Industrial property specialists Goodman Group, together with Mirvac and Dexus, have the best located properties, being within a 15 minute drive to capital cities to garner growth for their tenants, according to a new report from UBS.
This correlates to the rise in demand of the “last mile delivery” process, where retailers that offer quick delivery times to customers need warehouse space close to the main commercial and residential hubs in a city.
Supermarket chains are also vying for inner-city space to cater for the growth of online food deliveries, both in dry goods and perishables.
All the major landlords have large development pipelines with an emphasis on high density areas of Melbourne and Sydney, but finding the land is the hard part and is putting pressure on land prices and rents.
According to UBS’ latest Evidence Lab report, the rise in e-commerce is forecast to be about 13 per cent in the current year, yet supply growth is forecast at about 10 per cent.
As a result, transport is the largest component of logistics costs, so location is increasingly important.
Globally, location to cities and consumers is the most important consideration for warehouse space users, over ports and proximity to suppliers, and Australia is no different.
“For landlords, we see location together with increases in automation as the key drivers of rent growth over the medium term,” UBS analysts Grant McCasker and James Druce said.
The UBS report compared the Australian industrial real estate investment trusts to those in the Singapore sector and found that Australia remains an important alternative growth market for Singapore industrial landlords.
“Pricing of logistics assets in Australia appears to be in the early phase of the adjustment relative to other asset classes, currently 70/100 basis points wider than office and retail and bond rates, with a current spread of more than 100 basis points versus past spreads,” the report says.
“Over the medium term, savings from a reduction in transport costs and increased automation could lead to increased ability to pay higher rents for premium locations.”
Mr Druce said Australian logistics should remain in vogue given the solid rent growth of 3 per cent to 4 per cent and low income volatility.
But he said with the expected large rise in demand for online goods, industrial property owners and developers will need to respond with more sites closer to higher density locations.
Ross Lees, fund manager for Centuria Industrial REIT, agrees that location is vital to gain competitive advantage in the sector.
Mr Lees says there are five market movements that matter for industrial property landlords, being the current era of infrastructure investment and ongoing economic growth; location, it’s all about the “where”; e-commerce, just a little click; logistics, the $ in getting from A to B; and manufacturing.
These signal both change and good news in industrial real estate.
“Investment in infrastructure is good news for the economy and for commercial real estate markets,” Mr Lees said.
“There is a strong positive link between infrastructure spend and economic growth, because when money is allocated to infrastructure, it creates anti-recessionary fiscal expansion, which is particularly important in a low-growth, low-rate environment – like the one we are experiencing now.
“And in the longer term, there is strong evidence to support a positive relationship between infrastructure investment and productivity growth.”
Mr Lees said location was also crucial given the rise of online shopping.
According to CBRE, growth in e-commerce will create a requirement for an additional 350,000-square-metre of new industrial and logistics space in Australia leading up to a peak in 2022.
Some of this space will take the form of large distribution centres, like Moorebank Logistics Park and the new Australia Post centre in Chullora, Sydney, but there will also be increased demand for infill development to facilitate fast delivery.
“If demand for same-day delivery is on the rise, then the need to be close to consumers is rising also. There’s no point offering same day delivery when your stock is located 100 kilometres from the customer’s home. Smaller, more centrally located properties are where you want to be,” Mr Lees said.
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