Why industrial property is a strengthening sector in Australia

Industrial 1
How Industrial property has performed in the last decade
October 10, 2019

Why industrial property is a strengthening sector in Australia

Industrial 2

Australia’s strengthening industrial property sector has been a magnet for investment in recent years. With solid fundamentals driving the industrial market, it’s easy to see why investors are competing for the little prime stock available. 

Thanks to Australia’s infrastructure spend, retail environment, technological initiatives, logistics demand and population growth, industrial property values continue to bolster across the nation. As more eyes turn to investment in the popular asset class, I’ll show you why industrial property is a strengthening sector in Australia.

Increased need for logistics in widespread Australia

While online shopping has been a bitter pill for some bricks and mortar retailers to swallow, it’s been an elixir for many operators in the industrial sector.

The expanding eCommerce sector has increased Australia’s demand for logistics and distribution centres to distribute products. The pace of change is not slowing, either. Around three quarters of Australians are now shopping online according to Australia Post, and it’s expected online sales will account for 12 per cent of all consumer spending by 2021.

Australia’s sheer size has meant more logistics, transport and retail centres have popped up to cater to the country’s sparsely spread population. Over the 2018 calendar year, the transport/logistics and retail sectors accounted for 60 per cent of the total take-up of industrial floor space in Australia.

Cold storage fuels refrigerated logistics

Population growth continues to drive a healthy need for food, supermarket, cafe and restaurant retailing in Australia.

More mouths to feed has increased demand for cold storage and pushed the refrigerated logistics and distribution industry to the forefront of the industrial sector.

And the demand for refrigerated logistics isn’t limited to local stores. As the urbanisation of trading partners drives exports overseas, there’s a greater need for cold storage to satisfy international customers.

New investment in automation technology

The technological age has created a new generation of automation in industrial premises, heaping investment interest onto the industrial property sector.

Dark grocery stores move millions of grocery items each week, without a single human hand touching a product. The size of about two-and-a-half Melbourne Cricket Grounds, Woolworths’ $560 million automated warehouse in Melbourne’s outer-east does exactly that.

But Australia’s logistics and distribution centres are seeing the most cost and time savings from automation. Logistics Toll invested $160 million in one of the most technologically advanced distribution centres in the world last year. The Western Sydney premises can pack and deliver up to 375,000 products every day.

Automation has turned many premises into prime grade assets and helped position industrial property as a mainstream investment in Australia.

Investment grows in the data centre sector

Investors on the hunt for better asset diversification and risk-adjusted returns are turning to alternative investments. One sector high on that list is data centres.

Today, underpinning growth and success in a huge range of sectors is data. It’s now a commodity for many businesses and this data needs to be stored somewhere.

The demand for data as a business resource means data centres can be immune to the typical commercial property cycle. This stability is attracting more to invest in data centres around the country.

And as it’s complicated to move a data centre from one location to another, occupants generally commit to long leases. Although available investment opportunities are currently slim, the certainty of a lengthy income stream has driven investment interest toward the up and coming industrial segment.

Short supply pushes up industrial land values

Short supply is a key contributor to a strengthening industrial sector in Australia.

Landlords in Melbourne are holding tight to industrial assets while the sector sees growing demand, and the lack of new stock its key precincts has resulted in a supply shortage and rising land values. Meanwhile, a shortage of assets in Sydney assisted in Sydney industrial land values rising 36.2 per cent in the year to June 2019.

A major reason for the shortage is many industrial landlords are reluctant to sell. And why wouldn’t they be, with high divestment costs a burden and reinvestment a challenge. The market seems out of balance with a lot of capital available but very little to buy.

Infrastructure spend strengthens

Currently, each state has its own infrastructure good news story to tell:

  • From exporting zero energy in 2009 to helping crown Australia as a top three LNG exporter in 2019, QLD’s $15-billion LNG industry continues to aid industrial property growth.
  • SA has signed off on major defence contracts, including an agreement for the construction of the Australian Navy’s $50-billion project to deliver a fleet of new submarines. The state has also seen strong activity in its food and technology sectors.
  • Both VIC and NSW have reaped the rewards of the federal government’s asset recycling program. The Fed turned their pockets out for approx. $3 billion in infrastructure spending as a reward for selling public assets in mid-2016.
  • And WA appears to be on the road to recovery as mining investment finally returns (after the last resources boom led to a bust in 2012).

Record infrastructure spending will continue to be the new normal for Australia in the next decade and this will only help the industrial sector. Over the next ten years, the Australian Government is investing $100 billion in transport infrastructure across through its rolling infrastructure plan.

As population growth, business activity and technological advances continue to fuel the industrial property sector, prime industrial investment opportunities will continue to slim. So, investors will need eyes in the right places at the right time to partake in worthwhile investments.

For more information on exclusive commercial property investment opportunities, get in touch with Heath Bedford at Performance Property Advisory on (03) 8539 0300 or heath@performanceproperty.com.au.