As increasing volumes of stock disappear from the market, the ramifications of tenant displacement within the industrial property segment in Sydney’s South as stock continues to be withdrawn for residential purposes cannot be understated.
As a the boom in housing continues to gather momentum, large parcels of industrial land continue to be withdrawn for conversion into residential use – a process encouraged by local councils who have been rezoning land and which has seen pressure placed upon industrial tenants to explore alternatives for relocation.
Most of the northern end of Hill Road in Homebush, for example, is now residential. Transactions continue to come: on September 10, for example, an unnamed private developer forked out $8.7 million to purchase a 1,511 square metre vacant industrial site at Botany Road in Waterloo for what is believed to be residential conversion intentions.
Not surprisingly, this is impacting upon warehouse rents which, despite remaining broadly stable across most asset classes overall, are up 8.8 per cent in the super-prime category in Sydney’s South on a year-on-year basis.
There is more to come. Real-estate services firm CBRE says it has identified as much as 210,000 square metres of industrial stock in South Sydney which could potentially be converted to residential use over the next five years, including the 3.3-hectare site of the former Darrell Lea confectionary factory in Kogarah and almost 30,000 square metres worth of business park space at 5-13 Rosebery Avenue in Roseberry which Harry Triguboff’s apartment building group Meriton brought from Dexus Property for $190 million last year. Colliers, meanwhile, says Sydney’s South is set to lose more than two million square metres to residential conversions and developments associated with WestConnex over the medium term.
While the primary impact will be felt within the South Sydney market itself, other areas will see a knock on effect as displaced tenants from Sydney’s South seek alternative accommodation.
A critical place to look for is west, which Savills says accounted for almost half of Sydney’s leasing activity last year. This region stacks up well for displaced tenants from the south from a proximity perspective and itself is losing stock to housing projects – in August, for example, Topplace outlaid $65 million for the Granville Logistics Centre with the intention of conversion.
Conditions could become increasingly tight in Central West, for example, where CBRE reckons 100,000 square metres of stock could be lost to conversion and only around 70,000 worth of cumulative supply is in the pipeline.
Another interesting area revolves around the South-West, which looks set to benefit from significant volumes of infrastructure investment as the development of WestConnex along the M5 helps to alleviate the need for tenants to be so close to the airport, port and CBD and the massive (and recently approved) Moorebank freight terminal puts more containers through the region after its opening in 2018.
To be sure, there are challenges. Outside of specific markets in the Inner West, tenant demand in Sydney’s West remains patchy, while a consistent supply of speculative floor space continues to challenge markets, especially in the Outer-West.
Still, the switch is on as displaced tenants seek alternatives.
Sydney’s industrial tenants in southern suburbs are being pushed out. Where they go and which markets will be most impacted by their movement will be an interesting question.