Grocers too big for their digs

As the trade balance between exports and imports stabilises, more warehouse space will be sought.

Fuelling the rise is also demand from big players Woolworths and Coles as they expand their distribution space across the country.

It is understood that Coles is close to signing off on a distribution/warehouse space in Victoria of about 90,000 square metres to cater to its increase in stored goods.

According to agents, the supply of larger industrial space in western Sydney has all but disappeared following two large lease deals involving Metcash subsidiary IGA Distribution.

IGA has snapped up 22,750 square metres of space in two separate facilities at Glendenning and Arndell Park ahead of the completion of a new Metcash super warehouse in the Goodman Group, Huntingwood.

CB Richard Ellis agents Greg Pike and Matthew Flynn negotiated the lease deals, which account for two of the remaining larger industrial facilities in Sydney's west.

Mr Pike said the lack of supply was expected to support the resumption of speculative development projects in the west for the first time since the global financial crisis.

"Stock is a real issue in the west, with very few 5000-square-metre-plus industrial facilities available for lease," he said.

"This is driving a reduction in tenant incentives and should underpin some long-awaited rental growth during the next six months. We also expect to see some speculative development occur in the west, although finance is still an issue."

A number of speculative projects are already in the wings, with Dexus Property Group having committed to build a 21,000-square-metre warehouse in Erskine Park. Dexus has also lodged development approval application plans for a 4800-square-metre facility at Blacktown.

Two other projects are on the drawing board for Eastern Creek, with Australand planning a 21,800-square-metre facility and Goodman having approval for a 6000-square-metre development on ING's former Interchange Park site.

Mr Flynn said rising tenant demand was underpinning developer confidence, with logistics and retail groups leading the charge.

IGA Distribution is Australia's largest grocery wholesale distribution and marketing company and the largest business pillar of Metcash.

Last year, the business accounted for 62 per cent of Metcash's sales and 84 per cent of earnings before interest, tax and amortisation.

Pressing short-term space needs spurred its recent lease deals, which involved a nine-month commitment for 11,700 square metres at 8 Contaplas Street, Arndell Park, and a six-month lease for 10,047 square metres at 24 Cox Place, Glendenning.

The IGA deals have been signed ahead of the completion of an 82,000-square-metre warehouse facility for Metcash at Goodman's Bungarribee industrial estate. Metcash plans to consolidate five facilities across Sydney into the new warehouse - one of the largest industrial developments to be undertaken in Australia this year.