Grocery Giants’ Demand Drives Logistics Pipeline

Grocery giants are demanding high-tech, urban logistics facilities, driving industrial development completions to a 13-year high in 2020.

More than 2 million sq m of industrial development was completed in 2020. That is expected to grow to 2.2 million sq m this year, according to research by Knight Frank.

However, the requirements of occupiers were evolving, with Coles and Woolworths setting aside traditional industrial assets to commission modern micro fulfilment centres, dark stores and customer fulfilment centres.

Coles reported a 48 per cent growth in online sales to $1.0 billion and Woolworths’ jumped 98 per cent to $1.8 billion in the first half of 2021.

This growth in e-commerce was driving demand for small-scale warehouse facilities to fulfil click-and-collect orders in accessible urban locations.

Knight Frank's The Urban Logistic report also found that in the past five years grocery giants had leased 350,000sq m of space.

A further 165,000sq m in the pipeline for these tenants in the next three years, while Aldi was in the early stages of its e-commerce expansion.

The report predicted areas undergoing gentrification would stimulate interest in redevelopment opportunities to develop facilities close to customers under the current zoning.

Small-scale industrial development opportunities

^{_{^Source: Knight Frank Australia Urban Logistics report}}

Amazon was also a big driver of e-commerce in Australia with its first robotic warehouse in the Southern Hemisphere due to be completed by the end of the year.

Knight Frank associate director, research Katy Dean said that from big sheds to small spaces, occupier requirements were creating a huge opportunity for the industrial sector.

“The growth in e-commerce is intensifying the competition for industrial and logistics space, triggering an increased demand for specialised warehouse solutions, including automation,” Dean said.

“Responding to this demand, developers have been quick to scale up in response to recent growth trends, with a significant amount of new industrial development under way, particularly in Melbourne.”

Despite the growth in e-commerce, the appetite for traditional retail assets was still keen, with Occasio Projects this week buying the $500-million mixed-use Mernda Town Centre north-east of Melbourne from Woolworths in 2020.

Last month IP Generation paid for $300 million for the Lederer shopping centre portfolio of six malls across regional NSW and Sydney.