Aldi’s struggles show Sydney’s dire industrial land shortage

It was only late last year that Aldi locked in a leasing deal for a yet-to-be completed 87,000-square-metre distribution centre, which will be built by Ingham Property Group next to the airport.

Meanwhile, The Reject Shop has opted to go elsewhere due to Sydney’s soaring rents arising from the industrial shortages. The discount variety chain had considered planting its distribution operations in Sydney’s west, but is set to commit to a 20,000-square-metre Brisbane industrial lease instead.

Aldi and The Reject Shop’s struggles illustrate the crisis unfolding in Sydney’s industrial property market, where all but the biggest companies are increasingly opting out of paying sky-high rents for the city’s small pool of industrial land, which new analysis shows is even more scarce than previous state government estimates.

The NSW government’s land development monitor published in January says there are about 330 hectares of undeveloped land zoned for industrial purposes in Sydney’s west, but that is 43 per cent higher than what is actually available, according to CBRE analysis.

CBRE found that there were only 190 hectares of undeveloped industrial land. The consequence of the worse-than-expected figures means Sydney will face a land supply deficit in the range of 91 hectares to 319 hectares between 2025 and 2030.

The NSW planning department was contacted for comment.

Retailers are hurting the most from the lack of Sydney industrial land, accounting for 42 per cent of all pre-lease transactions of new warehouses in the city over the 2020-2024 period.

Sydney industrial rents are up to be 85 per cent higher than equivalent sites in Melbourne and 48 per cent higher than that of Brisbane sites.

Cameron Grier, CBRE’s regional director of industrial and logistics businesses, said retailers were feeling the pinch as the lack of supply had driven up industrial rents which had, in turn, thinned profit margins or forced those businesses to pass on the costs to consumers.

“While the rent growth is good for landowners, it is not good for the retailer and consumer,” Mr Grier said. “Every cost in the supply chain adds to the final cost for the consumer and at the heart of the issue is that Sydney is chronically short of land.”

Fund managers spend big as retailers retreat

On the flip side of that equation are large fund managers backed by foreign capital, who are spending big on industrial land, according to Savills data.

Investment volumes soared to $3.5 billion during the final quarter of 2024, a year-on-year increase of 52 per cent, and the highest amount since the first quarter of 2022. Sydney in particular was an industrial investment hotspot, with Q4 volumes jumping an extraordinary 64 per cent from the previous quarter.

Recent deals include Gateway Capital – funded by Ontario Teachers’ Pension Plan and Korea Investment Corporation – which paid $330 million for a recently completed, super prime logistics estate in Sydney.

Stockland has also closed deals worth about $800 million with US private equity house KKR and British funds giant M&G Real Estate in logistics partnerships.

Markets with limited pipelines and low vacancy such as Western Sydney, which experienced a 5.4 per cent increase in rent over the last three months of 2024, are expected to remain on a growth trajectory.

“Investors remain committed to increasing their exposure to the industrial sector, and a shift in the rate cycle will keep the investment momentum running in 2025,” Savills industrial head Michael Wall said.