The Colliers team talks with MHD about their latest Western Sydney Industrial Development Update, and what we can expect in Sydney’s industrial land space moving forward.
The Sydney industrial and logistics market is experiencing unprecedented levels of tenant demand as transport and retail occupiers accelerate their supply chain innovation agendas. With occupiers moving towards new facilities as they focus on automation and efficiencies, this has placed considerable pressure on Western Sydney’s industrial land stocks.
Colliers’ latest Western Sydney Industrial Development Update has found that demand for industrial land in Western Sydney continues unabated as institutional groups adopt a build-to-core strategy. Recent yield compression and limited buying opportunities has resulted in it becoming more difficult to acquire stabilised assets, and as a result several groups are seeking scale via development. Given the significant weight of capital chasing land opportunities, land values in Western Sydney have doubled over the last five years.
David Hall, Head of the Western Sydney Industrial team at Colliers says: “In Western Sydney, there are 1997 hectares of net developable industrial land which can be delivered within the next five years. Two thirds of this land exists within the Outer West submarket and largely stems from the Mamre Road Precinct and remaining lots within the Western Sydney Employment Area.
“While the 1997 hectares may seem sufficient in the short term, most of this land remains unserviced or is owned by an inactive landowner, which will limit take-up activity. Active landowners currently control just less than half of Western Sydney’s developable land stocks and at a take-up rate of 200 hectares per annum, this represents 4.8 years of supply.”
The Mamre Road Precinct will provide for a large share of new warehouse demand over the next decade in Western Sydney. While the area encompasses a gross developable area of approximately 850 hectares, Colliers is expecting the net developable area of the Precinct to be in the order of roughly 600 hectares after taking into consideration services, internal road networks and buffers. In this case, the Mamre Road Precinct provides the potential for approximately three million sqm of warehouse space once fully developed.
“Land ownership and planning constraints currently represent the largest barriers for development in the Mamre Road Precinct,” David says. “Just over half of the net developable land within the Precinct is owned by a private or non-industrial occupier (schools/retirement village) and for this land to be developed, it would need to be acquired by an institution or developer group who have the capacity to fund the costs associated with the servicing of land.”
Jock Tyson, Executive in the Western Sydney Industrial team at Colliers says: “From a planning perspective, there remains uncertainty in the short term around the final controls for the Precinct. The Draft Development Control Plans (DCP) for the Precinct are expected to be finalised in Q3 2021, and until this is complete, planning will remain a constraint to the development of the Precinct.”
The report notes that the Enterprise zoned land, as part of the Western Sydney Aerotropolis, will provide relief in the long term. “This land represents the next wave of industrial development opportunity beyond the Mamre Road Precinct,” Jock says. “Our analysis shows that 2000-2500 hectares (gross) could potentially be used for industrial use within the Aerotropolis Precinct, with the balance of land being used for other uses including agribusiness, commercial, retail and mixed-use development. Further reductions to this total will occur as it moves through the various planning stages to become development-ready while green space requirements and riparian corridors will further dilute this total.”
“In terms of timing, initial development of scale within the Aerotropolis Precinct will begin within the next three-five years,” David Hall says. “However, the bulk will be delivered over the next 10-20 years and will be structured around the overall growth of the Western Sydney Airport and the delivery of critical infrastructure such as roads and services.”
Colliers’ report states that the availability of land within the Mamre Road Precinct will result in hyperscale sheds becoming more prevalent within Western Sydney.
According to Luke Crawford, Director – Research at Colliers: “Sydney for a long time has been unable to accommodate hyperscale requirements in scale and as a result the growth in the average warehouse size over the last decade has lagged that of Melbourne and Brisbane.
“The delivery of larger facilities (net lettable area of more than 40,000 sqm) has been a growing trend in Melbourne in recent years and we expect these types of developments to become more widespread in Sydney. TTI’s recent pre-commitment of 73,920 sqm within the Mamre Road Precinct highlights this.
“From a land value perspective, yield compression has driven growth in land values as it has enabled institutions and developers to pay a premium for land as the value on completion is now significantly higher. The correlation between yields and growth in land values is positive and they have closely tracked each other over time.
“The outlook for further yield compression is favourable, underpinned by the significant weight of capital chasing assets in the market and positive structural tailwinds driving demand levels. With this in mind, we are forecasting land value growth of between eight and 10 per cent in Western Sydney in 2021.”
To download Colliers’ 2021 Western Sydney Industrial Development Update, click here.