Briefing Sydney Industrial July 2018

Transcription

1 Savills Research New South Wales Briefing Sydney Industrial Highlights The Wholesale sector continued to dominate total leasing demand for industrial space in Sydney s leasing market, accounting for approximately 43% of total stock leased in the 12 months to June 2018; There was a notable uplift in job advertisements for industrial sector jobs nationally, with growth in logistics' based job advertisements recorded at 6.0% over the year to May 2018; Rental growth in the Central West precinct significantly outperformed the market, with average prime and secondary rents growing 31.0% and 29.4% over the 12 months to June 2018; Averages (Western Sydney) Latest 12mo Diff Outlook Rental N.F. ($/sq m) 118 (+2.2%) Incentives (%) 12.8 (-8.9%) Yield Market (%) bps IRR (%) 7.00 (-50 bps) Capital Values ($/sq m) 2,000 (+6.7%) Land Values ($/sq m) 625 (+16.3%) Although sales volumes were down from the record high levels in the 12 months prior, investor demand remains strong for industrial assets.

2 Report Contents Executive Summary 2 Leasing Activity & Demand 3 Rents and Development 5 Sales Activity 6 Infrastructure & Outlook 9 Key Indicators 10 Key Contacts 10 Associate Director Capital Strategy & Research Shrabastee Mallik smallik@savills.com.au For our latest national reports, visit savills.com.au/research To join Savills Research mailing list, please research@savills.com.au Executive Summary Over the last 12 months, there has been a notable increase in new supply and a growing leasing activity in Sydney s industrial space, supported by strong population growth and a strengthening domestic economy. Following a prolonged period of subdued rental growth, the lack of quality stock and strong demand for prime industrial space has resulted in above average growth in prime industrial rents over FY-18, rising by 2.2% over this period. Industrial precincts such as the Central West precinct recorded significant uplift in rents, outperforming the market, with average prime and secondary rents growing 31.0% and 29.4% over the 12 months to June Development of industrial supply returned to pre-gfc levels, supported by strong tenant demand for new industrial facilities. A surge of speculative development across Sydney was evident, with over 80% of speculative developments reported were leased prior to or at practical completion. Sydney Markets Summary - Warehouse Precincts N.F. Rent ($/sq m) Market Yield (%) IRR (%) Cap. Value ($/sq m) Land Value ($/sq m) SYD - South Sydney* 178 (+4.4%) 5.63 (-38 bps) 7.00 (-38 bps) 3,625 (+28.3%) 1,150 (+9.5%) SYD Western* 118 (+2.2%) 5.63 (-75 bps) 7.00 (-50 bps) 2,000 (+6.7%) 625 (+16.3%) SYD - Central West* 135 (n/c) 5.63 (-75 bps) 7.00 (-63 bps) 2,250 (+11.1%) 750 (+9.1%) SYD - North Shore* 163 (n/c) 6.25 (-63 bps) 7.50 (-88 bps) 2,625 (+9.4%) 1,075 (+48.3%) SYD - North West* 120 (+9.1%) 5.88 (-100 bps) 7.13 (-100 bps) 1,750 (+4.5%) 625 (+8.7%) SYD - South West* 105 (-6.7%) 6.25 (-13 bps) 7.50 (-38 bps) 1,763 (-3.4%) 588 (+9.3%) SYD - Outer South West* 110 (+4.8%) 6.00 (-63 bps) 7.50 (-63 bps) 1,675 (+4.7%) 550 (+10.0%) ; *Savills metrics includes marketable commercial industrial buildings within defined precinct boundaries, generally inclusive of an improved building area of between 1,000 and 20,000 square metres. Land values reflect serviced & benched sites (3,000-5,000 sq m). savills.com.au/research 2

