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While the latest rental figures for industrial property show that rates of growth have slowed slightly, the headline figures remain extremely bullish with sustained demand for new space and ongoing tight supply continuing to put upward pressure on rents.
According to a recent Knight Frank report, there are 2.6 million square metres of new build that is on track to be delivered on the east coast through 2023 but this won’t meet the current need for new build product.
Fast-growing sectors such as defence, agriculture and healthcare are having an increasingly large impact on industrial and commercial property demand.
The term ‘fit for purpose’ now brings explicit parameters, both in terms of the physical assets and in the shape of the deal.
Unlike the frenzied demand of space seen in 2021, high occupancy and operational costs are forcing users to demand more efficiency from their space.
While the phrase ‘flight to quality’ is overused, the quality being sought by industrial occupiers in space utilisation, design flexibility, energy efficiency, access to arterial transport routes and more, are just some of the qualifiers creating an unprecedented demand for new product that the cost of retrofitting old product to meet this threshold would be uncommercial.
Our latest defence development with Babcock Australasia is a good example of this.
We’ve just broken ground on a $31-million, 4000sq m purpose-built manufacturing and maintenance facility that will underpin Babcock’s delivery of support to land and naval defence programs, including in-service sustainment for the Collins-class submarine fleet.
It’s also a scalable development in readiness for potential involvement in the AUKUS nuclear submarine program, in which Australia is forecast to invest $368 billion over the next three decades.
Because of the security requirements, specialised IT and large-scale logistics capabilities, Babcock’s new facility is far from an off-the-shelf ‘shed’. We have provided a carefully designed solution that is exactly tailored to the client’s specific requirements.
The same goes for the financial solution. We have funded the project and will retain ownership with Babcock taking a long-term tenancy agreement, giving them certainty and flexibility.
They also have direct line of sight from their boardroom to the project as it develops, with the build being delivered by our construction arm, Tandem Building Group.
Our vertically integrated operational model, acting as originator, developer, project manager right through to delivery, provides a unique advantage in this market that could be trusted by end users and enables us to maximise project delivery cost efficiencies even in a challenged construction market.
End-users like Babcock are confident in the transparency they will have throughout the process and are reassured by the certainty of delivery our model provides.
The Babcock project is one of the key assets seeding our new industrial fund, the Commercial & General Diversified Development Fund.
Our timing is deliberate, as is our strategy.
The fund portfolio we have sought to create is informed by our historical experience in this sector and looks further than greenfield developments.
We are focused on identifying, developing and acquiring properties that lend themselves to our specialised strengths.
Diversification of the portfolio geography drives opportunities for risk mitigation in emerging markets.
Our other pillar of diversification is the existing income generating assets, with short-term value-add/development potential, paired alongside development-ready sites.
This provides the opportunity for scaled growth and returns as the fund builds momentum but is still stabilised in a challenged construction environment.
Additionally, there is diversification within the industrial sectors themselves.
Strategic locations primed for defence occupiers, final mile sites appealing to logistics as well as service-retail and light industrial, bring a level of fund resilience and an ability to capitalise on sector demand.
We agree with Knight Frank’s head of Industrial Developments, Angus Klem, who said recently that the smart money in 2023 will continue to shift to the acquisition of core-plus investments—secondary or brownfield industrial opportunities—that are underutilised and have value-adding potential.
That’s the reason why the fund also contains a number of Bridgestone warehouses and service-retail outlets.
In Bridgestone Australia/New Zealand, we have a counterparty of extremely high standing with 250 outlets across Australia and as savvy users of real estate, they recognised the flexibility leasing provides their portfolio.
In us, they now have a partner who has purchased eight sites nationally and has the financial ability to invest in the asset improvements required to support the growth and future requirements of space—value that can only be realised by a long-term partner who intimately understands their business.
This is the fourth project we have undertaken with Bridgestone and we’re confident there will be more that will grow into the fund.
Today, Commercial & General is a fully vertically integrated property company with 120 professionals across our construction, project development and asset management lines.
With a market that is increasingly demanding a focus on purpose-built, deliberately designed facilities underpinned by a deep understanding of business requirements and matched with financial ability and acumen, we also believe it’s the right model at the right time.
IMAGE: Impression of the new $31-million Babcock Australasia facility (Bell Architects).
ALERT: Commercial & General chief executive Trevor Cooke is speaking at The Urban Developer’s Industrial Property vSummit on Thursday, September 28. >> LEARN MORE
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