E-commerce here to stay
Perhaps the most intriguing (and long-term) growth catalyst for the industrial sector is e-commerce, still in its very early days here in Australia. The online sales penetration rate of 7.5% in Australia is significantly lower than comparable developed markets.
The flipside is that growth rates are exceptionally high.
Australian online sales increased by 17.2% in the year to May 2018, and the sector is forecast to double in size by 2025, with the obvious implication that the amount of industrial space e-commerce companies require will rise by a similar amount.
Typically, online businesses need around 2.25 times more distribution space than traditional retailers because activities like packing, sorting and dispatching must be done in the warehouse rather than split between warehouse and store.
A striking example how e-commerce can impact on industrial real estate is the astonishing growth of Winit Trade Au which provides package services, shipping, warehouse management and ‘last mile’ delivery for China eBay sales channels in Australia.
Winit has expanded from 2700 square metres to 19,000 square metres at Regents Park, Sydney, in just two years with plans to add another 16,000 square metres by 2019. The business is also leasing 22,000 square metres in Truganina, Victoria.
“Simultaneously, traditional retailers are reviewing their space requirements as they transition towards an omni-channel business model combining physical stores with e-commerce,” says Studley.
“Warehouse design will also evolve to cater for automation and higher volume capacity, while some inner-city areas, closer to dense populations, will benefit from greater industrial demand.”
CBRE commented in a recent research note that “this demand trend is expected to continue as industrial land take-up grows steadily and availability of industrial and logistics land for development becomes increasingly difficult to source.”
Studley adds he expects strong market conditions to continue for the foreseeable future. “This is no flash in the pan – the growth we are seeing is sustainable because it is based on a diversified range of market drivers.”