OPINION: Industrial rents - Market rent vs capacity to pay

Last updated:
Sep 4, 2023
Commercial Real Estate


Tenant CS
Tenant CS

Follow us

Share this article

Sydney's industrial and logistics market is now the tightest in Australia, with an official vacancy rate of just 0.2%.

Several factors underpinned the rapid spike in demand, including a surge in online spending, the need for faster delivery times and supply chain disruptions, all of which increased warehouse requirements to store more goods.

As a result, industrial rents in most Australian cities, particularly Sydney, have increased anywhere from 25-65% over the last two years.

However, with rents as high as $500 gross for new high-clearance warehouses in South Sydney, we’re now seeing a new problem emerging: market rent v.s capacity to pay. Simply put, Sydney is pricing itself out of the market on industrial rents. And many companies are restructuring their operations to expand or relocate to Melbourne and Brisbane, where land is more available, and rents are up to 50% less than in Sydney. 

Of course, the effects of this will take time to filter through. But make no mistake, the insatiable drive for lower costs due to the slowing economy is driving change.

image of a warehouse representing the industrial market

At Tenant CS, we are already seeing an increase in subleases, which represent roughly 30% of the new listings coming online and are priced well below the market. 

"As Tenant CS predicted last year, companies are starting to sublease their surplus warehouse space. Businesses are getting more confident in managing inventory. Many are also considering how the economy's slowdown (or possible collapse) may affect their future warehouse needs, running down stocks in anticipation of reduced demand," said Tim.

“However, Tenants remain weary about taking up this stock as they know there is a sting in the tail when the lease expires, and landlords have promised their investors “25-50% rent reversions” upon lease expiry.”

In Tim's opinion, it's the “perfect storm” for a collapse in demand for warehouse space (mainly in Sydney).

“When you start to read comments like “this boom (industrial rents and values) will never end” or “this time it is different”, you know conditions have peaked and are about to fall. When was the last time rents and values kept going up indefinitely and didn’t correct? It wasn’t that long ago that office rents and values were increasing by 10% year-on-year, and look what happened there,” said Tim.

image of the facade of a warehouse representing the industrial markets

Get in touch with Tenant CS

Fear-mongering by agents and the media has left many industrial tenants thinking they have no option but to renew, meet landlord demands and accept no incentive. 

But that's not the case. 

Industrial tenants need to know they have options, even in a tight market. And creating competition for your tenancy will be your great equaliser in negotiations.

Tenant CS provides tenant representation services exclusively to office, industrial and warehouse tenants across the Asia-Pacific. 

If you have an upcoming lease expiry in 2024 or 2025, get in touch with Tenant CS. 

Our team uncovers opportunities in a challenging and complicated market, working with industrial tenants to explore all options and fighting tooth and nail at the negotiating table to protect your interests.

We only ever represent tenants, never landlords. Because of that, we get better results.

Level the playing field and contact the team today to see how we can help you.

Read Tim's original article on LinkedIn.

You might also like

Got a project in mind?

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.