Stakeholders active in Australia’s industrial property and employment land markets have never had a greater need to be aware of the mega and local trends impacting on this vital property segment.
The industrial market landscape is undergoing significant change. For example, transformed by major infrastructure investment, the South West has developed into Sydney’s dominant industrial powerhouse, displacing the outer west. Meanwhile the conversion of industrial precincts in Sydney’ south and central west into residential and other non-industrial uses reflects the relentless evolution underway in our major cities.
The following presents some of the key trends shaping the future of Australia’s industrial property market:
Perhaps the most notable is the increasing size of distribution centres and warehouse facilities.
This has become a defining feature of the modern industrial market. Some estimates suggest that the average floor space of new large format industrial facilities has increased by around 30% in recent years. These larger formatted or supersized facilities are clearly visible in the transport infrastructure rich eastern seaboard industrial markets – a clear indication of the strong demand for logistics space in the nations more densely populated areas and corridors.
The growth in size has been driven by factors including the perpetual drive for efficiencies through economies of scale, the internet and increased demand due to population growth.
These factors have also led to a trend towards consolidation of industrial facilities. Through an increase in shared services and reduced overheads via centralization of stock control transport flows, consolidation works to halt the slide in profit margins as well as boost property management efficiencies through a reduction in the numbers of facilities.
Accompanying the shift towards larger and super-sized format facilities is the inclusion of state of the art construction and design features.
This includes; higher internal clearances (+10m), concrete tilt panel construction, full early suppression fast response sprinkler systems, all weather awning spaces, A grade office areas with complete amenities, multiple container height roller doors and loading docks, B-Double access with heavy and light duty pavement, large hardstand areas for truck turning and container handling. Modern facilities are also increasingly located in precincts which feature 24/7 zoning.
Rising customer expectations due to improvements in information and communication technology (ICT) is another important dynamic force.
The digital revolution is enabling an increasing preference towards automation of all types of industrial processes. Advances in ICT is facilitating innovation in warehousing practices. Traditionally employing thousands of workers, digital picking, sorting and retrieval systems and GPS technologies are making thousands of traditional transport and storage industry jobs obsolete. Such technologies are employed as a response to demand side pressures resulting from growth in e-commerce. Digital sales platforms have propelled consumer demand, expanded choice and increased expectations about the timeliness of product delivery with same day delivery being the ultimate goal.
Selection of strategic site locations has become central to the efficient working of distribution centres at the centre of supply chains.
Port land tend to attract the highest rents and land values. Meanwhile sites in and around intermodals or other road and/or rail infrastructure rich corridors represent an alternative which incorporates a trade-off between access to markets and land cost. For this reason certain industrial precincts within greater metropolitan areas have been transformed by the development of larger warehouses and super-sized distribution centres. Transport infrastructure rich hubs located in Melbourne’s Derrimut, Laverton and Truganina, Sydney’s Eastern Creek and Erskine Park, Brisbane’s South West and the Australia TradeCoast, Direk in South Australia and Hazelmere in Western Australia are all examples of where occupiers and developers continue to gravitate to in increasing numbers. The demand for industrial land in transport infrastructure rich locations is particularly pronounced in the markets of Melbourne, Sydney and Brisbane. Transactions by notable logistics specialists have highlighted the significance of these locations in recent years actively leasing or purchasing facilities in key locations. Proximity to workforce is also an important consideration for the selection of strategic industrial locations.
Another trend to continue to impact this segment is the outsourcing of logistics functions.
Outsourcing provides the dual benefits of devolving responsibilities to external 3PL experts while freeing up occupiers resources to focus on their core business. For many occupiers, it makes little commercial sense for a firm to allocate time and floor space to logistics functions while there are service providers, who, through economies of scale achievable by handling the logistics functions of multiple firms, can efficiently unpack and fill containers, utilise digital storage, picking and packing, stocktaking and distribution systems.
The conversion of older industrial property in metropolitan locations is a highly visible trend.
Industrial land and asset sales in the Sydney South industrial market have been fuelled by land rezoning which are transitioning industrial areas towards a mixed-use, residential future. The significant rise in residential value has provided a compelling reason for owner-occupiers to sell their industrial assets and realise capital appreciation. Melbourne’s City Fringe industrial market has become more tightly held, as it is squeezed by the combined pressures of residential rezoning, with the closure of the Holden and Toyota motor vehicle manufacturing facilities. And in the inner Brisbane suburb of South Brisbane new draft planning schemes will facilitate the transition of a number of industrial land uses into high density residential and mixed use development sites in the near to medium term.
Mark Courtney is MacroPlan’s General Manager – Queensland. Mark is an accomplished property professional whose experience uniquely positions him to provide leadership in property research and consultancy. He has considerable experience in the analysis and development of Australia’s industrial property sector, as well as extensive market trend analysis, feasibility assessment and land demand and supply modelling expertise.