Industrial property seen as growth sector for 2017

According to Knight Frank's Alex Pham​, senior research manager, research and consulting, Sydney's industrial stock availability has increased in the recent quarter as the market enters the next supply cycle.

In Melbourne, new developments will put some pressure on vacancy rates, but demand remains strong.

Knight Frank's Kimberley Paterson, senior analyst, research and consulting, said despite recent speculative commencements, speculative construction levels are expected to remain relatively low in the medium term.

"The pre-commitment market remains competitive as tenants continue to upgrade and relocate into purpose-built facilities," Ms Paterson said.

"Solid leasing activity in the north and city fringe saw vacancy decrease, while several new speculative developments under construction saw vacant stock levels in the south-east and east increase. The addition of several backfill options saw vacant stock in the west increase by 12.8 per cent," Ms Paterson said.

In Sydney, the outer west is showing some of the strongest gains in terms of demand for speculative developments derived from third-party logistics, food supply and e-commerce firms.

Knight Frank's Tim Armstrong, head of Industrial, NSW, said the outer west region of Sydney experienced the strongest level of demand over the last quarter with 61,547 square metres taken up.

"The move from other precincts, such as South Sydney and the inner west, to the outer west is evidenced by Bluestar Print leasing a 15,405 sq m warehouse at Grady Crescent, Erskine Park."

GPT Group has identified industrial as a growth sector and has started redevelopment works at its Huntingwood warehouse, where the group is upgrading a 21,000 sq m facility and looking to develop 2.2 hectares that came with the purchase.

GPT's head of office and logistics Matthew Faddy said there is a strong interest for logistics facilities in western Sydney, particularly in well-serviced and accessible locations near motorways and main arterial roads.

"Much of the demand for industrial space in western Sydney has been driven by the growing number of companies outsourcing their warehousing and distribution to third-party logistics providers and companies operating multiple warehouses consolidating their facilities," he said.

Luke Briscoe, AMP Capital managing director office and industrial, said with a distinct lack of well-located, serviced industrial land in the west of Sydney, his group is looking at industrial and logistics in the south-west and are accelerating the development pipeline in the west.

"We recently started construction of the first stage of a $130 million development at Crossroads Logistics Centre, located at Casula in Sydney's south-west," Mr Briscoe said.

"AMP Capital secured Cosentino Australia for Precinct A of the development, a 12,500 sq m facility to house its Australian distribution centre and showroom.

"Crossroads Logistics Centre is owned by investors in the AMP Capital Diversified Property Fund (ADPF) and once complete will accommodate about 79,000 sq m of high-quality warehouse and office space across three separate precincts.

"AMP Capital is well placed to respond to the heightened customer demand within our portfolio at not only our Crossroads development, but our sites at Glendenning and Arndell Park."

Mr Briscoe said in Melbourne, economic fundamentals bode well for the industrial market with demand expected to be driven from 3PL and retailing following general industrial market thematics with e-commerce remaining an emerging sector.

"AMP Capital is well positioned to take advantage in this space across our Victorian portfolio, given the significant investment in retail and ability to work with our existing customers within our shopping centre business, untapping their demand and forging new strategic real estate solutions across multiple real estate sectors," Mr Briscoe said.