Sydney Commercial & Industrial Property Market Review - March 2025
“...The Sydney industrial property market is facing a period of subdued demand...”
The Sydney industrial property market is facing a period of subdued demand, with both leasing and sales activity experiencing significant headwinds.
While enquiry levels remain steady for smaller industrial spaces, demand for larger facilities (2,500sqm+) has been notably impacted by broader business sentiment. Companies are exercising caution, leading to prolonged transaction timelines and a hesitancy to commit to new leases or purchases.
Leasing Market Trends
Leasing demand across all size brackets has softened, but particularly in the mid-to-large scale industrial sector. Many prospective tenants are “testing the waters” but ultimately opting to renew with their existing landlords rather than making a move. This dynamic is creating challenges for landlords, as limited lease take-up is putting downward pressure on rental values.
As a result, rental incentives are increasing, leading to the emergence of a two-tiered market between institutionally owned assets and privately owned properties. In Western Sydney, for example, comparable industrial properties are showing significant discrepancies in both face rents (a 10-15% variance between private and institutional landlords) and incentive levels, which can range from 8% in private holdings to as high as 15-17.5% in institutional-grade assets.
The thin leasing market is also contributing to an increasing supply of available stock, further challenging landlords who need to remain competitive to secure deals.
Investment & Owner-Occupier Sentiment
The sales market is also experiencing a slowdown, with owner-occupiers taking a more measured approach to purchasing. While capital remains available for acquisitions, businesses are holding back, citing concerns over macroeconomic and geopolitical uncertainty. Factors such as a looming federal election, persistent inflationary pressures, and a historically strong labour market are all weighing on confidence. This cautious sentiment is delaying investment decisions and contributing to a sluggish transactional environment.
Strategic Recommendations for Owners & Investors
In this evolving landscape, landlords and vendors must adopt a proactive and creative approach to securing deals. With demand hesitant and transaction timelines extending, any genuine enquiry must be treated as a priority. Strategies to consider include:
Competitive Incentives: Tailoring lease incentives to attract and retain tenants in a price-sensitive market.
Flexible Lease Terms: Offering short-term leases or expansion clauses to accommodate business uncertainty.
Aggressive Negotiation: Engaging decisively with serious buyers or tenants to prevent deals from stalling.
Market Differentiation: Leveraging asset quality, location advantages, and value-add opportunities to stand out in a competitive marketplace.
While the Sydney industrial market remains fundamentally strong, the current cycle demands a shift in strategy. Those who can adapt quickly and aggressively position their assets will be best placed to capitalise when confidence returns.
Matthew Herrett, Link Property Services