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Sydney industrial occupiers should consider a range of factors well in advance of their lease expiry dates, including competition for space and increased demand for greater efficiencies
SYDNEY, 8 NOVEMBER 2012 – A wave of industrial lease expiries is predicted in Sydney in 2013-14 and is set to spur activity within the sector.
The market movement prediction is supported by Jones Lang LaSalle’s analysis of tenant move data from previous years (Figure 1). A strong cohort of tenants who signed leases in Sydney’s industrial sector in 2003-5 are now approaching lease maturity being 7-10 years into term.
When these expiries translate, many industrial occupiers will be looking for different premises with better efficiencies. This could potentially result in a swathe of secondary accommodation coming into the market for lease.
Andrew Maher, NSW Head of Industrial, Jones Lang LaSalle, said the spike in market activity is expected to generate stiff competition, and occupiers with upcoming expiries should be considering their current location and building specification with regard to the latest developments in building quality or new road infrastructure.
“Sydney’s industrial occupiers seeking greater operational efficiencies in their workplaces at the time of lease expiries will drive the next wave of industrial real estate activity.
“Industrial occupiers are moving away from properties with obsolete specifications and locations, seeking instead efficiency improvements in supply chain approach, automation for productivity improvement, centralisation of operations and contraction of operations to reduce costs and use space more efficiently,” said Mr Maher.
A research report by Jones Lang LaSalle, titled ‘Australian Industrial Occupiers Seeking Efficiencies Will Drive Demand Growth,’ found that major industrial sectors including retailing, manufacturing and non-engineering construction are seeking an ‘efficiency dividend’ from their real estate.
Nick Crothers, Director of National Industrial Research at Jones Lang LaSalle, said the increase in focus on greater operational efficiencies is in response to an acceptance of lower growth trajectories caused by global macroeconomic forces.
“Sectors such as retailing, manufacturing and non-engineering construction are under pressure. These sectors are the dominant users of industrial space. The nature of this squeeze, and growing acceptance of a lower growth trajectory, is leading industrial occupiers to seek an ‘efficiency dividend’ from real estate,” said Mr Crothers.
Mr Maher said the push for efficiencies by occupiers will present challenges for industrial space providers, with myriad complexities. “Opportunities will be available for owners, developers and investors that can plan and respond accordingly. In particular, developers will increasingly need to cater for the needs of smaller occupiers. We are already seeing this in some of the speculative construction under way in the outer west of Sydney.
“Additionally, occupiers will need to consider factors including employee retention and managing growth or downsizing; infrastructure to handle functionality such as high traffic flow; and the potential movement of their clients, materials and service providers; or the end users,” Mr Maher concluded.
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