3 Leasing Activity & Demand Savills Research recorded approximately 882,239 square metres of industrial leasing activity (> 1,000 square metres) in Sydney in the 12 months to June This is in line with the 10 year average of 950,000 square metres. This was slightly down on the 10 year average of 987,000 square metres. The number of leases identified in FY-18 totalled 116. By comparison, a total of 120 transactions were recorded in FY-17. Pre-lease activity accounted for close to 29% of total tenant demand, with pre-lease activity primarily in Sydney s Western and South Western precincts. Over the past 5 years, much of Australia s demand for industrial warehousing has been driven by large retailers (Supermarkets), 3rd Party Logistic providers and pure online retailers (Amazon, The Iconic). The Wholesale sector continued to significantly account for total demand for industrial space in Sydney s leasing market, accounting for approximately 43% of total stock leased in the 12 months to June The Wholesale sector was also responsible for the 4 largest leasing deals of FY-18, with the largest being Amazon s 42,570 square metre lease at 7-21 Centenary Avenue, Moorebank in Sydney s South- West precinct. Amazon s lease is indicative of Australia s growing e-commerce market, with more consumers moving towards on-demand consumption. Traditional retailers are now understanding the need to review their existing supply chain(s) and to focus on 'business to consumer' (B2C) distribution channels in order to adapt quickly to this change in consumer behaviour. Whilst online retailing remains a largely immature market in the Australian retail landscape, online trade growth has outpaced traditional retailing over the recent past, although at a more volatile pace, indicating the changing nature of consumer tastes and shopping habits. Leasing demand from Transport & Logistics operators, was the second most numerous, accounting for 39% of total leasing volumes over the same period. The largest deal of FY-18 for the sector was Volvo Group s 29,300 square metre pre-commitment at Prestons Logistics Estate (also in Sydney s South-West precinct) on a 10 year lease. Leasing Activity by Precinct (>1,000 square metres) 1,650,000 1,500,000 1,350,000 1,200,000 1,050, , , , , , ,000-1,650,000 1,500,000 1,350,000 1,200,000 1,050, , , , , , ,000 SYD-Western SYD-North Shore SYD-Outer South West SYD-Central West SYD-North West SYD-South Leasing Activity by Industry Type (>1,000 square metres) Wholesale - 382,281sqm % Transport & Logistics - 343,021sqm % Construction, Mining & Agri - 50,874sqm - 5.8% Manuf/Engineering - 43,641sqm - 4.9% Health / Community Services / Education - 8,050sqm - 0.9% IT & Technology - 7,331sqm - 0.8% Leasing Activity by Lease Type (>1,000 square metres) Direct - New Direct - Existing Precommit Sublease Leaseback Renewal savills.com.au/research 3

4 Job advertisement for the industrial sector are indicative of continued strength in leasing demand for industrial space over the short to medium term. There was a notable uplift in job advertisements for industrial sector jobs nationally. Whilst much of this was concentrated in resources reliant states of WA and QLD (on the back of renewed strength in the mining sector in 2017), logistics job advertisement growth in NSW remained strong. It is important to note that the NSW market is the largest in the country and ongoing growth in NSW indicates continued strength for industrial leasing. Logistics Job Advertisements (12 mo Growth to Mar-18) WA 30.3% NT 23.0% QLD 19.8% VIC 14.8% AUS 14.1% ACT 12.8% SA 8.3% NSW TAS 3.9% 6.0% Source: DOE / Savills Research Top Recent Notable Leases (by Area Leased) Property Tenant Date Area Leased (sq m) Type Rent Term Prestons Logistics Estate, Prestons Volvo Group Apr-18 29,300 p n.a 10 6 Reconciliation Rise, Greystanes Ball & Doggett Apr-18 19,218 r Interchange Park, Eastern Creek C & S Logistics Apr-18 15,525 d-e Quarry Industrial Estate, Greystanes Beaumont Tiles May-18 13,740 d-n Vallance St, St Marys Custom Bus Asset Management Apr-18 9,765 d-e Governor Macquarie Dr, Warwick Farm Orora Packaging Apr-18 9,582 d-n Governor Macquarie Dr, Warwick Farm Colette Apr-18 8,221 d-n Victoria St, Wetherill Park AUSPODS Jun-18 7,980 d-e Keylink Industrial Estate - South, Minto Volvo Group Apr-18 6,220 d-e Victoria St, Wetherill Park Yamaha May-18 5,945 d-e Orange Grove Rd, Warwick Farm GS Logistics Jun-18 5,000 d-e 98 2 Unit 5, 1 Foundation Pl, Greystanes Arjo Pty Ltd May-18 4,926 d-e Fairford Rd, Padstow Overlook Tiles Apr-18 4,700 d-e Loftus Rd, Yennora PFM Corp Apr-18 4,557 d-e ; Leasing Types: p = Pre-commitment, d-n = Direct New, d-e = Direct Existing, pl = Pre-Lease, s = Sub-Lease, r = Renewal savills.com.au/research 4

