Sydney Industrial Property

Transcription

1 Sydney Industrial Property Market Forecasts and Strategies Extract to indicate the general nature of the report COMMERCIAL PROPERTY

2 Contents EXECUTIVE SUMMARY... I 1. ECONOMIC OUTLOOK Australia: current state of play and outlook New South Wales: current state of play and outlook DEMAND FOR INDUSTRIAL SPACE Current state of play Outlook for demand SUPPLY OF INDUSTRIAL SPACE Current state of play The outlook for supply Land supply Vacancies THE LEASING MARKET: INDUSTRIAL RENTS Current state of play Outlook for rents THE INVESTMENT MARKET: YIELDS, CAPITAL VALUES AND INVESTMENT RETURNS Current state of play Outlook for yields and property values Outlook for investment returns...45

3 Tables Table 1: Historic and forecast rents, values and IRRs... iii Table 2: Strategy matrix... v Table 3: Key economic indicators... 2 Table 4: New South Wales industrial property demand and its components, 1987 to Table 5: Selected industrial projects completed or due for completion in Table 6: Selected industrial projects due for completion in Table 7: Sydney industrial property supply index and its components, 1989 to Table 8: Zoned employment lands stock by subregion, hectares...24 Table 9: Southern Sydney industrial rents, 2007 to Table 10: Northern Sydney prime industrial rents, 2007 to Table 11: Central Western Sydney industrial rents, 2007 to Table 12: Outer Western Sydney prime industrial rents, 2007 to Table 13: Southern Sydney prime industrial rents, capital values and yields, 2007 to Table 14: Northern Sydney prime industrial rents, capital values and yields, 2007 to Table 15: Central Western Sydney industrial rents, capital values and yields, 2007 to Table 16: Outer Western Sydney prime industrial rents, capital values and yields, 2007 to Table 17: Comparison of nominal IRRs, property sectors...47 Charts Chart 1: Sydney industrial property demand, 1986 to Chart 2: Annual change, full container imports, Port Botany...10 Chart 3: Capacity utilisation in the manufacturing sector (Australia)...10 Chart 4: Warehouse and factory approvals (MAT), Sydney industrial regions, 2002 to Chart 5: Industrial completions, 2011 to Chart 6: Industrial completions by suburb, 2017 (share of total, %)...20 Chart 7: Annual take-up of industrial land, Sydney metropolitan area, 2008 to Chart 8: Net absorption, net additions and indicative vacancy rate, 2011 to Chart 9: Sydney industrial rents, 1988 to Chart 10: Sydney industrial rents, growth outlook, 2016 to Chart 11: Outer Western prime yield and 10 year bond rate, 1988 to Chart 12: Sydney industrial capital values, growth outlook, 2016 to Chart 13: Interest rate sensitivity analysis, Outer Western Sydney...44

4 INTRODUCTION Sydney Industrial Property Market Forecasts and Strategies 2016 to 2026 is the latest edition of BIS Shrapnel s annual demand and supply analysis of the Sydney industrial market. The Sydney industrial market s recent run of strength continues. Demand for space remains solid, underpinned by a strong NSW economy and continuing structural change in the retail industry. Retailers, wholesalers and logistics operators are at the forefront of demand, as businesses adjust to the rise in e-commerce and attempt to boost profits by outsourcing supply chain management. Requiring economies of scale, logistics operators typically need new, technically advanced premises after winning new contracts. Accordingly, industrial construction activity remains solid, boosted further by developers building ahead of demand. Meanwhile, rental growth has been notably weak in most parts of the market for several years. The ample supply of land for development, strong competition for pre-leases and speculative construction are keeping a lid on rents. Industrial property remains popular with investors. Fanned by the low interest rates of the past few years and the accompanying search for yield, weight of money ensures that investment yields are still firming and prices are still rising. In the prime market, both have now exceeded their pre-gfc peaks, leading many investors to focus their attention on the secondary market. However, signs are emerging of potential change. The very low interest rates of the past two years were unsustainable in the long term and would have to go up eventually. It was just a question of time. In November 2016, we saw a first step-up following the US elections, and signs are emerging that investors are starting to switch focus from yield to growth assets. This raises important questions: What is the outlook for Australian interest rates? What, if any, impact will this have on industrial property? What can be done to prepare for potential impacts? Within our study we: Discuss the current state of play and outlook for the Australian and New South Wales economies, which serves as the backdrop to our forecasts of industrial property demand. Provide 10 year forecasts of key variables for industrial demand. What are the prospects for industrial demand and what are the underlying drivers? Will the rise of online retailing sector and changes in global supply chains remain the main drivers? Will demand continue to favour new facilities? Assess the prospects for construction and development. What are the drivers of construction? Where are the construction hot spots and where will future construction take place? Is there enough land to accommodate future demand for industrial space? Will construction be affected by rises in interest rates? Analyse the balance between demand and supply. Are we building too much space or too little? Will vacancies fall or will they rise? Provide 10 year forecasts of prime and secondary rents, yields, capital values and investment returns for the Southern, Northern, Central Western and Outer industrial regions. What are the prospects of rental growth? Will yields continue to firm? What is the connection between interest rates and industrial property yields? What returns can

5 investors expect from Sydney industrial property? Which is a better investment, prime or secondary property? Answer the question of whether Sydney industrial property is a good investment. How do prospective returns from Sydney industrial property compare with other markets and other property classes? Is the Sydney industrial property market under or over-valued? Will investment in Sydney industrial property achieve commonly used hurdle rates of return? Discuss property strategies and opportunities, including whether now is a good time to buy or sell buildings and/or land, whether to wait for pre-commitments before commencing construction or start on a speculative basis.