Sydney's industrial market to benefit from supply issues, residential cooling

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While Sydney’s residential market may be in the midst of a slowdown, the city’s industrial and commercial sectors are predicted to perform strongly over the coming years.

According to LJ Hooker’s latest Industrial Market Monitor, Sydney’s industrial real estate market can expect to see price growth of around 10% over the next two years.

While solid, that growth will fall short of the 9% increase seen during 2015 and the 6% seen over 2014.

“Price growth of 10% over the next two years in Sydney may appear moderate for investors following the gains of 2014-2015, but it’s still healthy,” head of LJ Hooker Commercial Christopher Mourd said.

“Much of the new supply has pre-commitments so, for landlords who want to divest, now is a great time to capitalise following generous capital growth over the past two years,” Mourd said.

Mourd said demand for industrial and commercial spaces was being driven by a boom in transports and logistics sector.

Demand is also being helped by a shortage in new supply.

According to LJ Hooker, industrial construction activity in Sydney declined by more than 20% last year, to just 450,000 square metres.

Around 215,000 square metres of existing stock was also withdrawn from the market, resulting in net additions of only 235,000 square metres – less than half the amount added in 2014.

In 2105 Sydney made up over 40% (by value) of industrial property investments across the major capital cities, equivalent to over $2 billion.

Malcolm Gunning, principal of Gunning Real Estate, backed LJ Hooker’s outlook and said there is an increasing number of residential investors who are changing their focus.

“The residential market has also come off the boil and investors have more confidence in regard to retail and commercial, bricks and mortar investments,” Gunning said.

“We expect this sort of interest to continue, with Cooley Auctions highlighting a 71 per cent commercial auction clearance rate for the third quarter of 2015/2016. This is a considerable increase and shows how strong the market is for those seeking to invest,” he said.

“There is less commercial property available at the moment and traditional family investors are going to continue to seek commercial and retail investments.”

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