Rooftop terraces, heated outdoor areas: How the industrial sector is bringing teams back to work

“Just as we’ve talked about differing demand for different classes of office assets, the demand for office space is now a lot more diverse,” Ledlin Group founder Oscar Ledlin told the AFR’s annual Property Summit on Monday. “There’s now a two-tier market in luxury industrial versus standard industrial.

“[The distinction] is less graphic than in office because the market has been so favourable to industrial, but there is now a premium market being achieved in more functional property. We’re seeing rooftop terraces, heated outdoor areas, communal car wash facilities and co-working spaces for the overflow of staff, all aimed at bringing teams back to work.”

While the industrial market was still performing strongly, it had definitely dropped off from some of the peaks seen during the pandemic, the experts told the forum. 

Chris Tynan, the head of real estate at Blackstone Australia, said it was certainly normalising. “We are seeing some vacancies in the industrial sector for the first time in a number of years,” he said. “It’s quite a difference from a couple of years back when industrial property owners could name their rents.”

However, the sector remained extremely resilient, especially with high population growth and a lack of new supply, said Vanessa Orth, managing director of investment management at Lendlease. “The drivers of demand for all property are population growth and demographics,” she said.

“We’ve had stalled supply, but everything is starting to pick up and move. But we still have strong demand and low supply, which will continue to push up pricing and rents, and we’ll see that income growth over all sectors.”

Office assets have now bounced back after a quiet few years, especially the top tier of office space. David Harrison, the group chief executive and managing director of Charter Hall, said just how well the sector will recover depended on that quality, as well as location and lease terms.

“People want to go into a prime location and have a long lease,” he said. “The cheaper, older buildings could be a value trap, as there’s no doubt that everyone wants to be in a modern office space to create the best working environment to get their employees back into the office. 

“So stakeholders are going to be better served, and there’ll be a great capital flow to tenants of modern offices. We’re continuing to see a real bifurcation, and will continue seeing that for the next five years.”

It might not even be a clear divide between the top-quality offices and the ageing assets, either. At Cushman & Wakefield, executive partner and global head of total workplace consulting Despina Katsikakis said there was actually a “trifurcation” in the market for office space.

“The super-prime spaces are upping the ante in the market,” she said. “Tenants are willing to pay higher service charges and want in-demand facilities such as event spaces and flexible spaces. We’re seeing an increase of 11 per cent in flexible space in the American market over the last quarter.”

Katsikakis said the competition for talent had created huge demand for that top-quality space. She said people primarily came to the office to be with other people, to collaborate more effectively and to build social, personal and professional connections to learn and evolve their careers.     

“We’re going to have this really strong office market at the top end,” said Charter Hall chief executive Carmel Hourigan. “And something’s got to happen at the bottom end.”

Yet, there was no shortage of investment funds, both domestic and international, entering the Australian market for projects. Orth said there was a lot of Japanese capital now flowing into the country, as well as some Korean and Malaysian investors. 

We’ve also benefitted from some of the political shenanigans in the US, Hourigan said.