Water woes in Sydney’s Kemps Creek industrial zone

In 2020, the NSW Government announced the re-zoning of 850 hectares of industrial land in the Mamre Road Precinct in Kemps Creek in Sydney’s Outer Central West. Part of the Government’s planning of the Western Parkland City, the Precinct will generate 5,200 construction jobs and 17,000 ongoing jobs alongside the delivery of major infrastructure projects, including the curfew-free Western Sydney International (Nancy-Bird Walton) Airport, Metro West, M12 motorway, and the potential Western Sydney Freight Line.

Bolstered by the demand spike and industrial supply deficit that emerged out of the pandemic when occupiers needed to stockpile inventory to insulate against supply chain volatility, institutional investors purchased lots in the Precinct. They master-planned industrial estates, where occupiers could benefit from the new infrastructure, the growing Western Sydney population, and improved connectivity with the metropolitan area.

How were they to know that by mid-2024, only three of the 10 estates involving upwards of 14 investors and developers, had actually commenced development?

The problem lies in the waterways. The Wianamatta South Creek - a tributary of the Hawkesbury-Nepean river system - extends into Kemps Creek, setting the Precinct on a floodplain lacking stormwater infrastructure.

As a result, Sydney Water and the NSW Government established a Development Servicing Plan, involving a consultative development approval process and a developer contribution of AUD 80 per square metre to install the critical stormwater system. Servicing the Precinct has proven complex, with traditional concrete-pipe stormwater infrastructure identified as destructive to downstream waterways, and the preferred solution utilising existing natural channels and wetlands that deliver significant ecological and urban cooling benefits to the area.

However, developers now need to achieve the same yield on cost for a smaller developable area than when plans were initially drawn, raising viability questions over the nearly 2 million sqm hanging in Kemps Creek’s development pipeline.

Further compounding the issue are delays in road works and electricity connection, so even projects that reach practical completion are unable to accommodate occupiers.

Since the re-zoning announcement in June 2020, Sydney’s industrial market has shifted significantly. Rents in the Outer Central West have grown 65% and coupled with the uncertainty surrounding the delivery timelines of new supply, tenants are increasingly relocating to Melbourne, where rents are 20% more affordable.

Inflation has curbed household consumption since the pandemic, and occupiers that pre-leased space in Kemps Creek back in 2022 or 2023 are re-evaluating their footprints. At the same time, developers who secured tenants at 2022 or 2023 rents now have under-rented warehouses.

Figure 1: Kemps Creek Development Pipeline

Source: JLL Research, 1Q24

In 2023, 100% of completions in Kemps Creek were pre-committed – suggesting developers need the backing of a locked-in tenant to push ahead with their Kemps Creek projects. As at Q1 2024, the pre-commitment rate for projects completing this year has dropped to 70%, then to 10% in 2025, when approximately 700,000 sqm is planned to come to market.

With limited pre-lease appetite among occupiers, this raises the question of whether these projects still add up and how much development will actually materialise over the medium term. This might add to uncertainty in one of Sydney’s most important future industrial precincts.