The Evolution of Industrial into a Leading Investment Class
The global industrial real estate landscape is in the midst of a major period of transition. In the current climate, Industrial assets have become a more integral part of the logistics fulfilment process and must offer more value than basic goods storage. Technological advancements and e-Commerce have been the major driver of this trend, with efficiencies achieved within storage facilities driving significant supply chain efficiencies and cost reductions. While many of the fundamentals of industrial property investments remain the same, some of the traditional characteristics of the asset class are changing rapidly. Below we have outlined some of the key themes prevailing in the Australian market, and how this should influence your commercial real estate investment considerations.
The term ‘e-Commerce’ is not new, but the maturation of technology in supply chain and logistics sectors has reached a point where it is now having significant impact on retail and manufacturing industries as a whole. According to NAB Online Retail Index, Australians spent an estimated $28.1 billion on online retail in the last year, which is approximately 8.9% of the traditional bricks and mortar spend. In addition to this, online sales grew by 15.7% over the same period, highlighting it is a trend that is continuing to expand. As the sector grows and a higher volume of retail sales are generated through digital platforms, the requirement for additional floorspace to store goods, package orders and process returns increases. Large logistics players such as Amazon, Wesfarmers, DHL and Toll are increasing their footprint focusing on high quality industrial facilities, serviced by infrastructure links, in proximity to their customers. We expect this momentum to remain over the medium to long term augmenting the investment proposition for selected industrial locations across Australia.
As e-Commerce continues its rise, the supply chain has been forced to adapt accordingly. Last Mile Logistics has been one of the new requirements in the logistics sector in recent years, driven mainly by increasing pressure to deliver consumer products in narrow timeframes. Distributors have altered their supply chains from the traditional logistics platform that relied on regional distribution, to one that includes an urban logistics strategy revolved around serving consumer epicentres in densely populated areas. However, with populations swelling in the major cities it is becoming increasingly difficult to find sites that satisfy the logistics provider. Creating functional Last Mile fulfilment centres will be the service level differentiator for online retailers into the future. This is a challenge considering the current environment; scarcity of development sites, high rental levels and land values. Investors that are in the position to leverage off this demand for logistics space are well placed to achieve high occupancy rates and consistent rental growth.
Another interesting trend is the influence of technology and automation on the functionality of an industrial building. As automated systems become more affordable, adoption levels increase which is influencing the way industrial buildings are designed and operate. Automated solutions have the potential to move goods within the factory in shorter periods, with less labour involved. The use of robotics has many benefits – reducing the time allocated to pick, pack and dispatch items, minimising labour and admin requirements and increasing the density at which goods can be stored which increases the return per square meter of lettable space. While the demand for industrial space is expected to increase, some of this demand will be accommodated by the increased productivity of each unit of space. Prudent investors are therefore advised to focus on assets which have the ability to adapt and incorporate new automation and technology within the operational space.
The recurring theme as discussed above is that the industrial sector is evolving at a greater pace than expected. Fortunately, for the industrial market, this transition offers some exciting opportunities for savvy investors to enjoy sustained growth in rental and underlying asset values. High levels of infrastructure spend, strong projected population growth and increasing demand from new entrants are additional factors that support stable returns and are also key asset selection considerations. Peak Equities’ view is that carefully selected industrial property investments offer strong strategic value and are particularly well suited to a syndicated investment structure.
The combination of an industry in transition, increases population density in major cities and consumers who expect ever improving delivery speed and convenience, mean that well located and flexible use industrial assets are enjoying rapid increases in both strategic and underlying value. Peak Equities team of real estate investment specialists can help you select the best value assets which combine for strong-reliable income and long-term capital growth. Contact us today by calling (03) 9863 8380 or email firstname.lastname@example.org.