBRE NSW Director, Industrial & Logistics, Michael O’Neill said the vacancy rate would continue to support speculative development in 2016.

“We are expecting several new speculative developers in the Sydney market in 2016, with a total of at least seven developers earmarked to deliver new speculative product in the next 18 months,” Mr O’Neill explained.

“Aside from the speculative development, there is also considerable pre-lease demand, with several larger enquiries of 15,000sqm – 30,000sqm currently in the market.”

CBRE Senior Research Manager Kate Bailey said the large pipeline of public infrastructure projects underway across New South Wales would continue to support strong levels of tenant demand in Sydney’s industrial market in 2016.
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“We forecast tenant demand in Sydney to be stable over the near to medium term, with engineering and construction expected to contribute positively given the current pipeline of transport infrastructure projects,” Ms Bailey explained.

Rental growth has been concentrated in South Sydney and the South West precincts, where residential conversions continue to impact on net supply as displaced tenants compete for limited leasing options.

In Q4, super prime net face rents lifted 0.3% to $123 per square metre, while prime rents increased 0.4% to $117 per square metre and secondary rents remained flat at $100 per square metre.

Rental growth in 2016 will be supported by lower than average stock levels, with the supply pipeline around 30% below the long-term average.

Sydney’s industrial market continues to offer the lowest level of risk from an investment perspective, with secondary yields converging towards prime yields – suggesting that investors are discerning for risk.