Changing investor behaviour, online sales, pharma supply and consumer staples are driving industrial development pipelines to a 13-year high, particularly in Sydney and Melbourne.
The latest Knight Frank industrial report shows more than 2 million sq m of supply was added to the sector in 2020 along the east coast with high levels of pre-commitment.
Interest in Australian industrial assets was also at a decade high, reaching $8.8 billion as most major real estate investment trusts shifted investment preferences.
According to the report, between Dexus, Charter Hall, GPT, Mirvac and ESR there was more than $8 billion in capital for potential new projects in the sector.
While eastern seaboard industrial supply was predicted to jump from 2 to 2.2 million sq m in 2021, vacancy remained relatively steady in the past decade.
Eastern seaboard industrial supply
^Source: Knight Frank, 2011-2021(f), square metres of supply
Knight Frank associate director Kay Dean said this was sign of confidence for developers to move forward with new projects.
“While institutions have been actively expanding land banks for a few years, there was a clear shift in strategy last year to increase asset allocations to the sector through their development pipelines,” Dean said in the report.
“This shift coincided with the pandemic which saw consumer shopping behaviours change and the intensity of demand from e-commerce-related users accelerate.”
One of the biggest developers industrial developers in Australia, Goodman Group, reported its operating profit was up 16 per cent on the same time last year–$614.9 million in February.
Group chief executive Greg Goodman said this was driven by online sales increasing 30 per cent globally. He said they expected it to grow further in the next five years.
“Our development activity is reflecting these trends and the flow-on effects in the digital space,” Goodman said.
“As a result, we have again increased the levels of development work in progress to $8.4 billion.”
This activity was across 56 projects, which were 69 per cent leased. Of the 15 completed projects, 95 per cent were leased.
Another major developer, Mapletree Investments, was recently granted approval for a $500-million logistics park project near Brisbane.
The Singapore-based company lodged an application to build a 200,000sq m facility in Logan.
This was as part of a bigger $1.5-billion Creastmead Logistics Estate across 36ha which was launched by the Logan City Council last year.
And Frasers Property Industrial, Aware Super and Altis Property Partners won approval for a $1-billion precinct near Western Sydney Airport earlier this year.
The region was rezoned to allow the 400,000sq m of warehouse and industrial facilities to be approved in Marme West.