According to the latest Savills Industrial Briefing, there has been an increase in speculative development over the last two years with most of the new space being built having a tenant in situ prior to completion.

Savills recorded over 197,000 square metres of leasing activity in 'build to lease' or speculative developments in the last two years, a 52% increase on the previous two years. Savills track that a further 67,000 square metres of speculative built space to be completed Q3 2016.

Darren Curry, Savills Director, Industrial & Business Services, said developers are predominantly building surplus floor space on the back of any large pre-commitments on their sites.

'We have sufficient demand for large sites but what we are faced with is a lack of new supply and these speculative developments should help ease that pressure,' said Mr Curry.

With a number of large tenancy briefs currently seeking a total of over 350,000 square metres of space, Savills expects that the industrial leasing market will remain strong over the next 12-18 months.

There are a number of 'mega shed' requirements in excess of 40,000 square metres already in the market place which will be met through pre-commitments noted Mr Curry.

According to Savills latest figures, there was approximately 930,000 square metres leased in the 12 months to December 2015, and this is only marginally up on the previous year, with 250,000 square metres being attributed to pre-lease activity.

There is strong competition in the pre-commitment market as demand from the logistics sector continues to strengthen. Logistic companies which have entered into significant pre-commitments over the last 12 months, include DHL (31,080sq m and 27,145sq m), DB Schenker (24,500 sq m) and GMK Logistics (15,034 sq m).

In order to support this burgeoning demand to accommodate the logistics sector, the NSW Ports recently completed the expansion of the Intermodal Logistics Centre at Enfield. The new terminal, when fully operational, will have capacity to handle 300,000 TEU port - rail capacity per year. Additionally, a new freight terminal at Moorebank has been earmarked to begin development in 2016.

'As consumer spending in Australia continues on an upward trajectory it is likely that there will be an increase in the need for additional warehousing requirements, a positive sign for developers,' said Mr Curry.

Average net face rents remained stable across all precincts over the December 2015 quarter with prime industrial rents in South Sydney ranging between $130 per square metre to $190 per square metre. Secondary buildings in South Sydney ranged between $100 per square metre to $115 per square metre.

Prime industrial net rents in Western Sydney ranged between $110 and $120 per square metre and between $70 per square metre and $95 per square metre for secondary buildings.

Savills Research Analyst, Houssam Yakzansaid that he expects subdued growth in secondary rents in Western Sydney.

'The rental gap between a secondary property and a prime property is so tight right now that the new supply will capture tenant requirements seeking new purpose built facilities.'

Savills plc issued this content on 04 February 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 03 February 2016 23:33:06 UTC

Original Document: http://www.savills.co.uk/_news/article/110560/142334-1/02/2016/strong-activity-heralds-rise-in-speculative-development