Sydney-based sales and asset management company Bawdens Industrial said the NSW capital can expect rental increases of between 35 and 45 per cent over the next three to five years due to an undersupply of industrial property.
Managing director Barry Cawthorn said the low interest rate environment and falling cost of money domestically is creating ideal conditions for investors.
"The owners of residential property and developers with land banks who have made strong returns in recent years are cashing in and now moving into industrial property to capitalise on higher returns," Mr Cawthorn said.
"We are witnessing a shift towards investors purchasing industrial property in their self-managed super funds to generate an income for life."
According to Mr Cawthorn, Sydney investors are discovering that a small industrial strata offers significant advantages compared to a residential investment.
"The security bond is usually bigger (three months), leases are longer – typically three to five years – less capital outlay is required for smaller units and rental yields are generally higher," he said.
Bawdens also noted that the most recent Property Council/IPD Australia All Property Index showed the average annual return of industrial property was 15 per cent in the 12 months to 31 March, while property shares saw a return of 9.2 per cent, bonds recorded a 1.6 per cent return and balanced share portfolios went backwards by 11.3 per cent.
The average rental income yield for industrial property was 6.6 per cent, plus 7.0 per cent capital growth, the best it has been since 2008.