Features

Industrial & logistics market outlook

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The team at Colliers discuss the big uptake in industrial land, and project that demand will remain strong in the year ahead.

The run on Australian industrial and logistics real estate continues, with significant momentum being recorded in both the occupier and investment markets. 

Colliers’ latest Industrial Research and Forecast Report has found that the strong outcome has been aided by the exponential rise of e-commerce, the improving economic outlook and a focus on efficiencies and automation as occupiers accelerate their supply chain innovation agendas.

“2020 was a year where the industrial and logistics sector outperformed all other commercial asset classes and this is expected to persist in 2021 given the strong macro drivers supporting demand,” says Luke Crawford, Head of Industrial and Logistics Research at Colliers.

Over the past 12 months, the industrial and logistics sector has featured a more transformational change than in perhaps the past decade. The disruption of global supply chains throughout 2020 meant significant investments in technology and automation have occurred as occupiers accelerate their supply chain innovation agendas. Similarly, new market entrants into the investment market, both local and offshore, continue to add to the significant weight of capital chasing assets in the market, which Colliers estimate to be around $40 billion.

“E-commerce has been the big benefactor over the past 12 months,” Luke says. “While the rate of growth is expected to ease throughout 2021 from the heights recorded in 2020, it will remain elevated by historical standards and will drive major pre-commitments in most markets. With online retail sales requiring three times the amount of warehouse space when compared to traditional brick-and-mortar sales, further growth will buoy demand levels as retailers invest in their online store platforms. The warehouse will be front and centre of this investment.”

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Luke Crawford, Head of Industrial and Logistics Research at Colliers.

Occupier Market

In Q1 2021, just over 1 million sqm of gross take-up was recorded nationally (for leases above 5,000 sqm), dominated by the Sydney and Melbourne markets. This follows a record year of demand in 2020 where just over 3.2 million sqm was leased. Take-up over the quarter was led by the transport and logistics and retail sectors at 28 per cent and 25 per cent respectively.

“As a result of above average levels of take-up, the national vacancy rate fell sharply to 4 per cent in Q1 2021, down from 5.2 per cent in Q4 2020. In select submarkets such as Sydney’s Outer West and Melbourne’s South East markets, the rate is closer to 1 per cent,” says Luke.

“Looking ahead, take-up for 2021 is expected to exceed the 3.2 million sqm recorded in 2020 and will mean another record year. The strong result will be supported by a pick-up in the Brisbane, Adelaide and Perth markets after a subdued 2020.” 

Active enquiry levels in most capital cities is significant, however, finding a suitable warehouse for these occupiers is limited in some submarkets due to the lack of leasing options. 

“In Melbourne’s West, which has been the most active industrial and logistics market in Australia over the past two years, there is currently almost 400,000 sqm in active briefs in the market above 10,000 sqm,” says Hugh Gilbert, National Director, Industrial at Colliers. “A further 275,000 sqm is being prepared by occupiers to go to market with a request for proposal, with the transport and logistics and retail sectors accounting for the bulk of these enquiries.”

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Hugh Gilbert, National Director, Industrial at Colliers.

David Hall, National Director, Industrial at Colliers noted: “In Western Sydney, there is currently 887,000 sqm of active requirements in the market and of this total, 41 per cent stems from the transport and logistics, manufacturing and wholesale trade sectors.”

He continued: “Active enquiries in April 2020 measured just 384,000 sqm – less than half where it is today and highlights the strength of leasing demand, as occupiers progress ahead with their long-term plans.

“With more land coming online in the Mamre Road precinct, Sydney is able to accommodate occupiers seeking new facilities, particularly at the larger end of the market which hasn’t always been the case.”

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Investment Market

2021 is shaping up as a record year of industrial and logistics investment activity, headlined by the recent announcement that ESR and GIC have acquired the Blackstone Portfolio (Milestone Logistics Portfolio) for $3.8 billion. In addition, there are a number of other large assets in the market or in due diligence and include LOGOS’s acquisition of the Moorebank Logistics Park for approximately $1.65 billion and the Best & Less distribution centre in Eastern Creek (~$130 million). Collectively, these three deals alone will mean investment volumes for 2021 will have surpassed the levels recorded in 2020. 

“As a result of the strong pricing recorded for recently completed or soon to be completed deals, a significant re-pricing of industrial and logistics yields will occur,” says Gavin Bishop, Head of Industrial Capital Markets at Colliers. “Prime core assets in Sydney and Melbourne are currently trading below 4 per cent in some instances. Yields at this level are unprecedented in the sector and it highlights the significant growth in values and re-pricing that has occurred over the past three years.” 

Notwithstanding the level of demand, it remains challenging to enter the sector with limited stock being marketed, as investors are preferring to hold onto their assets with the view of further upside through both yield compression and rental growth. 

“Given this, we expect a large share of assets to be brought to market in 2021 will stem from corporate groups and privates as they look to capitalise on the strength of the market,” says Gavin. 

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Gavin Bishop, Head of Industrial Capital Markets at Colliers.

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