5 Rents Average Net Face Rents by Precinct There were notable movements in average rents across Sydney s industrial precincts. Average prime grade industrial rents in Sydney have remained largely subdued over the last 10 years, however growing demand for new industrial facilities have led to rents growing over the last 3 years at nearly double the annual rate of the 10yr CAGR. In particular, rental growth in the Central West precinct significantly outperformed the market, with average prime and secondary rents growing 31.0% and 29.4% over the 12 months to June Positive sentiment surrounding population growth and record levels of infrastructure spending is already boosting job growth, helping support the view for positive rental growth forecasts over the medium-term. As at June 2018, prime industrial net rents in South Sydney ranged between $145 and $210 per square metre, whilst rents in secondary buildings ranged between $125 and $150 per square metre. industrial rents in Western Sydney ranged between $110 and $135 per square metre. rents ranged between $90 and $100 per square metre. SYD - West 200 SYD - Nth Shore SYD - Outer South West 180 SYD - South West SYD - Cntrl West SYD - Nth West SYD - South Sydney Supply / Industrial Development In 2017, just under 500,000 square metres of new space was added to Sydney s industrial market, on latest available data from Savills Research, with over 50% of this development concentrated in Western Sydney. A constrained supply of serviced land will limit the amount of development activity over the next 2 years and continue to drive land values, with small lot average land values in Sydney s Western Precinct climbing 16% to reach a record high of $625/sqm. The lack of land supply and increased demand for smaller facilities has already spurred the trend of strata developments across infill area, with improved rates reaching all-time record highs. Supply constraints is expected to promote further rental growth for existing and the pre-lease markets over the next 12 months. New supply over the last 12 months was driven largely by pre-committed activity, led by the Wholesale sector. NSW industrial supply pipeline 900,000 Completed Under Construction Development Approval 800, , , , , , , ,000 0 Source: Cordell / Savills Research NB: *includes new/addition speculative, pre-commitment, owner occupier development types savills.com.au/research 5

6 Sales Activity Investor demand remains strong, despite the drop in sales volumes from the record high levels posted 12 months prior, with local and overseas purchasers actively seeking out investment opportunities to grow their portfolios. This competition for Sydney industrial assets is expected to push prices up and continue to have a firming effect on yields. Anecdotal evidence is suggestive of offshore investors greater competitiveness in acquiring industrial assets in Sydney, compared to local investors and REITs. Savills recorded approximately $1.12 billion worth of industrial transactions (> $5 million) in the 12 months to June 2018, down on the levels recorded in the previous year ($3.08 billion), and circa half the five year average ($2.22 billion). In the 12 months to June 2018, 51 properties were sold, down from the previous 12 months total of 143. Transactional activity is expected to remain steady in the next 12 months, however the ability to unlock investment stock is expected to become more challenging, as owners hold onto stock for income returns. Sales Activity by Price (>$5 million) $3,500m $5m - $50m $50m - $100m >$100m $3,000m $2,500m $2,000m $1,500m $1,000m $500m $0m Vendor & Purchaser Composition Vendors Vendors Local institutional and private investors have overtaken Foreign Capital as the most active buyers in the past year. Local Fund s and Trusts jointly accounted for 44.3% of total purchaser activity, with Private Investors closely behind, accounting for 29.3% of all purchasers. Notably, Logos purchase of 2/6 Moore Street, Banksmeadow in Sydney s South precinct was the largest transaction of FY-18. Purchased for $72.43 million on an equated yield of 4.35% from a domestic private investor in December 2017, the property is currently leased to Orora on a 7 year lease. The sale in indicative of growing interest from domestic investors to capitalise on income returns and growth precincts in Sydney. 10% 12% 8% 10% While setting new benchmarks for both yields and capital values, assets continued to benefit from the spread 8% between property yields and long-term Government bond yields, which remained low (2.65% as at June 2018). Whilst 6% it appears that the yield compression cycle across Sydney may be nearing a floor, Savills Research believe that 4% industrial assets will remain attractive to many investors seeking a greater spread to long term Government bond 2% yields, with recent rental growth providing a positive outlook on over the medium-term. % Purchasers Purchasers 0% 20% 40% 60% 80% 100% Fund Trust Developer 0% Owner Occupier 20% 40% Government60% Syndicate 80% 100% Fund Foreign Investor Trust Private Investor Developer Other Owner Occupier Government Syndicate Foreign Investor Private Investor Other Yield Spread to Bond 10yr Bond & IRR Rate Sydney 12% 6% 4% 2% % Average IRR 10yr Bond Rate Average IRR Average Yield Average Yield Source: RBA/Savills savills.com.au/research 6

