- Slow economic growth leading into Q1 2023
- Prime face rents to increase across the board
- Steady investor confidence despite lower industrial transaction volumes
Cushman and Wakefield‘s Marketbeat Sydney Industrial Q1 2023 reports that global inflationary pressures carrying over from 2022 have triggered further interest rate rises, cutting the pace of Australia’s economic growth for 2023 and 2024 and dampening any hope for Australia’s quick economic recovery.
Sobering economic outlook
While Australia’s Gross Domestic Product (GDP) growth overperformed at 3.6% in 2022, it is anticipated to drop to 1.7% in 2023 and 1.6% in the following year according to Deloitte Access Economics (DAE) figures cited in Cushman and Wakefield’s report.
Similarly, DAE predicts that New South Wales’ (NSW) gross state product (GSP) will fall to 1.7% in 2023, and 1.6% in 2024, after having increased by 4.6% in 2022, an annual average growth rate that far outpaced the 2.5% of the pre-pandemic decade
Soaring rental prices
The Sydney industrial precincts have seen prime net face rents surge over the past six months. This trend has been chiefly attributed to a high tenant demand amidst a dwindling supply of leasable space and the recent introduction of high-rental prime properties into the market.
Prime face rents of all precincts in Sydney have followed a similar trajectory, experiencing hikes between 20% to 50% from Q1 2022 to Q1 2023.
South Sydney prime face rents climbed 6% between Q4 2022 to Q1 2023, averaging $325 square metre per annum (sqm pa). Meanwhile, Central West rents rose 9% from Q4, averaging $215 per sqm pa, South West rents with a 7% increase, averaging $195 sqm pa, Outer West up 12% averaging $215 per sqm pa, and finally, North West rents grew 9%, averaging $210 per sqm pa.
Investors confident and high-value acquisitions continue amid lower industrial transaction volumes
Industrial transaction volumes diminished slightly from the past six months through Q1 2023. While transaction volumes have nearly doubled from $592 million in Q3 2023 to $1.3 billion in Q4 2023, this is still well below Q4 2021’s $1.8 billion. The reported volumes coming into Q1 have waned to $553 million.
Nevertheless, these figures are higher than pre-COVID levels, and investors have maintained their confidence in the long-term prospects for this sector.
Amazon’s $181 million acquisition of 2 Glendenning Road in Blacktown anchored transactions. Other key sales transactions of Q4 2022 and Q1 2023 include NashCap’s $128.2 million purchase of Rosehill Business Park in Parramatta, and Invesco, Gateway Capital’s $118.5 million purchase of 12 Frederick Street in Willoughby.
Yields have steadily shifted upwards through the past six months, experiencing an average of 80 basis points rise over the previous year, averaging 4.5% across all NSW precincts.
