Asian Property Review talks to Casey Robinson, Research Director of m3property, an Australian property valuation and consulting firm on what drives Australia’s logistics property sector.
What will drive demand for logistics property in Australia in 2019?
Demand for logistics property in Australia will continue to be driven by Australia’s growing e-commerce market and increasing global trade flows. At their core, these are being driven by population growth and consumption, as well as consumer expectations for delivery timing.
Driving demand for logistics property in certain locations will be investment in transport infrastructure projects by both the private and public sector. Major projects, including the AU$10 billion inland freight rail, are already driving demand for logistics property and distribution centres. In the case of the inland freight rail, demand is expected to strengthen for facilities proximate to the main terminals of the rail alignment. The consumer expectation of fast deliveries is also expected to drive increasing demand for last-mile facilities in inner and middle ring capital city locations.
What are the new technologies and strategies employed to enable such properties to make faster last-mile deliveries?
The speed of last mile deliveries is being aided by two key factors – location choice and investment in technology. Facilities that are in prime locations, such as in close proximity to major road networks as well as within densely populated areas, are better able to make faster last-mile deliveries than warehouses in locations that are not as well serviced by transport infrastructure. In terms of technology, automation and the use of robotics can make facilities operate more efficiently, thus speeding up the delivery process.
How do you balance the need to build highly specialised warehouses/logistics properties with the need to make it appealing or more tenantable for future tenants?
Property owners and valuers (such as m3property) will increasingly face the issue of whether new, highly specialised buildings are going to be too tenant-specific and therefore reduce future tenant appeal, speeding up the building’s obsolescence. Whilst some of the technology incorporated in buildings may be transferable from one tenant to the next, some may not, resulting in it having to be removed or altered before another tenant is able to lease the building and this carries with it a risk of increased capital expenditure.
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Because of this, we are seeing occupiers of highly specialised warehouses / logistics properties signing longer lease terms. There have been examples of lease terms of up to 30 years by some logistics operators in Australia recently – which is significantly longer than the average industrial lease term, but which contributes to the viability of the development of these assets. The primary reason for this is to enable the development of these assets. With developers generally building assets to sell them, longer lease terms are more attractive to investors as they offset the risk associated with re-leasing the premises at lease expiry.
Are there other solutions other than building upwards (in the form of multilevel warehouses) in order to solve the issue of rising land values and rentals amid a limited supply situation?
Whilst rising land values will continue to put upward pressure on rental rates in some capital city locations, the cost of rent for e-commerce operations is a far smaller cost component in the setup of a logistics facility, relative to the highly specialised automation systems which are included within the building.
Because of the positive effect that site location can have on the efficiency of supply chains, logistics operators are typically willing to invest in positioning themselves in prime locations, even in the face of rising rentals for these locations.
Whilst this doesn’t solve the issue of rising rental rates, it provides context as to why we expect operators will continue to choose these inner locations despite rising rental rates. Another consideration for the long-term is how possible changes to delivery methods, to include drone and delivery bots, could allow for quicker delivery to consumers. However, any move in this direction will require careful consideration by relevant parties such as governments and insurance companies and is likely to be a longer-term strategy.
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