While malls, offices and hotels face significant challenges in adapting to the new norm of social distancing, industrial property looks set to be one of the few winners to emerge from the global pandemic.
Driving the sector – as it did pre-COVID-19 – will be the push to build bigger and more automated warehouses to cater for the acceleration in online shopping and a more digitally-connected consumer.
“Capital allocation to the industrial and logistics asset class has now surpassed the volumes recorded within the retail sector, demonstrating the shift in investor appetite with industrial & logistics as the preferred route to greater long-term value and growth,” said Sass J-Baleh, director of industrial research at commercial agents JLL.
Leigh Williams, founder of eStore Logistics, the e-commerce fulfilment company backed by online retailer Ruslan Kogan, said he was looking to expand its logistics network after a surge in online sales during the pandemic.
“We’ve experienced huge year-on-year volume increases, in the triple figures on the back of COVID. Pretty much everything – apart from travel products – were flying out the door,” Mr Williams said.
The logistics group, which has partnered with supply chain and industrial property consultants TM Insight on sourcing and developing over 100,000 square metres of warehouse space, will make an announcement about an expansion of its logistics network in the coming months, Mr Williams said.
“Post COVID, the acceleration and penetration of online may slowdown, but it won’t revert to pre-lockdown volumes,” Mr Williams told The Australian Financial Review.
“From a property perspective, as volumes drop for traditional retail, there is an increasing requirement for warehouse and distribution centres.”
In Altona North, in Melbourne’s inner west, online retail pioneer Winning Group has just broken ground on a 45,000-square-metre distribution centre being developed by fund manager Aliro Group.
It will be the largest warehouse leased by the 120-year-old company, after it more than tripled its footprint in Perth, Brisbane and Sydney last year.
“We lease over 80,000 square metres of warehousing nationally and deliver to 95 per cent of Australia the next day,” said Winning Group chief operating officer Jo Devery,
Much of Winning’s recent growth has come through its appliances online digital platform, which launched in 2005 and which offers 9000 products, from fridges to toasters.
While many retailers temporarily closed during the lockdown, Ms Devery said orders and deliveries increased as customers who would normally have visited one of its 18 showrooms, shopped online.
“We made 1500 deliveries a day from our Rosehill warehouse [in Western Sydney] in May and 95,000 nationally ” Ms Devery said.
While leasing and sales activity slowed down in March, as the lockdown took effect, national industrial leasing in the second half of 2019 and the first quarter of 2020 totalled 2.53 million square metres exceeding the 10-year annual average of 2.3 million square metres, according to JLL figures.
The national vacancy rate rose to 5.6 per cent in the first quarter of the year, up from 5 per cent in the December quarter.
“We do not project the industrial vacancy rate to increase significantly from the economic shock of the COVID-19 containment measures,” said Ms J-Baleh.
“This is mainly due to the significant uptick in demand from non-discretionary retail, in particular consumer staples, and the eCommerce sector.
Last year, Australia’s most successful logistics real estate player, Goodman Group – one of the few A-REITS to re-affirm its 2020 earnings forecasts – completed the largest parcel facility and delivery centre in the southern hemisphere for Australia Post.
Covering almost 10 football fields at Goodman’s Redbank Motorway Estate in the City of Ipswich, Queensland, Australia Post signed a 15-year lease on the 13.5 hectare site and invested more than $200 million in the new hub
Ben Franzi, Australia Post’s general manager, of parcel & express services/intermediaries, said the group had experienced a significant spike in its parcel volumes as a result of COVID-19, with 200,000 new shoppers entering the market in April.
“Growth in ecommerce was up 80 per cent year-on-year in the first eight weeks of the pandemic, and our volumes reaching Christmas-like levels as people at home jump online for their shopping needs.
“To help manage the volume we have repurposed and opened 15 new processing facilities, as well as chartering an additional eight freighter flights, increasing this to 17 dedicated air freighter flights per day.
The Brisbane Parcel Facility at Redbank comes loaded with technology like Automated Guided Vehicles, robotic arms and parcel pickers, and the ability to process 700,000 parcels per day at full capacity.
“The recent growth we’ve seen suggests that by 2025 online shopping will account for 16-18 per cent (was 12 per cent at March 2020),” Mr Franzi said.
Keep up with Commercial Real Estate news.
Keep up with Commercial Real Estate news.