Sydney Industrial Warehouse - Cant go wrong?

There's a greater degree of risk both of lessee and lessor. Smaller tenant with poorer quality of cashflow/business acumen poses a greater risk of vacancy.

Naive lessor who is unwilling to manage the tenant, enforce lease conditions, sieze property/lockout tenants etc exposes themselves to a greater level of controllable/contractual risk. This still occurs whether there is a property manager or not - the decision making is referred back to the lessor & there are actions which can be taken to achieve a result.

 

150m2 to 1,000m2 small.
1,000m2 to 5,000m2 medium.
5,000m2 to 50,000 m2 large
From 50,000m2 enormous

 

Why is no one answering the question specifically ..

to answer it:

Yes - in the sense that you’re extremely likely to have tenants with minimal vacancies, due to the extremely limited stock on the market. The market is also extremely hot and rents are likely to continue to appreciate for the foreseeable future.

think kong Hong, but less extreme, in the sense of limited industrial land and a strong appetite for industrial property. Combine this with increasing build costs and cost of land, and any new stock that enters the market kinda needs to sell at a minimum of $4000 or more per m2 for a project to be feasible!! You’re possibly able to find an older spot for significantly less than replacement cost!! Some quick math on the cheapest parts of Sydney, ie western and south western, and the square metre rates are now in excess of 4000 for anything semi-decent. The ones in your budget range attract a premium due to financial accessibility, so expect to pay $5000+ in the cheapest parts of Sydney for something decent.

No - in the sense that “can’t go wrong” implies the downside is quite low or has a near-zero chance. Well my opinion is at 1-1.5m you’re only buying tiny strata warehouses. So there will be things outside of your control, as generally you need to lease on gross leases for that type of property.. and what happens if strata costs blow up?

Also, you have to really have confidence in the rest of the strata complex. Imagine a neighbour has a fruit and vegetable storage business move in , and a big infestation of rats moves in with them.. causing mess/damage/etc. usually the costs of dealing with these are on the tenant, assuming your tenant wants to stay with neighbours like that!

most importantly: try buying a good deal in your price bracket and you’ll quickly find you’re competing with people who aren’t “investing for $$” as much as they’re “investing for certainty”. These people are owner occupiers who will pay more than what an investor would pay. Mostly due to banks doing much more favourable financing for commercial type properties than they historically have. According to a real estate agent I was speaking with recently , you’re possibly also competing with cashed up businesspeople who have had a strong windfall, and are just parking cash in affordable-tier CIP.

Overall - Overall, Sydney is a great reliable investment. The low yields reflect the low risk. I can confirm as both a warehouse landlord and tenant. probably not an exciting way to get growth with your budget and stock type, tho you will get stability.

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to expand on my point about financing being easier than ever before:

“Back in my day”, the longest loan term available for a warehouse was 15 years. If you go back to @Beano days, it was probably less. Now you can get finance for 25 or 30 years, so repayments are lower.

“Back in my day”, deposits had to be 30% or more.. and valuations were extra conservative and very expensive. These things are gradually changing , and valuations can already be done for less than $3000 now!! Some loans might even bundle them free. Banks are also quite partial to the cookie cutter strata units, because they’re so easy to compare on the market. Much harder to value and compare the specialised larger commercial properties.

Precedent is an interesting teacher, I remember thinking that rentals barely covered the interest cost.. and it makes someone a little nervous after hearing stories of long vacancies. However industrial property in Sydney is closer to residential property than it’s ever been before… there are some warehouses that were getting leases agreed to within 2-3 days of being on the market. Just phone up Bawdens or a similar agency and ask them about how hot the market is.

I had a verbal agreement with an agent for a warehouse within 4 business days of it being listed, and there was an additional negotiation period of less than 2 weeks, whilst they went back and forth with another prospective tenant before coming back to me with an “okay, we prefer your offer and terms”. The only reason I waited those two weeks, was because I couldn’t find anything else with the needs I had on the market (needed more than 1000m2 warehouse with private gated access and reasonably yard/storage are)! It was all either going too fast or far too unattractive to consider. The agent told me that in the two weeks - and after those two weeks during paperwork and handover time - they had other people make better offers, but he obviously didn’t want to go back on his word/muck around a lot. Obviously agents may not be entirely truthful, tho I’d assume he is being honest with those words..