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Stalemate in Sydney Industrial Market

Monday, 16th May 2011

Investors have been priced out of the Industrial Strata Unit market throughout Sydney according to research conducted by Independent Property Valuers, Herron Todd White.

Herron Todd White Research Analyst, Peter Ainge, noted that owner occupiers have been driving capital values of Sydney industrial strata units for some time, with the lower interest rates swinging the rent versus buy pendulum firmly in favour of owning a business premises.

"Owner occupiers have been the dominate purchasers of strata unit estates for some time, effectively placing a floor under capital values" Ainge says.

While strata units have been somewhat insulated by the falls in capital values recorded in the broader industrial market, rental values have fallen significantly.

"An increase in supply and a fall in leasing demand, has placed downwards pressure on rental rates since the onset of the Global Financial Crisis," Ainge says.

With a market characterised by stable capital values and falling rental rates it was only a matter of time before yield compression would lessen the appeal of strata units to investors.

Herron Todd White commercial director, Mark Steed noted that investors are unable to justify higher capital values, in light of the current rental rates achieved by strata unit estates.

"From and investor's perspective, current rental rates do not support the capital investment required to secure a strata unit.  Investors are looking elsewhere to assets which offer greater security of income and higher rental returns," Skeed says.

Although the supply of new strata units is expected to moderate during 2011, a backlog of projects that remain vacant will likely limit any rental growth over the coming year.

According to Herron Todd White's most recent Industrial Property Market Report, only 11 strata unit complexes, totaling 25,517sqm of industrial floor space will be delivered to the market in the 12 months of 2011.  Despite this, the report states that vacant space remains in many strata unit complexes completed during 2010. 

"The strata unit market has been in a period of over supply for some time and we expect this situation to continue throughout 2011, with only a minimal amount of new floorspace featuring a pre-commitment," Ainge says.

As developers face the reality of sluggish sales, many have been forced into becoming landlords, in the hope of generating some semblance of a cash flow.

"Rental growth has been further hampered by an increase in the number of developers offering new stock for lease in the hope of minimising vacancy in recently completed developments," Ainge says.

Currently strata unit capital values across Sydney range between $737/sqm - $2,600/sqm depending on size, quality and location.  With achievable rental rates for these properties suggesting yields as low as 5.4%, investors are not expected to return any time soon.

"The market will remain in the current stalemate position, until rental rates rise to a level deemed acceptable by investors," Skeed says.

For more information visit Herron Tood White at www.htw.com.au

About Herron Todd White

Herron Todd White founded 1969 is the largest independent property advisory organisation in Australia. They are in every capital city and across regional centres throughout the nation. This strong presence is backed by local resources, meaning our clients have unrivalled access to a depth of knowledge and experience. From humble beginnings, Herron Todd White now conducts over 150,000 valuations per year across all major property types, totally over $AU80 billion dollars worth of property each year.

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Comment from webbrowan on Wednesday, 23rd March 2016

Property owners have to find a way out of their predicament so it is not surprising to see an increase in rental opportunities sprouting out all over the market as everyone is trying to reap some profits out of their current assets. That is just how the economy works which often catches everyone off-guard and having to think of alternative ways to make money. When the situation eases out slowly into a much comfortable level, businesses will then introduce attractive deals in order to attract consumers. There will be best car finance rates Sydney, package deals, combo deals, and so on and so forth. 

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