7 Over the last 12 months, heightened demand for industrial development sites was evident, reflecting significant growth in land values. A range of A-REITs and private equity groups acquired multiple larger strategic land banks. Pockets of Outer South West Sydney and South Sydney recorded a significant uplift in industrial land values, due to yield compression over the last 24 months. Average prime industrial land values in Outer South West Sydney, as at June 2018, ranged between $500 per square metre to $650 per square metre for sites ranging between 10,000 and 50,000 square metres, whilst in South Sydney, average prime industrial land values ranged between $900 per square metre and $1,000 per square metre. Average prime yields for industrial investments in Sydney ranged between 5.25% and 6.75% in June 2018, though precincts such as Central West Sydney, North West Sydney, Western Sydney and South Sydney recorded significant yield compression, with average prime market yields ranging between 5.25% and 6.00% in June Average industrial capital values in Western Sydney as at June 2018 ranged between $1,750 to $2,250 per square metre for prime assets and between $1,200 and $1,700 per square metre for secondary properties. Over the next 12 months Savills anticipates industrial investment to remain relatively strong as investors continue to seek both core and non-core investment opportunities. Average Market Yield by Precinct SYD - West SYD - Cntrl West 10.5 SYD SYD - Nth - West Shore SYD SYD - Nth - Cntrl West West SYD SYD - Outer - Nth Shore South West SYD SYD - South - Nth West Sydney 10.0 SYD SYD - South - Outer West South West SYD - South Sydney 9.5 SYD - South West Average Land Values by Precinct SYD SYD - West - West SYD SYD - Cntrl - Cntrl West West SYD SYD - Nth - Nth Shore Shore SYD SYD - Nth - Nth West West 1,300 1,300 SYD SYD - Outer - Outer South South West West SYD SYD - South - South Sydney Sydney SYD SYD - South - South West West 1,100 1, Top Recent Notable Sales Property Type Price ($m) Date GLA Yield Type $/sq m 2/6 Moore St, Banksmeadow Warehouse Dec-17 20, e 3, Clunies Ross St, Greystanes Land Apr ,900 n.a dev 466 Burley Rd, Horsley Park Land Dec ,000 n.a dev South Creek Rd, Cromer Warehouse Sep-17 25, e 2, Horsley Rd, Milperra Warehouse Jun-18 38, r 1, Bowden St, Alexandria Warehouse Jan-18 4, i 10, Percival Rd, Smithfield Warehouse Sep-17 33,978 n.a n.a 1, Moore St, Banksmeadow Warehouse Mar-18 18,500 n.a n.a 1,946 Lot 532 Eastern Creek Dr, Eastern Creek Land Feb-18 57,490 n.a dev Sanitarium Dr, Berkeley Vale Warehouse Dec-17 27, e 1, Warringah Rd, Frenchs Forest Warehouse Oct-17 16, e 1,919 1 Johnson Rd, Campbelltown Warehouse Jun-18 16, e 1,743 2 Lincoln St, Lane Cove Warehouse Apr-18 9, i 3, Victoria St, Wetherill Park Warehouse Nov-17 12, e 1,912 ; i = Initial, r = Reported, e = Equated, v = Vacant, dev = development savills.com.au/research 7

