Land shortage looms

Demand for industrial property is set to escalate as the underlying manufacturing sector moves from its current low base.

It is expected demand will soon outpace supply, particularly around the transport hub, adding pressure to tenants with rent increases as leases are renewed. In its report on the sector, BIS Shrapnel says Sydney could run into industrial land shortage within two to three years. That could force industrial space users to look elsewhere.

Christian Schilling, of BIS Shrapnel, said as a result more land needs to be serviced, Broader Western Sydney Employment Area (WSEA) needs to be fast-tracked and government needs to put in crucial infrastructure to avoid delays.

"As at the end of 2013 Sydney will have a total of around 316 hectares of vacant, serviced industrial land available for immediate construction. However, that figure contains a large number of smaller infill sites," he said. "An estimated 84 per cent of current land take-up involves sites of 2 hectares or more, large enough to accommodate a 10,000 square metre warehouse, of which there is only around 248 hectares."

He said on his calculations, take-up rates are currently running at over 80 hectares of serviced land per year, well in excess of the land being serviced. Only two of the major developers are currently engaged in servicing new land - and even then, only on a relatively small scale.

According to Jones Lang LaSalle's latest Asia Pacific Property Digest (APPD) for the September quarter, the manufacturing sector has begun to show signs of improvement across Asia Pacific.

The chief executive of Jones Lang LaSalle Australia, Stephen Conry, said in the Sydney industrial market the transport and storage sector accounted for 55 per cent of gross take-up in the September quarter, driven by steady international merchandise imports and an improved domestic housing market.

"Improving economic indicators for industrial, like Sydney Ports container trade data and the Westpac-Melbourne Institute Survey of Consumer Sentiment, suggest that tenant demand may improve in the short term.

"Sydney Ports data shows that total container trade through Port Botany reached 2126 million TEUs (Twenty Foot Equivalent units) for the financial year to date (June 2012-13), representing an increase of 4.4 per cent on the same period last year.

"We expect the industrial market in Sydney to benefit from the increased container trade activity," Mr Conry said.

The latest Australian Performance of Manufacturing Index, released by the Australian Industry Group, rose to 53.2 points in October - an improvement of +1.5 points from September.

The Australian Industry Group said this indicates mild expansion across the manufacturing industry.