As the global demand for warehousing increases, we in the ANZ region are equally impacted and strategically looking to solutions for the long term. With a shortage of available industrial land, we (along with the UK and USA) are following the lead of countries in Asia and developing multi-level warehousing facilities. In this article we examine the reasons for the demand, as well as the potential benefits to industrial tenants.

Rapid growth of e-commerce

Globally there are a number of drivers contributing to the need for more warehousing facilities in urban areas, the single largest being the rapid growth of online shopping. Even before the pandemic we were seeing growth in the sector, as we in Australia adopted US based shopping events like Black Friday and Cyber Monday, and with stores shipping globally. Even our own Boxing Day Sales, traditionally in-store events, have migrated online. 

It is estimated that the USA alone will need an additional 1 billion square feet of industrial space in the next three years in order to meet the demand created by increased online sales. 

In Australia in 2020, 82% of households shopped online*. Of course this was largely facilitated by the pandemic, but online volumes have remained high and not returned to their pre-pandemic levels as consumers changed their lifestyles and shopping habits. A 28% jump in consumers who say they will continue to shop online is evidence of this. 

Growing last-mile requirements

Local online retailers such as Amazon, Cue, Office Works  and The Iconic have become more competitive by offering speedy delivery to impatient consumers. The rise of specialist grocery suppliers such as Quicko, SendApp and Voly cater to the consumer need for goods at speed. 

“The demand for warehousing that can accommodate last-mile delivery has added to an already tight industrial market,” says Michael Raymond, Director of Industrial at LPC. “We’re having to get creative in securing warehousing for clients in the short-term”.

Shortage of industrial space

The Australian paradox is that we live on a large continent with a relatively small population yet we have residential, commercial and industrial property shortages - a result of over 86% of our population living in urban areas.  

As urban populations continue to grow, additional pressure on supply chain and logistics results in an even greater demand for industrial space and an increase in rentals. 

A further contributing factor is that the supply of industrial space is decreasing in urban areas where population pressure is leading to rezoning of previous industrial land. Areas such as Port Melbourne, Bowden/Brompton and South and Inner Western Sydney are being rezoned to Residential or Mixed-use in order to build homes 
 
So where does the long-term solution to the warehousing shortage lie?

“When space is at a minimum, the obvious solution is to go up,“ continues Michael.  Multi-level warehouses have been used in countries like Singapore, Japan and South Korea for decades, and we’re now seeing facilities being built in the US and Europe.  “These mega-warehouses make better use of the available footprint, facilitated by advances in technology and robotics”.

Multi-level can be anything from 3 levels to facilities like the Goodman Dynamic Centre in Hong Kong which is 30 levels. Asia tends towards to higher facilities as a result of limited building space coupled with smaller delivery trucks which allow easier access, whereas in Australia, the US and Europe we tend to larger trucks which have different access needs. In these facilities truck access needs to be via external ramps, which has an impact on roads and property size requirements. 

There are currently plans for at least three large facilities in South Sydney - a double level in Alexandria, a 3-level in St Peters and a mixed-use warehouse and office facility in Alexandria in the old Bunnings building, A facility in Port Melbourne will follow in the next five years. 

Multi-level and multi-unit warehouses have potential tangible advantages for tenants. 

First is the ability to get space in high demand areas, allowing proximity to urban areas for delivery and last-mile fulfilment. At present businesses seeking premises are forced to look further afield, increasing transport costs and impacting delivery times. 

Also, international data has shown that upper levels of these warehouses tend to be leased at a discount. “Typically units on upper floors benefit from a 15-25% discount,” says Dylan O'Donnell, MD of LPC VIctoria. “In addition, savings in council rates and land tax due to higher building to land ratios could be passed on to tenants”.

We foresee more of these facilities being built across Australia, as market factors and population growth put pressure on the current supply chain. With lack of available land for development, it is likely that we will see a regeneration of older, outdated and redundant industrial stock.

*Inside Australian Online Shopping Report - Auspost 2021

Why LPC?

At LPC, we partner with tenants and occupiers across Australia and New Zealand to optimise their office, industrial and retail property portfolios providing an integrated suite of services including transaction management, portfolio and lease management and project management.  We provide conflict-free advice and representation, meaning we have no ties with owner-developers or landlords. Tenants and occupiers interests remain at the core of what we do as we negotiate on your behalf and endeavour to rebalance the scales in a market which favours landlords.

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