8 Infrastructure In June 2014, the Government announced Rebuilding NSW which aimed to solve many infrastructure issues across NSW. The plan detailed over $20 billion in new productive infrastructure, recognising the importance of sustaining productivity growth in our major centres as well as supporting population growth. Significant spending on major road and rail infrastructure initiatives are anticipated to improve connectivity to Sydney s industrial precincts, with the WestConnex motorway project being Australia s largest Roads and Maritime Services project. Key Infrastructure Project Summary - Sydney Project WestConnex Motorway Location Est. Cost ($billion) Status Completion Various u/c 2023 NorthConnex Various 3.00 u/c 2019 Sydney Airport Area Road Upgrades Source: NSW Government/ Savills Research. U/C = Under Construction Mascot 0.26 u/c 2020 Commencing in 2015, Westconnex involved the widening of lanes on Parramatta Road and the M4 and is scheduled for completion in The 33 kilometre project will bring together a number of Sydney s freeways from the Orbital Network. The scope of works include the widening of the M4 east of Parramatta, a duplication of the M5 East and new sections of motorway to provide a connection between the two key corridors. The Western Sydney Infrastructure Plan is a $3.5 billion initiative by the State and Federal Government, that will provide new and upgraded road systems to support the future demands of the second airport at Badgerys Creek. The plan provides for many improvements to existing Western Sydney roads, as well as the proposal of a new motorway link (M12) connecting the new airport with the M7. For industrial occupiers, this road investment program will improve road transport capacity and functionality. Outlook Sydney s industrial landscape is quickly changing to accommodate a growing population, with forecasts indicating Sydney s population will double over the next 25 years. Significant spending on major road and rail infrastructure initiatives are anticipated to improve connectivity to Sydney s industrial precincts. With strong economic fundamentals expected to continue over the long term, combined with the rise in e-commerce and a growing population, industrial tenant demand from the Transport & Logistics industry and Wholesale operators for logistics facilities is expected to strengthen across all Sydney industrial precincts. For investors, improved leasing conditions and rising effective rents is driving demand for prime assets. However, the opportunities to acquire assets is becoming increasingly more difficult as limited investment grade stock reach the sales market. With developers, A-REITs and private equity groups are all expected to focus on developable land across all precincts and thus competing for limited land opportunities, placing upward pressure on already record high land values. savills.com.au/research 8

9 Sydney Industrial Precincts savills.com.au/research 9

10 Sydney Industrial Key Indicators (Q2-2018) South Sydney (Alexandria, Botany, Banksmeadow, Rosebery) Rental Net Face ($/sq m) Incentives (%) Yield - Market (%) IRR (%) Outgoings - Total ($/sq m) Capital Values ($/sq m) 2,750 4,500 2,000 2,500 Land Values 3,000-5,000 sq m ($/sq m) 1,000 (low) 1,300 (high) Land Values 10,000-50,000 sq m ($/sq m) 900 (low) 1,000 (high) South West Sydney (Chipping Norton, Moorebank, Prestons) Rental Net Face ($/sq m) Incentives (%) Yield - Market (%) IRR (%) Outgoings - Total ($/sq m) Capital Values ($/sq m) 1,750 2,250 1,275 1,650 Land Values 3,000-5,000 sq m ($/sq m) 550 (low) 700 (high) Land Values 10,000-50,000 sq m ($/sq m) 500 (low) 700 (high) Land Values 10 ha and above ($/sq m) 475 (low) 575 (high) Outer South West Sydney (Campbelltown, Ingleburn, Minto, Smeaton Grange) Rental Net Face ($/sq m) Incentives (%) Yield - Market (%) IRR (%) Outgoings - Total ($/sq m) Capital Values ($/sq m) 1,500 1,850 1,200 1,400 Land Values 3,000-5,000 sq m ($/sq m) 550 (low) 650 (high) Land Values 10,000-50,000 sq m ($/sq m) 500 (low) 650 (high) Land Values 10 ha and above ($/sq m) 475 (low) 550 (high) savills.com.au/research 10

