[+] Speculative Sheds Pay Off as E-Commerce Surges

There is no denying the skyrocketing demand for industrial and logistics assets across the country. Australians spent $56 billion on e-commerce in the past 12 months, a penetration rate of 14.6 per cent in a trend that has continued to escalate since the pandemic. And as vacancy rates hit an all-time low of 0.8 per cent nationally, demand is outstripping supply as developers scramble to get sheds out of the ground . Big businesses have taken the bull by the horns to build their own logistics assets with Woolworths recently opening a $184-million 42,000sq m temperature-controlled distribution centre in Brisbane, and Amazon developing a $500-million robotics fulfilment centre in Western Sydney. More stock is coming on the market than ever before, 50 per cent more than the 10-year annual average, and it continues to be absorbed at record rates, according to CBRE data. But as price tags soar and yields compress to well below 5 per cent, developers are continuing to put the shoulder to the wheel on speculative builds to capture the upside of unprecedented demand and growing rents. The average prime rent is $181 per sq m in Sydney, up 22 per cent in 12 months, with yields down around 3.68 per cent. And it is the promise of ongoing rent price growth that enables speculative builds to stack up, according to Altis Property Partners project director Joseph Ajaka, who is steering the delivery of the Bankstown Airport industrial estate, Altitude. ▲ Construction is almost complete on the Altitude Estate at Bankstown Airport, a 44ha development delivered by Altis Property Partners for Aware Super. Altis is nearing the completion of the development of a 44ha site on behalf of Bankstown Airport, which is owned by Aware Super. Altis and Aware have also recently partnered to deliver key worker residential build-to-rent developments across the country. Altis Property Partners project director Joseph Ajaka says Altitude at Bankstown Airport has cemented itself in the Sydney market as a prime logistics hub benefiting from its location along the M5 motorway within the inner ring of Sydney’s growing south-west. On completion, the logistics hub will have more than 162,000sq m of gross lettable area with almost 70 per cent of the site built speculatively. Ajaka said 53,000sq m of the precinct had been pre-leased and the rest had been built speculatively with a strong foundation of demand in the sector shoring up the investment thesis. “We look at supply and demand in Sydney at the moment and the impact it is having on rents and incentives in the market,” Ajaka says. “In the past 12 months we’ve seen rents grow by more than 30 per cent, and incentives have tightened considerably.” ▲ The Port of Brisbane: the skyrocketing demands of e-commerce is driving investment in logistics and storage. A lot of this growth in rents has been offset by the headwinds being experienced in the construction market, including cost escalations of about 30 per cent, supply-chain delays and inclement weather pushing programs out. "It’s a supply-and-demand story, particularly in the inner ring (of Sydney),” he says. “There is a real lack of supply for large institutional grade assets in the inner ring.” Underpinning the Altitude estate is the drive to bring big business headquarters to the Bankstown estate with upmarket office fittings and a focus on sustainable environmentally efficient design with a target for 6-Star Green Star ratings across the estate. Big brands including Hellmann, Beijer Ref and Allied Express have amalgamated sites to move into Altitude. “Building 4a is currently under construction, it has been pre-leased to Allied Express, and it will be completed at the end of August 2022,” Ajaka says. “Building 3, a 43,000sqm speculative building, is also under construction to be completed in November 2022. A national retailer has committed to 18,500sqm of space within the building.” Buildings 4c and 4b at Altitude are also under way on a speculative basis and are set to be delivered in Q1 2023. Altis is also developing nearby at 343 Milperra Road, another speculative build totalling 11,500sq m that will be available for lease in April next year. Across the four speculative buildings, Altis are fielding upwards of 170,000sq m of warehouse enquiry. Super prime key metrics ^Source: CBRE Research About 50 per cent of industrial developments in the second quarter of 2022 were speculative, according to CBRE head of industrial and logistics research Sass J-Baleh. But weather, supply-chain issues and materials costs have hampered construction this year with CBRE revising down supply pipeline to 2.3 million sq m from 2.7 million square metres. “There is a chronic shortage of supply in the Australian market, and some new development projects’ completion dates have now been delayed to 2023 due to weather and supply-chain disruption (material shortages),” J-Baleh says. “The national vacancy rate has further fallen since the second half of 2021 and now stands at a new record low of 0.8 per cent, with the downward movement recorded for all major markets across Australia.” But land prices and supply are also constraining the booming sector. The average price for a 1.6ha lot has grown 12 per cent quarter on quarter, and 30 per cent over 12 months. GPT is due to deliver a speculative build of 30,000sq m at Truganina in the third quarter of 2022. The developer has stayed the course on speculative builds as its central development thesis. While transaction activity has slowed down, according to J-Baleh, there is still a growing appetite to deploy capital to the resilient Australian industrial assets market. Industrial and Logistics transactions dropped from $10.6 billion in the first half of 2021 to $3.5 billion in the first half of 2022. This was largely due to the milestone $3.8-billion ESR acquisition of the Blackstone logistics property portfolio last year. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Speculative Sheds Pay Off as E-Commerce Surges

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