Sydney Warehouse Costs Soar
The soaring warehouse occupancy costs in Sydney are prompting major companies like Ceva Logistics and Amazon to contemplate relocating parts of their supply chains to Melbourne or Brisbane. Sydney's extremely low vacancy rate of 0.2% for large buildings, driven by the surge in e-commerce demand and planning system deficiencies, has resulted in a staggering 38% increase in prime rents in the past year, reaching $215 per sqm. In comparison, Melbourne's vacancy rate is 1.1% with rents at $119 per sqm.
The rising rents in Sydney do not fully capture the additional costs such as land tax, council rates, and maintenance expenses, making total occupancy costs unaffordable for many tenants. As a result, companies are seriously considering alternative markets like Melbourne and Brisbane, with Sydney posing the most significant challenge in Australia for Ceva Logistics.
The surge in occupancy costs in Sydney is largely attributed to delays in the development approval process, leading to longer project delivery timelines compared to other Australian cities. Over the past 24 months, significant increases in rental and land valuations have resulted in higher land tax and council rates. This situation has spurred calls for the New South Wales (NSW) government to take action and improve planning processes to prevent further cost increases and potential loss of future opportunities in Sydney.
Executives from both Ceva Logistics and Amazon share the sentiment that Sydney's constrained industrial market is a consequence of an inadequate planning system. While the short-term rent growth prospects in Sydney may be celebrated, the cumulative impact of supply constraints and a rising interest rate environment is prompting industrial occupiers to explore opportunities in other cities.
Industry experts, such as Phil Pearce, CEO of ESR Australia, recognize the frustration of end-users with Sydney's current situation. Despite the rising rents driven by strong demand, the pace of new warehouse construction in Sydney is not keeping up. As a result, customers are increasingly considering reorganizing their supply chains and investing more resources in markets like Melbourne and Brisbane, where occupancy costs are comparatively lower. Although Sydney will remain a crucial location, companies are compelled to explore options in more affordable markets due to the current challenges in Sydney's industrial landscape.
Source: https://www.afr.com/property/commercial/big-companies-mull-a-sydney-exodus-over-broken-planing-system-20230712-p5dnn4