11 Central West Sydney (Auburn, Greenacre, Chullora, Granville, Homebush, Rydalmere, Silverwater, Regents Park) Rental Net Face ($/sq m) Incentives (%) Yield - Market (%) IRR (%) Outgoings - Total ($/sq m) Capital Values ($/sq m) 2,000 2,500 1,500 2,000 Land Values 3,000-5,000 sq m ($/sq m) 700 (low) 800 (high) Land Values 10,000-50,000 sq m ($/sq m) 650 (low) 800 (high) Land Values 10 ha and above ($/sq m) 600 (low) 650 (high) Western Sydney (Arndell Park, Eastern Creek, Erskine Park, Greystanes, Huntingwood, Smithfield, Wetherill Park, Yennora) Rental Net Face ($/sq m) Incentives (%) Yield - Market (%) IRR (%) Outgoings - Total ($/sq m) Capital Values ($/sq m) 1,750 2,250 1,200 1,700 Land Values 3,000-5,000 sq m ($/sq m) 600 (low) 650 (high) Land Values 10,000-50,000 sq m ($/sq m) 550 (low) 615 (high) Land Values 10 ha and above ($/sq m) 525 (low) 575 (high) North Western Sydney (Seven Hills, Kings Park, Blacktown, Marsden Park, Baulkham Hills) Rental Net Face ($/sq m) Incentives (%) Yield - Market (%) IRR (%) Outgoings - Total ($/sq m) Capital Values ($/sq m) 1,500 2,000 1,200 1,450 Land Values 3,000-5,000 sq m ($/sq m) Land Values 10,000-50,000 sq m ($/sq m) Land Values 10 ha and above ($/sq m) 600 (low) 650 (high) 550 (low) 615 (high) 525 (low) 575 (high) savills.com.au/research 11

12 North Shore (Artarmon, Lane Cove, St Leonards) Rental Net Face ($/sq m) Incentives (%) Yield - Market (%) IRR (%) Outgoings - Total ($/sq m) Capital Values ($/sq m) 2,250 3,000 1,750 2,250 Land Values 3,000-5,000 sq m ($/sq m) Land Values 10,000-50,000 sq m ($/sq m) 900 (low) 1,250 (high) 750 (low) 900 (high) Key State Industrial Contacts Research Shrabastee Mallik +61 (0) smallik@savills.com.au Capital Transactions Ian Hetherington +61 (0) ihetherington@savills.com.au Valuations Al Carpenter +61 (0) acarpenter@savills.com.au Project Management Gavin Boswarva +61 (0) gboswarva@savills.com.au Industrial & Business Services Darren Curry +61 (0) dcurry@savills.com.au Asset Management Howard Chapman +61 (0) hchapman@savills.com.au The Savills Research & Consultancy team has years of experience, and is supported by our extensive agency, property management and valuation professionals. For national-level consultancy or subscription requirements please contact: Capital Strategy & Research Chris Freeman +61 (0) cfreeman@savills.com.au Savills is a leading global property service provider listed on the London Stock Exchange. Trusted since 1855, we have extensive experience across the Asia Pacific, with over 50 offices, and in Australia, we have over 800 staff focused on meeting all your property needs. This information is general information only and is subject to change without notice. No representations or warranties of any nature whatsoever are given, intended or implied. Savills will not be liable for any omissions or errors. Savills will not be liable, including for negligence, for any direct, indirect, special, incidental or consequential losses or damages arising out of our in any way connected with use of any of this information. This information does not form part of or constitute an offer or contract. You should rely on your own enquiries about the accuracy of any information or materials. All images are only for illustrative purposes. This information must not be copied, reproduced or distributed without the prior written consent of Savills. savills.com.au/research 12