Sydney’s industrial vacancy rate has edged up to 2.1%, driven by a wave of new supply and an increase in sublease availability. Although levels remain close to historic lows, it’s promising for tenants who now have access to a broader range of options across the market.
Notably, vacancy in larger existing buildings (over 20,000 sqm) has surged, rising above 4%, up from just 1% in January. In contrast, vacancies in mid-sized buildings (3,000 to 5,000 sqm) have stabilised at 1.9%.
Looking ahead, the overall vacancy rate is projected to reach 3.0% by mid-2025.
In the past quarter, approximately 175,000 sqm of new industrial stock became available, raising the annual total to 600,000 sqm. An additional 412,000 sqm is anticipated by the end of the year, though around 85% of this supply is already pre-committed. Looking ahead to 2025, a record two million sqm of new industrial space is forecast, but 70% of this remains in the Development Application (DA) phase, and only 25% is pre-committed. These projects, mainly located in the Outer West and South West markets, may experience delays due to rising construction costs, potentially shifting completion to 2026.
The intense demand in the industrial market is gradually cooling, albeit slowly, prompting some landlords to offer more favourable terms to attract quality tenants. Both prime and secondary industrial assets have seen quarterly increases in face rents, but these gains are being tempered by rising incentives, leading to a slight softening in effective rents.
In general, incentives range between 10% and 15%, though some pre-commitments have attracted incentives closer to 20%. Nonetheless, it’s important to note that incentives can vary significantly depending on the landlord and the specific submarket.
Some reports indicate that face rents may increase by up to 5% over the next 12 months. However, as new developments continue to enter the market, we anticipate any rises to be offset by increased incentives, particularly for pre-lease agreements.
Sublease availability currently accounts for a third of vacant space. This shift offers a glimmer of hope for tenants who previously had limited options as their leases expired or space requirements changed.
Leasing demand remains strong, with much of the activity concentrated in the South-West and Outer-West sub-markets. The transport, postal, and warehousing sectors dominate, driving 43% of leasing activity, followed by the manufacturing sector at 28%.
However, pre-leasing activity has cooled compared to Q1, with some reports indicating a drop from 73% to 33%. This slowdown can be attributed to the increased availability of stock. As more supply enters the market, pre-leasing levels in some areas could fall as low as 20%, providing tenants with a broader range of options.
With supply beginning to align with demand and a growing number of sublease spaces available, we’re finally seeing the correction we’ve been predicting. However, it remains imperative to have a strategy and process in place when negotiating in this market, particularly regarding lease renewal.
At Tenant CS, we offer conflict-free advice and dedicated tenant representation. Our sole focus is on advocating for industrial and warehouse tenants, ensuring your interests come first and levelling the playing field in a market favouring landlords.
If you're looking to secure the best possible lease terms and gain expert support, get in touch with us today to see how we can help rebalance the scales.
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