Sydney leasing and investment market remains positive: Cushman & Wakefield
The Australian economy has beaten fears of a recession, posting a stronger-than-expected December quarter result of 1.1 percent, according to Cushman & Wakefield's latest report.
In average annual terms, the 12 months to December 2016 provided solid but sub-trend economic growth of 2.5 percent.
In terms of state final demand New South Wales recorded 4.7 percent annual average growth, exceeding the long term average of 3.2 percent.
The state economy has been boosted by investment in a number of public infrastructure projects including the WestConnex and NorthConnex transport network upgrades, while early works are underway on Western Sydney Airport.
The Reserve Bank’s cash rate remained unchanged at 1.50 percent.
The current low interest rate environment has ensured that demand to acquire vacant possession buildings, land or investments remains buoyant.
Limited purchasing opportunities have forced potential owner-occupiers into the leasing market resulting in strong pre-lease enquiries for ≥20,000 sq m offerings, especially from the food, pharmaceutical and 3PL industries.
In light of strong demand, availability of buildings across all markets is below average.
Rents largely tracked sideways in Q1 however South Sydney recorded q-o-q rental growth of 2.6 percent, pushing face rents to $195 per sq m.
Investment in Q1 2017 totalled $341m, down 18 percent q-o-q from the $415m recorded in Q4 2016, and down only 1 percent y-o-y.
Rolling annual investment volume was stable at $1.9bn from Q4 into Q1, but was 11 percent below the five year average, largely due an unwillingness of owners to divest their assets.
Strong competition for quality stock from both domestic and foreign investors has compressed prime yields to circa 6.50 percent in most submarkets.
Significant variation remains in secondary stock, with yields ranging from 6.75 percent in South Sydney to 8.5 percent in the Outer West.
Noteworthy investment transactions in Q1 came from LOGOS’s acquisition of 69 Sargent’s Road, Minchinbury for $161m and China Lesso Holdings purchasing 79-99 St Hilliers Street, Auburn from Dexus for $65m.
Infrastructure projects, particularly upgrades to Sydney’s orbital road network, are continuing to shape the dynamics of the Sydney industrial market.
The outlook for both leasing and investment remains positive, although lack of tenancy and purchase opportunities is a potential limiter of activity.
