Gateway Opens Door to New Sydney Warehouse Supply with $80m Deal

Gateway Capital has taken advantage of falling land values in Sydney’s western suburbs and a lack of new industrial property to buy a site from US-based Greystar on which it will start building a 39,500-square-metre warehouse facility when it settles this month.

The fund manager declined to say how much it paid for the 5.8-hectare South Granville site, but industry sources speaking on condition of anonymity put the price just below $80 million, well below the $95 million records show developer and investor Greystar paid in October 2022.

Gateway had an approved scheme and a fixed-price contract with a builder, giving it an extra advantage as the two-month-old US- and Israel-led conflict in Iran would likely delay projects for developers who hadn’t already locked in their costs, joint chief executive and cofounder Stuart Dawes said.

“People who might have been developing this are now sitting on their hands, waiting to see what happens with the Middle East conflict and construction prices,” he said. “We’re able to deliver in a time when there’s low supply.”

After a surge in investment in industrial property boosted by the COVID-19 pandemic – Sydney alone was due to get a 3.9-million square-metre boost between 2023 and this year – the sector has been recalibrating, with rising vacancy rates and rent growth slowing.

But the readjustment that prompted values to fall appears to be over and unlisted industrial property funds tracked by the MSCI/Mercer Australia Core Wholesale Monthly Property Fund Index recorded a 1.4 per cent capital growth in the March quarter.

As with other commercial property sectors, soaring so-called replacement costs of building new industrial assets are making them more expensive than buying existing assets.

Last month, building materials giant Boral more than doubled the surcharge it charged customers for concrete as a result of the Middle East conflict.

Gateway, which has $1.5 billion in built assets under management and $600 million in assets under development, had contracted Vaughan Constructions to build the three buildings at the top of the sloped site and a larger, 10,000-square-metre one at the lower end of the site, Dawes said.

The higher three buildings, collectively comprising about 29,000 square metres, would be split into smaller units of 3000 square metres to 5000 square metres, he said.

The smaller units would be suitable for smaller storage, logistics and light assembly operations, while the larger one could serve as storage for large format retail operators, Dawes said.

The project, funded by what he would only say was “an institutional partner”, didn’t have an anchor tenant and could be built speculatively, Dawes said.

“We don’t require a pre-lease to kick off,” he said. “We’re happy to do leasing on the way through.”

With a development program of 22 months, the development was due to complete at a time when there would be limited new supply, he said.

“With a design to capitalise on multiple access points and capture the most liquid leasing unit sizes of 3000-5000 square metres, the completion of this development in 2028 delivers the estate into the market at a time (when] limited new supply is expected to be completed,” Dawes said.

The transaction was managed by Cushman and Wakefield’s Tony Iuliano and Adrian Rowse. Greystar was contacted for comment.

Dawes established Gateway with joint chief executive Peter McDonald in 2021 after Asian logistics powerhouse ESR bought out their previous company, ASX-listed PropertyLink. They held roles at ESR before setting up Gateway.

Last month, Gateway secured a 27,000-square-metre pre-commitment from soft drink producer and distributor Refresco for a separate 55,000-square-metre multilevel logistics facility on which it has started construction in Revesby in south-west Sydney. That project is backed by Invesco Real Estate Australia.

Last week, Arrow Capital Partners and Cerberus Capital Management said they had refinanced a portfolio of industrial and logistics assets to tap the sector’s tight supply and growing demand for warehouse space to lease.