Will this industrial boom slow down? (Sydney)

It seems with the new favourable finance , allowing up to 30 years to take out a mortgage on an industrial property @60-80% LVRs, industrial yields will continue their trends of approaching residential yields.

net yields on strata warehouses in Sydney are now almost at 3.5%!!!! Have seen quite a few dip under the 4% mark. A friend got excited he managed to secure an off-market deal in castle hill which netted 4.6% after he spent a bit cleaning it up. It wasn’t that long ago that would have been considered sub-par

sale prices are over $4000pm2 for strata warehouses in most parts of Sydney, even historically cheaper places like Blacktown have seen sales results at the $3700+ pm2 mark for very old warehouses with low ceilings ...!!

net yields on freehold with land in Sydney, even with a 55% or more site coverage, are quickly approaching 2.5% ... if it reaches typical residential yields we will be in uncharted territory

land values at all time highs.. still remember missing out on a deal at minchinbury near the Bunnings where land was asking about $380pm2 only 4-5 years ago, that same land would be at least 4x right now.

• stock on the market is low.
• demand is at all time high
• population growth is expected to continue to blow up, well located industrial stock will need to support this. The population growth from 2016 to 2036 is expected to be substantially higher than the growth from 1996 to 2016, but the industrial land released in this time frame will barely meet the needs

is this likely to end soon? What’s your thoughts? There just isn’t enough industrial land being released in Sydney..

will rising rents support stronger yields? There’s talk the new average nett lease will fly past 150pm2 for a stock standard warehouse. How far can it go? Maybe a climb to 200 nett over the total boom period? Or will we get a less intense Hong Kong situation?

—-

Spoiler: Alternative in Perth is good !

Meanwhile I can buy a freehold with sub 50% site coverage within 15 minutes of the Perth CBD with a 6.5% net yield... these numbers are much more tempting

 

Great post and info Chabs.
Yes, sale prices are booming, but...
rents don't seem to be increasing at same pace, in south east Sydney region
Surely, at some point the disconnect will rebalance.

 

Thanks for sharing this. What banks are offering 30 year terms of industrial sites?

 

Hi @Chabs

I totally agree with everything you said above.

Why don’t you look into other markets across Australia? There are plenty of other strong markets that are returning much higher yields.

 

From listening to your podcast and seeing better net yield returns in other states, I don't really see value in investing in the Sydney market and feel that will make you sit on the sidelines a little longer.

 

I noticed that even the big boys are buying on strong yields

Industrial property Melbourne: Lowy family-backed fund buys warehouses on 4.4 per cent yield

Charter Hall goes west in $50m warehouse deal

GPT sews up $72.5m deal for Spotlight warehouse

Some good news for regionals (just don't forget about risk).

Regional industrial rents, values rising faster than in capital cities