In a Q2 Industrial and Logistics market update by Colliers International, findings show the impact of the pandemic is expected to be softer in the industrial and logistics sector, with demand for e-commerce products and grocery items increasing daily.
“While not immune to recent economic uncertainty, the Australian industrial and logistics sector has so far proven to be resilient, underpinned by the exponential growth of e-commerce as well as the reallocation of capital away from other sectors,” Malcom Tyson, Managing Director Industrial and Luke Crawford, Associate Director at Colliers International said.
The organisation’s latest paper, released on August 10, provides a Q2 market update on the industrial and logistics market.
“In early April, we released a report highlighting the early implications of changing market conditions within the industrial and logistics market in Australia. Since then, there is now more clarity around the outlook for the sector,” Luke stated in the market update.
The national market indicates that the value of e-commerce has increased exponentially as a result of COVID-19 and this structural and cultural shift is expected to be permanent.
“Moreover, the shift in supply chain strategies from a “just-in-time” inventory system to increased levels of safety stock should bolster the need for industrial inventory and keep development pipelines active,” Luke said.
KEY TRENDS
According to the market update, growth in online retail sales has accelerated with annual growth of 31.9 per cent in the year to June 2020, up from 13.6 per cent in January 2020.
“Retailers have moved quickly to strengthen their online presence and e-commerce platforms and blur the boundaries between these and physical stores. In recent months, we have seen Woolworths and Amazon among others commit to new facilities to drive their online and automation capabilities,” the Collier International executives stated.
Occupiers have quickly adapted to changing market conditions and recent demand stems from businesses focusing on future-proofing their supply chain capabilities and the investment market remains strong with over $2.8 billion trading so far in 2020, approximately 60 per cent of which has come from sale and leaseback transactions.
Off the back of heightened demand for food logistics, institutional interest in the cold storage sector has grown significantly.
The lockdown period and the large-scale work-from-home orders in response to COVID-19 has elevated demand for data centres as cloud storage requirements have grown rapidly. With occupiers seeking to move inventories closer to consumers and the potential to use automation to reduce the physical footprint of logistics spaces, there has also been growing interest in small-scale facilities designed to aid last-mile logistics near major cities.
Market research also indicates emerging co-warehousing and other flexible warehousing options are being explored in Australia to help cater towards large fluctuations in demand and a shortage of viable space in key markets.
Luke and Malcom say the Australian economy will recover, “the question is when and at what pace”.
“The pandemic has emphasised the importance of logistics as a key cog within the economy, and occupiers will have to further embrace changing consumer preferences,” the Collier International executives stated.
“Notwithstanding the short-term impacts, macro drivers for industrial and logistics tenancy demand such as growth in e-commerce and infrastructure investment continue to support leasing activity while there remains a significant weight of capital seeking assets within the sector.”