- Lease renewals were previously tracked at 65%
- Now it is 90%
- Businesses encouraged to seek out pre-lease opportunities
Sydney’s industrial market has continued to tighten in a manner that has forced tenants to pre-empt their moves as much as one to three years in advance.
Previously, lease renewals in the southwest Sydney market, which stretches from Padstow out to Smeaton Grange and Badgerys Creek, were tracking at 65%, according to Colliers.
This has now jumped to 90% thanks to the restriction of supply caused by unprecedented demand.
Off-market deal have meant the supply of 5,000 sqm plus warehouses coming to the market is less than 3%.
“In the last six months we recorded a total demand area of 1,674,700sqm with over 650,000sqm searching specifically in Southwest Sydney,” said Colliers National Director of Industrial Fab Dalfonso.
“This means of the close to 174,000sqm that we have leased, most of the market or around 74 per cent, is missing out.
“As a result of this, we could see rental growth of up to 20 per cent as well as reduced incentives.”
Of the enquires Colliers has received, 95% require an existing facility or completion within the next six to nine months. The remaining 5% are looking for pre-leases as they require significant modifications.
“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,” added Colliers Director of Industrial Adrian Balderston.
“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.”
Mr Dalfonso also noted that tenants seeking greater incentives should consider pre-lease options, given the average difference between spec and pre-lease incentives, is 10% per annum. Often, lessors are granted incentives in the 8-10% range to occupants seeking pre-lease opportunities.
“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,” Mr Dalfonso said.