The Sydney industrial sector is facing the two-pronged threat of oversupply and reduced demand, according to research by international property and development consultants, Davis Langdon.

Leading indicator research indicates that the industrial sector has been slow to rebound from the general slowdown in the economy.

Davis Langdon’s Knowledge Manager, Michael Skelton, said this slowdown had led to a marked reduction in demand for industrial units.

“Some select areas, particularly small scale developments in the Northern suburbs saw strong activity continue as the slowdown took hold,” he said.

“This has the potential to lead to an oversupply situation in these areas.

“Improvements in major road infrastructure in the outer lying suburbs are supporting industrial activity in these areas.”

Construction activity in the industrial sector remains at subdued levels.

“A number of projects that were put on hold during the slowdown are still yet to be revived as developers continue to hold off, pending confidence that a sustainable improvement in the general economy is under way,” said Mr Skelton.

“The market continues to be experiencing competitive conditions, with keen pricing being submitted to secure the limited number of new projects, and the outlook is for these conditions to continue for some time yet.

“While contractors may seek to pass in modest increases in costs, it is unlikely that construction margin levels will begin to rise in the short term.”

Mr Skelton said this week’s decision by the Reserve Bank to leave interest rates on hold provided welcome relief for the construction industry which had endured compressed margins and higher lending costs since late 2008, impacting on the feasibility of many projects.

“New South Wales has continued to trend down in the mid/high rise apartment approvals since November 2009, coinciding with the expiry of the First Home Owners Boost,” he said.

“The ABS June figures indicate a failure to sustain upward growth in approvals – falling 56% compared to May’s data.

“Despite a select few projects proceeding in the commercial sector, recorded building approvals are half that of the pre-GFC levels and so low that occasional monthly spikes in data are yet to permeate into the next pronounced growth cycle.”

Mr Skelton said, however, that while some areas of the economy were returning to growth close to trend, the construction industry remained restricted by access to finance and investor uncertainty.

“The Reserve Bank’s somewhat dovish monetary policy statement will hopefully put investors’ minds at ease for the foreseeable future and prompt greater confidence in the construction sector,” he said.

For further information, contact Meaghan Jones on +61 3 9933 8800 or email mjones2@davislangdon.com.au 

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