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News release

Sydney

Sydney’s industrial developers adopt speculative projects due to demand

A wave of industrial expiries over the next two years is expected to support further tenant movement and drive demand, while new supply remains subdued


SYDNEY, 13 FEBRUARY 2013 – An increasing number of developers are responding to the supply and demand mismatch in Sydney’s industrial sector by adopting speculative projects, according to new research by Jones Lang LaSalle.

Casey Greenberg, Jones Lang LaSalle’s Head of Industrial for Parramatta, said speculative development, with no formal commitment from the end users, provides greater flexibility for in-demand smaller industrial warehouse facilities.
 
“Speculative projects can be a successful solution in the current market where demand has held up well but supply is likely to remain tight for the foreseeable future.
 
“In Sydney’s outer west, speculative development has been adopted in the past year as a successful solution to create product that is attractive to occupiers looking for modern, efficient space, but unwilling or unable to pre-lease or purpose-build smaller industrial warehouse facilities.”
 
Mr Greenberg said the lack of industrial warehouse stock within the smaller size cohort has forced many tenants to stay where they are or lease secondary stock to satisfy their immediate space requirements.
 
“Smaller businesses have shown they are seeking to upgrade into modern facilities, but are generally less willing to sign a long-term pre-lease deal. Speculative projects offer businesses an immediate solution other than to ‘stay put’,” said Mr Greenberg.
 
According to Rick Warner, Jones Lang LaSalle’s Strategic Research Analyst, NSW, the supply pipeline for smaller-sized warehouse facilities has declined significantly since the Global Financial Crisis (GFC), from 28 projects in 2007 to only seven projects in 2011.
 
“Gross take-up of space in this size cohort held up reasonably well during the GFC and created a demand and supply mismatch throughout 2012.
 
“New supply is expected to remain subdued in 2013, with only 221,900 sqm of projects under construction for 2013 completion, as opposed to 596,700 sqm completed in 2012,” said Mr Warner.
 
Mr Greenberg said a wave of lease expiries is predicted to stir market movement over the next two years, further adding to the re-emergence of speculative projects.
 
“We expect that developers who are already active, and potentially one or two others, will explore more flexible strategies and will continue to opportunistically develop a range of generic warehouse and office projects speculatively,” concluded Mr Greenberg.