This article is from the Australian Property Journal archive
THE appetite for industrial and logistics space from online shopping shows no signs of slowing. Between now and 2025, an additional 2.3 million of floorspace will be taken up by the ecommerce sector, according to JLL.
JLL’s latest Industrial & Logistics Investment Outlook Report found occupier demand for industrial space has for the sixth consecutive year exceeded the 10-year annual average of 2.2 million sqm.
And last year it reached an all-time high of 2.9 million sqm with ecommerce increasingly contributing to greater space requirements.
For the first time, the retail trade sector was the major contributor to floorspace demand in 2020, accounting for 34% or 960,000 sqm, followed by transport, postal and warehousing (30%), and manufacturing (18%).
But 2020 is not a flash in the pan.
According to Macquarie Research, the online shopping penetration rate is projected to reach 20% by 2025, an increase from 13% as at Q1-2021.
This equates approximately $77.3 billion in total retail spend, according to Deloitte Access Economics retail spend forecasts.
Based on these forecasts, ecommerce sales between now and 2025, of $33 billion, will require 2.3 million sqm of additional space.
Furthermore, for every $1 billion of online sales generated, this applies a further 110,000 sqm of additional demand.
These forecasts exceed previous expectations that an additional 350,000 sqm of space is required each year to keep up with Australia’s current rate of online retail sales.
But the industrial property sector is struggling to keep up with demand.
Report author and director of strategic research Sass J-Baleh said over the past decade there has been a relatively low amount of new supply of floorspace being developed in the Australian market – averaging 1.4 million sqm per annum. Over the same period, gross demand has averaged 2.2 million sqm – almost double the new supply delivered.
As a result, industrial rents are projected to deliver real rental growth. JLL projects the national GSP-weighted Industrial & Logistics rent index will increase by 3.0% per annum from 2022 to 2029.
“It is important to put this rate of growth in the context of a low inflation environment. Deloitte Access Economics forecasts Australia’s underlying CPI will average 2.0% between 2020 and 2029.
“The risks to the inflation outlook are to the downside as CPI has only averaged 1.5% per annum over the past four years (2017 to 2020). The Australian industrial & logistics sector, therefore, has the potential to deliver real (inflation-adjusted) rental growth of between 100 and 150 basis points over the next 10 years,” J-Baleh said.
These strong fundamentals have seen investors flock to industrial property sector with $45 billion of capital looking to be deployed.
But online retail is not the only sector pursuing industrial space.
Data centres are booming as demand for cloud computing increases, driven by remote work and online gaming.
Last year alone in Western Sydney, data centre operators acquired 550,000 sqm of land, according to CBRE.
Data centres operators are also driving up values by paying above market prices, anywhere from $1,000 – $1200 per sqm, as worldwide spending on cloud infrastructure soared during the COVID-19 pandemic to US$142 billion.
