Over the past decade, the key drivers of the Australian industrial and logistics market have been population growth, infrastructure investment and growth in e-commerce. The outlook for the latter two key drivers is expected to remain strong, however, population growth will create a drag on the sector over the short term. Luke Crawford at Colliers International explores the outlook for population growth and what this means for the industrial and logistics sector in Australia.
Historically, Australia has enjoyed one of the strongest rates of population growth in the world and it has been this growth that has underpinned the country’s economic expansion over the past two decades. However, with the international border likely to be closed until a vaccine for COVID-19 is rolled out, net overseas migration is forecast to contract over the next two years and this will have considerable flow on effects to the Australian industrial and logistics sector.
The importance of overseas migration has become more apparent over the past decade as Australia’s immigration policies have been geared to meet the needs of the Australian labour market and education establishments.
Since 2010, 61 per cent of Australia’s population growth has stemmed from net overseas migration (NOM), with New South Wales and Victoria being the major beneficiaries of this. In the 12 months to June 2020, Australia’s population grew by just over 320,000 persons, of which approximately 185,000 came from NOM. Looking ahead however, our current estimates show that NOM will fall by over 70,000 persons in the year to June 2021 with a further contraction of 21,600 persons in the year to June 2022.
With only modest rises expected in the rate of natural increase (births verse deaths), population growth is expected to fall to just 0.2 per cent in the year to June 2021, down from 1.5 per cent a year earlier. From a number of persons perspective, this will mean just over 60,000 persons will be added to our population in the 2021 financial year. These assumptions are underpinned by the international borders reopening at the end of 2021 which is the base case currently being adopted by the Federal Government. In the event this is delayed, there will be a significant flow on effects to our population growth rates.
The drop in population growth will not be equal across each state. Focusing on the East Coast states, we are forecasting New South Wales and Victoria to grow by just 6,400 and 11,500 persons respectively in the year to June 2021, well below their growth rates recorded over the past five years (113,641 persons in New South Wales and 132,298 persons in Victoria per annum on average since 2015).
Alternatively, while a large fall is still expected, we are forecasting Queensland’s population to grow by 42,500 persons over the same period. The catalyst behind the outperformance of Queensland is their lower reliance on NOM compared to the southern states and the expected increase in net interstate migration in early 2021 as pent up demand begins to flow through.
As a result of this forecast and from an industrial demand perspective, Queensland is well positioned to capitalise on higher levels of population growth when compared to the southern states. One of the major drivers of net interstate migration to Queensland, and Brisbane in particular, is the more affordable house prices compared to Sydney and Melbourne, along with job opportunity and economic growth.
Population growth has a significant bearing on local industrial markets as it leads to higher levels of consumption and hence higher demand for goods. With a large share of the goods purchased coming through a warehouse at some stage, it highlights the importance of population growth to the sector.
In light of weaker levels of population growth over the next two years, demand for industrial space is expected to be impacted as certain occupiers will experience a knock-on effect slowing their growth projections and their expansion plans as a result.
However, the drop in demand from population growth is expected to be offset from occupiers seeking to strengthen their supply chain through automation solutions to drive efficiencies once growth recovers. The obsolescence of secondary industrial stock will drive the need for newer, next generation industrial warehouses. In addition, the significant investment in transport infrastructure projects will underpin the current levels of industrial activity – directly or indirectly – as the materials and equipment required will pass through an industrial facility.
Comparing against industrial supply, there is a lag of up to two years between the change in population growth and completions. As such, the drop in population growth between 2021 and 2022 would have a negative impact on supply up to two years later. However, given the aforementioned factors which will drive demand for new space beyond population growth, additional space will be needed from 2022 when the national supply pipeline moderates. The advantage for the industrial and logistics sector is that once the international borders reopen, a sharp rebound in growth is expected and supply can be brought online relatively quickly if there is the appropriate supply of zoned and serviced land available.