Engineering and construction related businesses continue to show signs of growth due to major infrastructure projects and a strong residential housing market in NSW.
This has contributed to increased demand for south west Sydney industrial property, resulting in strengthening prices as demand outweighs the level of supply.
This increase in demand for industrial property in south west Sydney is further fuelled by the decentralisation of South Sydney occupiers. These companies are seeking to relocate along the M5 corridor to take advantage of lower prices after being all but displaced due to competing land uses in core South Sydney locations.
In the sub 3,000sqm size range, rental rates for prime industrial buildings are hovering around $120 per sqm and $95 per sqm for secondary property. We believe the above fundamentals will continue to add pressure to rents and capital values as supply remains constrained. Evidence suggests incentive levels are also decreasing, with the south Sydney market already experiencing a substantial decline in incentive levels of around 35% over 12 months.
With investment yields remaining firm following a sustained low interest rate environment coupled with an abundance of capital, we expect yields in the near term to remain sharp. Investors entering the south west market at this stage of the cycle should focus on quality functional improvements, in accessible locations together with a secure income stream, benefitting from regular rental reviews to market.
Author: Michael Mileto
Michael is a Sales and Leasing Executive at Link Property Services Silverwater office.