Australia's logistics landscape is undergoing a transformation, particularly in the crucial last mile. As the final frontier in the delivery process, the last mile is witnessing significant shifts shaped by emerging trends and technological advancements. Industrial tenants face challenges and opportunities in this dynamic environment, making strategic insights imperative for success.
The changing landscape of last-mile logistics
Australia's vast and diverse geography, combined with the rise of e-commerce, has triggered a surge in demand for industrial spaces strategically located near urban centres. Industrial tenants find themselves playing a pivotal role in meeting this escalating demand. Warehouses positioned close to urban areas facilitate quicker and more efficient last-mile deliveries, aligning seamlessly with the ever-growing expectations of consumers.
This demand has been particularly notable in major Australian cities such as Sydney, Melbourne, and Brisbane, where a thriving urban population relies heavily on rapid and reliable last-mile deliveries. The strategic positioning of warehouses near these urban centres has become a critical factor in meeting consumer expectations and ensuring timely deliveries in the final stretch of the supply chain.
The challenge for industrial occupiers is that industrial land close to urban hubs (e.g. South Sydney, Port Melbourne) is becoming increasingly scarce due to various factors, including traditional industrial land being converted to residential uses. As a result, well-located industrial land is expensive and industrial developers are “going up” to maximise returns. This leads to increased construction costs, which all lead to increased rentals.
Facility design and adaptation
As the last mile gains prominence, industrial tenants in Australia must consider tailoring their warehouses to optimise last-mile operations. This includes embracing automation and innovative technologies to enhance the overall efficiency of logistics processes. Forward-thinking industrial tenants nationwide are already adopting these changes to stay competitive in the evolving landscape.
Michael Raymond, LPC Director and Head of Industrial for ANZ, notes: “Some Australian warehouses have implemented advanced robotics and automated sorting systems to streamline the picking and packing process. These technological advancements improve efficiency and contribute to faster last-mile deliveries. Tenants are becoming increasingly aware of the need to incorporate such technology when considering property options”.
Additionally, the design of warehouses is evolving to accommodate the increased demand for last-mile fulfilment, with features such as multiple loading bays and efficient floor layouts becoming essential elements.
Lease negotiations and flexibility
Flexibility in lease agreements is now critical for Australian industrial tenants navigating the ever-changing world of last-mile logistics. Lease terms that allow for swift adaptation to changing requirements become invaluable. In negotiating leases, industrial tenants must proactively ensure that the agreements align with the evolving needs of their logistics operations, considering the unique challenges and opportunities in the Australian market, and planning for future contingencies.
“We are increasingly negotiating shorter lease terms or longer leases with built-in flexibility to accommodate the unpredictable nature of last-mile logistics,” says Michael.. This adaptability ensures that tenants can quickly adjust their space requirements based on fluctuations in demand or changes in the e-commerce landscape.
The last mile in Australia is not only about speed and efficiency - it is increasingly becoming a realm where sustainability takes centre stage. “Industrial tenants across the country are recognising the importance of incorporating eco-friendly solutions into their logistics operations,” says Michael. This includes adopting electric delivery vehicles, solar-powered warehouses, efficient usage of grey water and other initiatives.
Companies are making substantial investments in sustainable logistics practices. For instance, some (such as Woolworths) are converting their delivery fleets to electric vehicles, reducing their carbon footprint and benefiting from cost savings in the long run. Others are incorporating renewable energy sources, such as solar panels, to power their warehouses, further contributing to the overall sustainability of last-mile logistics operations.
New multi-story facilities will change the face of industrial property in last-mile locations. For example, Axis in Alexandria, Sydney, is not only a multi-story facility but also has a strong focus on environmental initiatives, e.g. EV (electric vehicle)charging stations, targeting a 5 -Green Star rating, native landscaping and the use of solar energy.
Last-mile logistics thinking can also apply to areas that are not urban. For example, a regional industrial tenant serving a large geographical area can create efficiencies by strategically placing its warehouse at a key junction, streamlining logistics for remote communities.
Looking ahead, Australia's future of last-mile logistics presents exciting possibilities and potential disruptions. Predictions indicate continued growth in e-commerce, with a unique focus on catering to the Australian market's expansive geography and unique challenges. “We’re going to see an increasing trend towards multi-storey in urban areas,” says Michael. “With a recent study showing a CAGR of over 10% in the next few years, we must think outside the box from a property perspective to future-proof tenants’ businesses”.
At LPC, we remain committed to staying at the forefront of these industry changes, ensuring our Australian and New Zealand clients are well-positioned to navigate the evolving landscape of last-mile logistics. As a leading independent tenant advisory consultancy, our commitment to excellence goes beyond the advisory boardroom. We continuously invest in research, industry partnerships, and professional development to keep our team abreast of the latest trends, technologies, and regulatory developments within the Australian industrial real estate sector.