[+] Snookered: Logistics Sector Makes Plea for More Land

Industrial property giant ESR is calling on state governments to release more land for future industrial use as Australia continues to record the lowest national vacancy rate in the World. ESR’s general manager in Victoria Simon Sayers described land acquisition for industrial use as the biggest challenge to the development side of the sector. “It’s an area of intense discussions,” Sayers told The Urban Developer . “It's a huge issue for us as we deal with policymakers, authorities and government. We're in constant discussions with all of them.” Sayers’ comments came as ESR prepared development applications for a further five buildings on its $700-million Greenlink Estate in Melbourne’s south-east. Two buildings are already in development on the 79ha estate, scheduled to be completed in the second and third quarters of next year. In March, ESR formally announced it had inked a 10-year, pre-lease deal with third-party logistics provider CEVA for 37,000sq m in one of those buildings. ▲ A render of one of the warehouses slated for ESR’s Greenlink Estate site. “Part of a strategy for the estate is to try to really advance our development approvals across multiple buildings,” Sayers said. “So we actually have four or five different buildings at various stages of the application process at the moment.” ESR has just over 270,000sq m of lettable space planned for the estate and Sayers said they were proceeding with all of that, bar about 80,000 square metres. “That puts us in a really good position to go and talk to the customers to secure their interest.” Finding those customers is unlikely to be difficult. In research released earlier this month CBRE, the world’s biggest commercial real estate services and investment firm, said Australia’s industrial and logistics vacancy rate was now at a world-low of 0.8 per cent , with Sydney’s rate the lowest in the country at 0.3 per cent and Brisbane’s the highest at 1.4 per cent. CBRE’s head of industrial and logistics in the Pacific Sass J-Baleh warns that in Melbourne alone an additional 1.1 million sq m of floor space is required. “The 2022 pipeline currently has a 30 per cent shortfall for reaching equilibrium,” J-Baleh says. ▲ Vertical warehouses, such as Colliers’ Preston Street project, are one of the directions the sector is heading. “And the key solution to adjust the market back to a balanced state is to unlock more land that can be readily developed on and delivered to the market in the short to medium term.” Her colleague, director of industrial and logistics Todd Grima agrees. “Until we get more land supply, and we can create more competition, then we're going to see significant rent growth which is going to put a lot of pressure on occupiers, but it's also being passed through to the customers,” Grima says. The Property Council of Australia has long called for the quick release of additional land. “The growth of e-commerce alone is going to require an additional 490,000 square metres of space in Victoria over the next three years, which underscores the need to make more industrial land available quickly,” Victorian executive director Cath Evans says. For its part, Colliers is forecasting industrial vacancy rates to remain at low levels for at least the next 18 months. ▲ As demand continues to outstrip supply, rents will increase in some states by more than a third, says Colliers. In its Demand Outlook Insights Report, the professional services and investment company said as increasing industrial demand outstrips supply, prime rents are forecast to grow by 30 per cent or more by 2025 in 10 industrial sub-markets. South Sydney would grow by 39.5 per cent, central west Sydney by 36.9 per cent, outer east Melbourne by 36.6 per cent and city fringe Melbourne by 35.6 per cent. “This is the highest level of growth since we started recording industrial rent data in 2005 and is well above the long-term average of 2.4 per cent per annum.” Colliers head of industrial capital markets Gavin Bishop says. The property council’s Evans warns industrial users could be forced to look for solutions outside the state. “Victoria has traditionally had a strong competitive advantage for industrial development, but a record low vacancy rate is putting pressure on industrial users,” she says. “Industrial development underpins the local supply chain and generates thousands of jobs across the state. ▲ Victoria may lose development opportunities in the sector to interstate, the industry has warned. “The supply of suitable land for industrial development is a key focus of the property council’s advocacy agenda and features prominently in our state election platform.” ESR’s Sayers says he was encouraged by what seemed to be “a more widespread acknowledgement that there is a land supply issue.” Of the Melbourne market, he says there is about 1100ha of land designated as future industrial use in the west, and about 900ha in the south-east as well as other areas in the north. “We know that it’s complex, we know it’s not just a matter of releasing it. We know that it's influenced, for example, in the west by issues like the WIFT (Western Intermodal Freight Terminals). “But our view is very clear. If you need time to sort that out, and this is a discussion we have often with the authorities, don't keep 1100ha on hold, go and release 500ha of it. Because that will actually feed the supply of the market for a few years. “That'll buy you the time to plan your WIFT,” Sayers says. “And it'll keep the critical supply to the market, not just for us, but all our competitors to the benefit of the tenants, the cost of goods and generally, inflation.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Snookered: Logistics Sector Makes Plea for More Land

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