In one of the largest industrial property leases for some time, DV Schenker, a large multi-client contract logistics business, has leased a former Masters distribution facility for the next decade.
The 50,400 sq m site at Hoxton Park, in Sydney's west is owned by Mirvac and JP Morgan, but the lessor was Woolworths. It was negotiated by Michael Wall, the head of industrial NSW at JLL, who declined to comment on the specific deal, but said leases like these help "cement Western Sydney as a key logistics precinct".
According to JLL research, the momentum in leasing activity for the Sydney outer west precincts continued, accounting for 76 per cent of the leasing activity in the year thus far.
The industrial sector is in the midst of structural changes as a greater share of retail sales migrate from physical to digital channels.
With the imminent arrival of Amazon, agents expect the demand for warehouses will increase. The need to transport the goods has also boosted demand for these sites from the third-party logistics groups such as DV Schenker, DHL and Toll Holdings.
Since 2015, the Sydney industrial gross take-up from retail, wholesale and transport, postal & warehousing have been 80 per cent above the 10-year average.
Over the past decade, approximately 422,400 sq m of gross take-up came from these three industries. In the first half of 2017 itself, above 500,000 sq m of take-up was recorded. This trend will likely continue as the way in which consumers purchase goods evolves. The necessity for shorter delivery times and broader product varieties will underscore industrial demand moving forward.
JLL's research manager, Sas Liyanage said industrial property has been among the best-performing commercial property investment classes over the past 15 years, according to IPD data.
"When making an adjustment for the volatility of these returns, industrial distribution centres have proved to be the second strongest risk-adjusted performer in Australia's commercial real-estate landscape, second only to retail super and major regional shopping centres," Mr Liyanage said.
"The proven stability in income returns for industrial property, particularly through previous downturns, has lured strong investment into the sector and broadened the investor base."
Nick Crothers, JLL national director industrial, said what has been experienced over this period is greater volumes of industrial asset sales, greater development of leading-edge distribution centre facilities, greater institutional ownership and management of industrial property and greater outsourcing of distribution functions by corporates to third-party logistics providers in Australia.
"These are all factors that have been viewed favourably by investors when purchasing industrial property, resulting in yield re-rating in the sector," Mr Crothers said.
Cushman & Wakefield research says the NSW government decision to fund Western Sydney airport has boosted institutional investor interest in the outer west market - pushing up vacant land values by 30 per cent.
The firm said in South Sydney competition for larger secondary grade stock also supported rental growth of 9 per cent year on year, and face rents now average $120 per sq m.
In the tightly held Central West, sustained tenant demand for smaller prime-grade stock has pushed face rents to average around $135 per sq m, reflective of 4.5 per cent growth quarter on quarter.