Industrial property heading for $120bn by 2025
The value of Australia’s booming industrial property sector is expected to hit $120 billion by 2025 as a wave of new automated facilities are completed to satisfy the demand for warehouse space coming from online retailers and e-commerce businesses.
That’s a 25 per cent increase in just four years from the current $96 billion of investment grade assets, according to new forecasts from JLL.
“Accelerated cap rate compression, rental growth and the steady supply of new stock have all contributed to the expansion of the sector,” said JLL’s director of research in Australia, Sass J-Baleh.
Driving the expansion in the value of the nation’s prime logistics assets will be the billions being pumped into new giant warehouse developments by the likes of Goodman Group – which is building a mega warehouse in Sydney for Amazon – as well as Charter Hall, Frasers, Logos, Dexus, Mirvac, GPT, Stockland and others.
On the occupier side, logistics giant DHL and Australia Post are among those rapidly expanding their e-commerce fulfilment capabilities alongside Coles and Woolworths.
JLL Research estimates that for every $1 billion incremental increase in online sales, an additional 70,000 square metres of warehouse space is needed.
“Online retail spend in Australia increased by a record $ 14 billion over the past 12 months – above the average of $2 billion a year. This has generated take-up from the retail trade sector alone of 960,000 square metres of industrial warehouse space,” Ms J-Baleh said.
Goodman Group CEO Greg Goodman said most of its $8.4 billion pipeline of projects were for occupiers in the e-commerce and online retailing sectors in what he called a “profound” change affecting the retail sector, after online sales globally surged 30 per cent during the pandemic.
At the same, investment appetite remains huge for prime logistics assets. An estimated $26 billion of capital is seeking a home in the sector – well above what is being offered to the market in the form of existing assets – providing funding for new development projects, particularly in land-constrained markets like Sydney.
“Investor preferences continue to shift toward the industrial and logistics asset class, as the sector has proven to be the most resilient of the core commercial asset classes,” Ms J-Baleh said.
“The sector held its position as the second most invested asset class in the commercial real estate space, accounting for a record 20 per cent of all global property investment in 2020.”
According to JLL, industrial gross take-up reached a record 2.9 million square metres in 2020, with occupiers within the retail trade sector for the first time contributed to the majority of take-up over the calendar year (34 per cent).
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