“However, the divergence in performance within the industrial property market that began back in 2015 will become more pronounced in 2018. We are seeing more supply above 7,000 square metres, and rental growth and sale price growth will become more subdued in that sector.”
Investment challenges
Barry said that investment opportunities will remain challenged with yields well below long term averages, but with demand so strong that further minor yield falls are probable. He added that industrial space below 3,000 square metres in the market remains chronically undersupplied.
“Last year we sold 90% of our new developments across the central, outer west and south west before completion, so speculative development remains in short supply.
“We envisage some further price growth for vacant space in the year ahead, but at a reduced rate from what we saw in 2017.”
Undersupply increasing prices
Recent research released by Bawdens confirmed the undersupply of industrial properties below 1,000 square metres in Sydney is driving increases in prices and rentals.
Barry said: “We normally anticipate rising prices for a period before rental increases. When prices reach a point that no longer makes it a sensible price for businesses to invest their money, they retain their capital and look to the more liquid and flexible options of renting.
“Today, however, due to the space shortage below 1,000 square metres, we are observing that both rentals and prices are increasing at the same time.”
He added that prices had risen 60% from 2015 for strata industrial and freestanding buildings under 1,000 square metres.
2018 to be exciting and rewarding
Barry concluded: “We consider that conditions for more rental growth are going to develop quickly as purchasers that were previously priced out of the market increasingly become tenants this year. Overall we predict an exciting and rewarding 2018.”
Find out more information by reading Bawdens Industrial Property News here.