[+] Growing Pains for Multi-Level Warehouses as Sector Looks Up

Changing the approach to warehouses has never been more important as logistics pressures bite and land remains at a premium, but with every change comes growing pains. With Australia’s first multi-level industrial development at 42-52 Raymond Avenue in Sydney’s Matraville due for completion complete by December this year, there has been another wave of activity in the market. Belvoir Property announced it was bringing its multi-level project, Podium in south-western Sydney to market, as is Hale Capital with its 37,526sq m space at 339 and 349 Horsley Road, Milperra, also in west of the NSW capital, which is offered for lease via Colliers. In the pipeline is Stockland’s multi-level project at Padstow, 21km south-west of the Sydney CBD, with a capital investment value of $333 million±and it’s a sign of things to come for that developer. “We’re accelerating our $6.4-billion national logistics development pipeline, which includes creating the next generation of industrial facilities in metropolitan Sydney,” Stockland’s executive general manager for logistics, Tony D’Addona told The Urban Developer . “Stockland’s multi-storey developments, at Banksmeadow, Padstow and Yennora, will meet the critical demand for quality logistics hubs in highly strategic infill locations that are close to major consumer markets, infrastructure and employment hubs. “These locations will help improve productivity by moving consumer goods efficiently around Sydney, including to homes and businesses, while supporting jobs and the NSW economy.” ▲ Japanese tool and component distributor Monotaro’s multi-level Inagara Distribution Centre in Hyogo Prefecture, Japan. But that’s not to say that multi-level or vertical warehouses aren’t facing their own specific challenges. Location, location, location Logistics and warehousing has always been beholden to location, and that drive for demand in specific locations is fuelling the rise of multi-level. “We have large landowners who have to look at the highest value and best use of that land, which has meant some industrial has moved to residential, for example,” says director in charge for Colliers Sydney South Michael Crombie. “So when land is that expensive, and some of these warehouse sites are in the most expensive suburbs in the country, you need more value in the land—a multi-level warehouse could at least double their floorspace.” Colleague Trent Gallagher was involved in the sale of the Qantas Mascot Land Portfolio to industrial developer Logos for $802 million— Colliers itself has reportedly handled 73 per cent of the $1.6 billion in logistics land sales for multi-level warehouses. Gallagher says the conditions of the Sydney market lent itself to multi-level. “We’re super constrained in Sydney for industrial land,” he says. “But in Asia, they develop multi-level because there is no supply in those infill locations, and they need them for lots of e-commerce uses.” ▲ Stockland’s Padstow site will comprise 14 warehouse tenancies totalling 73,759sq m of warehouse gross floor area. It is from these Asian examples that developers are learning. “As the market is getting accustomed to multi-level, developers and their architects have had to travel to Singapore, China and Japan to understand it,” Michael Crombie says. “It’s been a big learning curve. “Not every developer can deliver multi-level, it’s something they’ve had to upskill for and they’re all fighting to be multi-level specialists. “But everyone had to be trained up on it—only a handful of developers can do it, and builders are having to get up to speed too.” Stacking up Industrial, as any other real estate class, has been hit hard with what KPMG estimates is a 30 per cent rise in construction costs in recent years. But while multi-levels might be the new kid on the block, that doesn’t mean they necessarily command more in terms of rents per square metre, rather, their expanded GFA contributes to the bottom line. “Whether multi or single, we’re expecting rents to be the same. On the leasing side, there’s no difference in terms of bottom to top levels, it’s all driven by demand for location,” says Gallagher. ▲ Belvoir Property’s Smeaton Grange site has been aimed at food processors by supplying units with grease traps and gas connections. “The big difference is that outgoings are reduced significantly with multi-level. They might have a bigger footprint, but land tax is the biggest killer and is going up rapidly. “Outgoings can be half of a traditional single level, so that’s a big cost saving for the developer.” However, one of the major issues for vertical warehousing is the planning permissions required above and beyond that of a single-storey shed. Building height restrictions for the area and the visual impact of the higher buildings are cause for consideration. Planning a multi-level warehouse Angus Halligan at Ethos Urban says there are challenges to vertical warehouses that those lower to the ground do not face because of the current scale of multi-level development. “You’re effectively developing a state significant development in Sydney, so requirements on the applicant are not much different from building a tower in the Sydney CBD,” he says. “It can take two-and-a-half years to get through those application processes, and then you have practical issues such as water development servicing, and that infrastructure is a huge additional cost. “You’re dealing with government entities outside planning, so there’s a challenge in responsiveness and agreements of where appropriate road infrastructure can be placed. “You might have a great design and demonstrated demand, but you’re hitting this roadblock of infrastructure.” ▲ Smeaton Grange comprises industrial factories, self-storage units and an 80-place childcare centre. Of course, that is a problem not just for multi-level but for warehouses in general. But raising a building higher makes it more visible to the surrounding community, and it’s something planners and designers have had to adapt to. “On the outskirts of the city you could build a warehouse quickly, but with a vertical offering there is a greater need for visual impact assessment,” says Halligan. “We’re seeing a need for early consideration of facade treatments and a better idea of what this is going to look like, as lots of developments creep into areas that are mixed use rather than just outer periphery locations.” Then there are other issues industrial developers and planners have not necessarily had to deal with at such a scale before. “It’s early days but the introduction of the design review panel processes and connection to country is becoming more essential in the early phases,” Halligan says. “You need to demonstrate at the DA phase that you are front foot in engaging with Indigenous landowners, rather than it being a second thought or tokenistic, as this will bring your application to a grinding halt. “Keeping that consideration in front of mind is essential.” The future of multi-level Generally, Sydney is the centre of this multi-level revolution, according to Colliers’ Gavin Bishop. “It’s all driven by shortage of land supply, and where rents are high enough to makes multi level feasible—the only other location that might suit it right now is Port Melbourne, so realistically they are the two main areas,” he says. Sydney is leading the pack in terms of multi-level warehouses with major projects in the works for the likes of Charter Hall, Logos and Stockland. The latter of which has filed an application for a 15,000-square-metre distribution centre at Banksmeadow, and is in the early stages of a state significant development approval at the Yennora Distribution Centre precinct. But vertical industrial sites raise other issues about the future of industrial. “In Sydney, we generally have an older style of warehouse. But multi-level is about flight to quality—you’re demolishing older sheds and building modern buildings with superior heights. We’ve learnt from our mistakes over the past 100 years,” says Crombie. ▲ Colliers is marketing a new 37,526-sq-m multi-level space at 339 and 349 in Milperra, south-west of the Sydney CBD. From an Environment Social and Governance (ESG) standpoint, the learnings of multi-level will be essential. “For a lot of big corporations who need to do that box ticking exercise a lot of older sheds can't provide that ESG solution,” says Crombie. “They're always going to have to work out what is best for the business, but if you assess all your options and see a 10,000 sq m warehouse and a brand-new multi-level warehouse for the same price, the latter would make more sense for these companies.” The other issue is that at currentl;y, scalability has been key to institutional investors in this space. “Multi-levels are actually not new, we’ve been doing it for years but on a much smaller scale ... but institutional investors and funds are going for scale. ‘It’s hard to develop multi-level on less than 20,000sq m site—you need decent land size to build institutional multi-level product.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. 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[+] Growing Pains for Multi-Level Warehouses as Sector Looks Up

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