Online Retail Transforming Australia's Industrial Landscape

Online retailing is set to become the next powerhouse of Australia’s industrial market, with the sector expected to expand its footprint across the country by three million square metres over the next five years.

CBRE’s 2015 Q3 Industrial MarketView shows retailers specialising in online sales are underpinning growth in the market, with the capacity to absorb the equivalent space vacated by the upcoming closure of car manufacturing in 2017.

CBRE Regional Director, Industrial & Logical Services, Matt Haddon said Australia’s industrial landscape was evolving.

“The transport and logistics sector remains a major player in Australia’s industrial market, however, there has been a significant spike in demand from businesses with an online sales component,” Mr Haddon said.

“Increasing appetite levels from this sector of the market will absorb space created by the demise of car manufacturing, and ultimately shift the focus of Australia’s industrial market from manufacturing to transports and logistics and online retail."Mr Haddon said Australia’s industrial market continued to attract interest from investors over the quarter, with offshore buyers driving the majority of demand.

“Combined with the relative stability of our economy, Australia’s industrial assets offer attractive yields and market fundamentals that appeal to foreign investors,” he said.

The report shows prime industrial yields have compressed by 80 – 100 basis points since mid-2014 in the east coast markets, while Adelaide has experienced a hardening of 30 – 50 basis points.

Sydney’s industrial market offers the lowest levels of risk from an investment perspective, with secondary yields converging towards prime yields – suggesting that investors are discerning for risk.

CBRE Senior Research Manager Bradley Speers said industrial rents had almost reached the bottom of the cycle, with Sydney the only market to experience rental growth during the quarter, albeit at a modest level.

“The strength of the New South Wales economy is undoubtedly supporting demand in the Sydney industrial market; however, we expect to see upward movement in most other markets from the second half of 2016,” Mr Speers said.

Approximately $1.87 billion in industrial property (>$5 million) changed hands during Q3 – significantly higher than the $1.25 billion quarterly average since 2013. While transaction activity has been strong year to date (totalling $3.46 billion), the yearly total is unlikely to surpass the record pipeline of sales in 2014, which reached $5.31 billion.