Looking ahead

Since the outbreak of COVID-19, there is now more clarity around the outlook for the Australian industrial and logistics sector. Luke Crawford, Associate Director | Research at Colliers International provides an update on what this means for the industrial property market.

While there was a significant level of uncertainty in the market in April and May as the economy entered lockdown at a national level, the sector has since proven how resilient it has been with leasing enquiries growing strongly over the past month and investment volumes being at a similar level to the same time last year.

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. From an industry perspective, it’s a tale of two sides with some industries outperforming and experiencing significant revenue growth, while others have been severely impacted as a result of patchy levels of demand and supply chain impacts. The sectors that have benefited the most in the new environment have been those aligned with online retail as the current stimulus packages and stay at home orders have prompted a surge in demand.

Several trends have emerged or have become more apparent over the past quarter and they include:

  • Online retail continues to gather momentum, increasing by 31.9 per cent in the year to June 2020, up from 13.6 per cent in January. Online retail accounted for 9.7 per cent of total retail sales in June compared to 6.1 per cent a year ago.
  • Industrial supply levels in some capital cities have been impacted as several speculative developments have been paused in the current environment.
  • Off the back of heightened demand for food logistics, institutional interest in the cold storage sector has grown significantly. There have been a number of significant cold storage transactions recorded since COVID-19 which highlights this.
  • The lockdown period and the large-scale work-from-home orders has elevated demand for data centres as cloud storage requirements have grown rapidly.
  • Despite leasing demand softening at the depths of COVID-19, industrial vacancy rates across the country remain low and will keep pressure on face rents.


At a macro level, the Australian economy has deteriorated rapidly as the lockdown measures implemented effectively pressed the pause button on the economy. A significant contraction in GDP is expected in the June quarter and coupled with the contraction in March 2020, Australia will enter its first technical recession in almost 30 years.

In the short term there remains some challenges as restrictions in some states increase and there will be subsequent spill over impacts to the Australian industrial market as goods can’t move around as freely as they could given border restrictions and employee capacity constrains in distribution centres. Encouragingly, some green shoots have begun to emerge and is underpinned by a stabilisation of job losses in recent weeks.

Occupier market

Occupier demand has picked up considerably since the beginning of June as businesses focus on future-proofing their supply chain capabilities. As the impacts of COVID-19 are now better understood on business operations, occupiers are now progressing ahead with their business and capital expenditure plans. Several significant lease deals have been recorded in recent months which highlight this and includes pre-commitments to Amazon (approximately 200,000 sqm at Oakdale West Estate at Kemps Creek), Woolworths (75,300 sqm within the Moorebank Logistics Park), Coles (60,000 sqm across two facilities in Sydney and Melbourne) and Ford (51,595 sqm at the Merrifield Business Park).

From a rental perspective, the market has, so far, not seen a reduction in headlines rents. Incentives are generally firm as supply remains limited or pre-committed across most markets, although there have been modest rises of 1-3 per cent in some submarkets over the past quarter. Looking ahead, headline rents are expected to remain steady as owners instead opt to drive incentives to secure tenants and preserve value.

Investment market

Activity within the industrial sector has been strong with over $3.4 billion trading so far in 2020 and is largely on par with the levels recorded at the same point in 2019. The flight to quality thematic is playing out and unlike recent years, most assets to recently trade are prime core assets. Local institutions remain the most active in the market and there is a significant depth of capital chasing core assets with covenant security.

The key theme in the investment market in 2020 has been the pick-up in sale and leaseback transactions as corporates take advantage of the continued strength of the industrial and logistics market. Sale and leaseback transactions have totalled $2.1 billion this year and compares to $1.4 billion in 2019. Activity has stemmed from a diverse corporate profile with 32 per cent coming from retail trade, 24 per cent from technology and 23 per cent from manufacturing-based businesses.

Looking ahead, industrial and logistics volumes are expected to remain strong in the second half of the year with several large assets currently in the market for sale. It is expected that additional sale and leaseback assets will trade in the second half of 2020 as businesses with pressure on their balance sheet bring their real estate to market. After initially forecasting prime core yields to remain at their pre-COVID-19 levels, recent acquisitions in the sector instead support a modest level of firming over the past quarter in selected submarkets.

©2019 All Rights Reserved. MHD Magazine is a registered trademark of Prime Creative Media.