Rise of e-commerce means bigger is better

“That demand has really been accelerated by COVID, which shifted consumer habits hugely. People are buying more and more online – including bulky goods – so, that’s driving significant demand for extra warehousing space.”

As a result, warehouses are constantly getting bigger and better and more abundant at the same time as land supply is growing scarcer and the vacancy rate for warehouses is tightening. That’s causing both prices and rents to climb inexorably.

Angus Clark, director at Cameron, who specialises in the south-east of Melbourne around Dandenong down to Cranbourne and Pakenham, says his vacancy rate is currently less than 1 per cent.

“The earliest you could occupy a warehouse of under 3000 square metres is early next year, which is unheard of,” he says. “Now, we have tenants lining up for buildings that don’t even yet exist. Land supply has been very tight over the past five years, rezoning has been slow, and there’s less subdivision being delivered.

“Basically, if you want a warehouse, then you’ll have to wait until May next year. Most people also want bigger buildings; they want to store a lot more because they’re selling a lot more. They’re also trying to secure large supplies when they can because of the uncertainty of the supply chain.”

A number of new industrial sites that are now being developed are being driven by the need for larger warehouses to cope with the extra volume of goods being stored and ordered.

The new 134-hectare master-planned industrial estate Horizon 3023 is, for instance, located in Ravenhall, Victoria, within easy access of the CBD, airport, Port of Melbourne and the proposed Western Interstate Freight Terminal, specifically to service the growing demands of e-commerce businesses. With customers including Amazon, Hello Fresh, Electrolux and Myer, the Dexus-owned facility will, on completion in 2025, operate 24 hours a day, seven days a week.

“E-commerce was growing, but COVID supercharged that growth, and it’s been a pretty momentous couple of years,” says Chris Mackenzie, head of industrial developments and transactions at Dexus. “Melbourne especially became accustomed to ordering things online during their lockdowns.

“It wasn’t just millennials and other agile age groups, either; it was grandparents ordering and being surprised by things turning up the next day. People quickly got used to it and saw the benefits. We’re now starting to work out how many square metres we need to support the growth.”

Melbourne’s 10-year average was 400,000 square metres up to COVID, Mackenzie says, but now there are more than 1 million square metres of commitments – more than double the take-up of the historical average. His company is now growing industrial precincts by more than 200,000 square metres in 2023 to meet the demand for high-quality, highly accessible logistics facilities across Australia.

Another major new industrial precinct is at Jandakot Airport in Perth – 25 kilometres west of Perth airport and close to Freemantle Port and major road networks – it is a joint venture between Dexus, Dexus Industria REIT and Cbus Super. The location, on 80 hectares of land, is suitable for both first-mile and last-mile customers.    

“The model has moved from ‘just in time’ to ‘just in case’,” says Makenzie, with the footprint growing all the time to enable more and more products to be stored. “E-commerce is very much ‘want it now’, and Amazon, in particular, is charging toward the one-hour model.”

Since industrial warehouses are growing bigger and more sophisticated, many customers are also looking for longer lease terms, with requests now coming into many of the major players for 15 or 20-year leases, with renewal at 20 years-plus.

“The strength of demand and the way it’s lasting over a long period is translating into very, very strong rental growth because of the lack of supply,” says Centuria’s Curtis. “It’s a great thing for industrial property investors as there are great tailwinds there at the moment.