Features

Logistics infrastructure: The new asset class

MHD sits down with Andrew Maher, Director of Property at TMX to discuss the major changes in the industrial property sector. Andrew discusses the economics of last-mile delivery, the rise of the multi-level warehouse and the importance of a changing mindset in planning and regulation. 

For Andrew Maher, Director of Property at TMX (formerly TM Insight and XAct Solutions), the world of industrial property has been completely transformed by the record levels of e-commerce penetration seen since COVID-19 dramatically changed people’s shopping habits.  

“I think this sector has changed so much that I’ve made a conscious effort to move away from using the term industrial property and now refer to it as logistics infrastructure,” Andrew tells MHD.

With COVID-19 causing a complete overhaul of the global supply chain, Andrew says that many global supply chains failed as a result of the early onset of the pandemic. 

At the macro level, organisations had to be more tactical. “Short term leases, extra space and extra footprint. We saw many organisations have to be nimble to get ahead of record demand,” Andrew says. 

The huge change in consumer behaviour, which saw multi-generational shoppers forced to make purchases online for the first time, has had a significant impact on the requirements and location of industrial property. 

“Historically industrial property networks were anchored by large distribution centres (DCs) and were always being used to service a known store network. When that store network changed, every ten years or so, organisations would reassess the location of their distribution centre and move accordingly,” Andrew says. 

As e-commerce has continued to grow over the past few years, and in particular throughout 2020 as COVID-19 forced many reluctant shoppers online, the function of the warehouse has fundamentally changed, and this traditional model is no longer fit for purpose. 

“The traditional B2B model of a distribution network has been turned upside down with online fulfilment. A B2C warehouse needs to receive an order, pick a product and dispatch it to someone’s home, which is an unknown location,” Andrew explains. 

This creates a huge amount of complexity and uncertainty and has caused retailers to ask questions around how much inventory they should hold, when they will sell it and where its end location will be. 

“Orders aren’t going to shopping centres anymore, but to people’s front doors and this has created a huge amount of complications for retailers,” Andrew says. 

Furthermore, this is coupled with rising consumer expectations. “People want to click, put their credit card details in, and receive their purchase the next day,” Andrew says. 

CLOSER TO THE CENTRE OF GRAVITY

In order to solve this growing complexity, the role of the distribution centre must change. “The only way to achieve the level of service expected, is to carry inventory at central locations near the end-consumer,” Andrew says. 

However, inner-city suburbs are not where industrial precincts are currently based. “We’re in this strange situation where suburbs that were once industrial, have been gentrified to residential, and now there is a need to provide logistics services in these areas.”

With this shift, comes a need for zoning regulations to be reconsidered and councils to consider the need for warehouse and fulfilment operations closer to the populations they now serve. 

“Organisations will need to lease smaller warehouses in inner-city locations where they can pick, pack and dispatch quickly,” Andrew says. 

This is where the grocery retailers have the edge on prompt online delivery. These retailers can achieve fast delivery times because they have stores close to major populations. If they sell more online, they can change their store footprint to accommodate the dispatch.

Andrew thinks there is an opportunity for the creation of e-commerce hubs in capital cities that primarily service the end-consumer, something which is more common in parts of Asia.

Andrew references some recent developments in this space in Australia, with Workit – combined logistics, showroom and office space organisation – recently leasing a 9,000 sqm hub in Alexandria, Sydney. The hub consists of offices, showrooms and warehousing spaces as well as shared loading docks and shipping stations. 

“There are very few organisations who can afford to do their own e-commerce and invest in their own distribution centres, so we will see more of these kinds of hubs that are essentially shared office spaces but for e-commerce here in Australia,” Andrew says. 

THE MULTI-STOREY OPPORTUNITY

According to Andrew, the B2C fulfilment sector is still very much in its infancy in Australia. “Organisations are very comfortable with their B2B network, but we still don’t have the infrastructure to support B2C fulfilment in Australia.”

In many countries in Asia, the logistics infrastructure is much more advanced and capable of meeting increasing consumer expectations around prompt delivery. One strategy used extensively in Asia is the multi-storey warehouse, and Andrew says this concept is coming to Australia. 

“Restrictions around height and floor space ratio need to change in order for us to be able to meet the increased demand. E-commerce isn’t slowing down in Australia, so we need to consider going vertical and increasing floor space ratios,” Andrew says. 

In Hong Kong, Shanghai and Tokyo, the multi-storey warehouse is commonplace. “We are working with a client in Hong Kong on a 18-storey manufacturing facility. The tallest warehouse in Hong Kong is 27 storeys high,” Andrew says. 

Andrew recognises the complexity of comparing densely populated cities such as Hong Kong, Shanghai and Tokyo to Melbourne and Sydney’s mere 5 million people, but he points out that the service expectations remain the same. 

“We still have the service requirements and service aspirations for fast and convenient delivery options here in Australia, but the economics of the last-mile still have a long way to go before it will work here,” he says. 

Andrew also sees an opportunity for flexible automation to play a critical role in retailers using the space to meet the rising demands of their consumers. 

“I think there will be a huge update of Autonomous Mobile Robots (AMRs) in Australia, and this is the kind of automation we will see the greatest benefit from,” he says. 

“I really think we’re on the cusp of something significant, but it will take a number of stakeholders to get it right. E-commerce is here to stay and it’s not slowing down. Predominately it’s a change of mindset in planning but it’s about how industrial landlords and service providers respond to this changing landscape as well.”

See www.tmx.global 

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

JOIN OUR NEWSLETTER

JOIN OUR NEWSLETTER
Close