Sydney Commercial & Industrial Property Market Review - March 2023
“There is little doubt businesses with strong balance sheets and in strong financial positions are seeking to expand, and are moving forward despite the broader economic headwinds.”
Surprisingly, enquiry in January and February has been very strong, with huge influxes of buyer and tenant enquiry. Notwithstanding this, the first quarter of 2023 has seen Sydney’s industrial property market start to materially see the impacts of consecutive interest rate rises.
There is little doubt businesses with strong balance sheets and in strong financial positions are seeking to expand, and are moving forward despite the broader economic headwinds. Where the impact of rising interest rates and the inflationary cycle is being felt has been the expectations around value.
On the sales side buyers are starting to assume some leverage, despite the short supply of property. Land in particular is likely to start reflecting a stabilisation of pricing over the next few months, with some sales likely to show a reduction in price per sqm from the peak of mid 2022 of up to 5%. Whilst there is strong buyer demand, they no longer are chasing deals with the voracity of the previous 18-24 months. They no longer need the property urgently, and are prepared to allow some time to enter the equation, no doubt in the hope vendors feel the pain on the back of the rising interest rate environment.
Leasing has been a market dominated by the huge increase in rentals over the last 12 months. Stock remains ridiculously low, with a market place starved of supply across all size ranges. As a result, rentals remain under pressure, and for all existing buildings, incentives remain at or close to zero. How sustainable is this becomes the question. Businesses are under pressure cost wise on many fronts, with rental and outgoings at the pointy end of the rise.
As supply chains start to ease globally, companies will no longer see the need to run large inventories that became the norm during the pandemic period. As such, assignment/sub lease stock may enter the market over the coming 12-18 months, easing supply issues and capping rental growth. For now however, the leasing market continues to be incredibly tight in Sydney, with some organisations reviewing their location requirements (further west or interstate to offset the price and supply issue). Those that can are looking down this path, others that must locate due to a competitive advantage are under pressure to find suitable property at suitable pricing.