Current rent growth forecasts, land values and construction costs are providing the perfect conditions for the rise of multistorey warehousing in Australia, with the first developments forecast to be feasible in South Sydney by 2020 and inner Melbourne by 2023.
This was a key finding from CBRE’s On the Up and Up: The Rise of Multistorey Warehousing in Australia report, which discusses the different drivers of this asset class for both developers and occupiers.
The report also provides a financial analysis to determine the feasibility of development based on current and future market conditions.
CBRE’s Head of Retail & Logistics Research, Kate Bailey, said occupiers’ willingness to pay more for prime locations is likely to provide a catalyst for development, meaning the rise of multi-level warehousing could be here sooner than currently projected.
“This is an emerging market in the industrial space, with this type of development set to grow in popularity over coming years,” Ms Bailey commented.
“We forecast an additional 350,000sqm of distribution space will be required annually in Australia to service growth in e-commerce, with South Sydney and inner Melbourne to be amongst the highest growing areas in the country.”
Ms Bailey noted that industrial land values in inner Melbourne and South Sydney were among the most expensive in Australia – having increased by 90.9% and 67.3% respectively over the past five years.
“With growth well above rental values, developer margins have eroded – driving developer interest in multistorey warehousing,” Ms Bailey said.
The Pacific Director of CBRE’s Supply Chain Advisory business, Christine Miller said the rise of e-commerce meant that occupiers were having to examine their supply chain and look at the cost of execution.
“Fast delivery is now a crucial requirement for a seamless omnichannel strategy and occupiers are growing increasingly concerned with securing locations in close proximity to their customer base in order to minimise costs and commit to faster delivery timelines,” Mrs Miller commented.
“Tenants are increasingly prioritising location over rent, with occupancy spend at just 5% of total supply chain costs and transport expenses making up 50% of total supply chain costs – almost a third of which is in the last mile. For an occupier to be in a key network location that provides quick and cost-effective access to population centres, this has the potential to deliver a really competitive solution for their supply chain.”
Mrs Miller noted that these warehouses were quite common in port locations across Asia, reinforcing that the locations of these developments must be tied to critical infrastructure.