The sharp rise in demand for industrial and logistics space – and the resulting increase in prices and rents – is, along with hybrid work and its impact on office occupation, one of the two major global property themes to emerge from the pandemic.

To this point they’ve been separate narratives, but now they’re starting to converge with surging industrial closing fast on falling office rents in key markets.

This has prompted some industrial tenants to shift, or at least seriously think about it.

A recent Property Council Australia session in Parramatta moderated by Sarah Kay from Woods Bagot revealed the strongest demand for new office space is from former industrial tenants attracted to the western Sydney transport and employment hub.

Ben Lalic Senior Director at JLL, Lalic says Parramatta’s office market is at a “cross-roads” with a slew of new premium buildings opening in the past three years.

In that time, total office space in Parramatta increased 52 percent to reach 986,500 square metres (sqm), overtaking North Sydney as the city’s second-largest CBD behind central Sydney.

This building boom has attracted new tenants but not enough to keep pace with the extra stock, resulting in overall leasing vacancy rates rising to 23 percent. B-Grade stock is almost double that, while A-Grade offices are running at just under 20 percent.

Almost half of major new tenants who took leases in Parramatta during 2022 moved from industrial estates, according to JLL research.

“We’ve been in an environment where it’s been quite hard to attract new staff, it’s really been an employee market and there’s a lot of tenants coming from industrial markets into Parramatta,” says Lalic.

“These tenants are telling us they’re coming here because they want to be more accessible to a higher number of workers.

“Companies are asking, ‘how do we get staff in, how do we make it accessible? Who wants to be in the industrial estates of Huntingwood, or Glenwood or somewhere in Greystanes? What amenity is there? How safe is it? How can I get there on public transport?’

“And this is where Parramatta has done really, really well.”

The other factor is that industrial rents – which traditionally lag Parramatta office – are taking off while office rents soften.

“For the first time that’s now going the other way,” says Lalic.

“South Sydney industrial rents are now effectively higher than Parramatta secondary grade stock and we’re also seeing industrial rents in the outer west starting to creep up.

“So a lot of businesses sitting in those industrial parks are starting to ask: ‘if we’re paying such high rents and the industrial market is so competitive, what are our alternatives?’

“We think this trend is likely to continue.”

Carmel Hourigan, CEO of Office at Charter Hall, said that Parramatta, in which the property funds management company has more than $1 billion invested, will benefit from the impending immigration boom but market fundamentals are now “looking a bit soft”.

“We need to work through where we are in the cycle in terms of tenant demand,” she said.

But Hourigan expressed confidence in Parramatta’s long-term future with demographics and location working strongly in its favour. 

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Martin Kelly
Content and Communications Leader (Australia & New Zealand)