How big can Australia’s logistics assets go?
The range of Melbourne and Sydney’s industrial asset size has increased 19% year-on-year, as the industry navigates supply chain uncertainty and booming occupier demand.
Australia’s logistics and industrial sector set a new leasing record in the June quarter this year. Industrial and Logistics asset demand continues to grow in the Sydney and Melbourne markets, accounting for 73% of gross take up since the beginning of the year. A noticeable trend has followed in the form of demand for increased asset sizing. The three-year average size of assets leased has increased by 29% in Sydney in 2020-2021, compared to the 2011-2013 average. This trend is mirrored in the Melbourne market showing a 12% increase, compared to the same metrics.
Figure 1: 3 year average lease size
Source: JLL Research 3Q21
JLL’s Global logistics survey* (July 2021) questioned the expected demand growth across building sizes. Globally, 19% of respondents expect a 20%+ increase in the take up of mega boxes (100,000+ sqm) over the next three years. The demand for mega boxes is expected to be much less in Australia, as only 4% of respondents expect significantly higher demand (+20%) for this size. Instead, they predict the 5,000 to 10,000 square metre range as the most in-demand asset size for the APAC region and Australia, closely followed by the 10,000 to 50,000 square metre range. Moreover, growth in e-commerce and last-mile logistics is by far projected as the most important driver of future occupier demand for new construction globally and in APAC.
Figure 2: How much respondents expect occupier demand by building size to change over the next 3 years
Source: JLL’ Global Logistics Survey, July 2021
The level of mega box leasing globally, has not transferred to Australia, except for some large occupier moves (three leases since 2019 over 100,000 sqm). Their demand is in infancy and yet to see growth scale expected in the US or the UK. Demand for all sizes of warehouse is likely to increase throughout Australia, with growth taking place in the realm of 5,000 to 50,000 square metres. As for big box (50,000-100,000 sqm), retail, trade and transport, postal and warehousing sectors have been leading since 2011, with 8 and 10 leases, respectively, accounting for 90% of lease transactions by number.
Figure 3: Number of Big Box leases by industry
Source: JLL Research 3Q21
The range of warehouse sizing is increasing in both Melbourne and Sydney markets. On average, their aggregate across Sydney and Melbourne markets has increased by year-on-year growth of 19%, showing occupiers preference for larger warehouse space. Inventory management is considered a contributor to demand in Sydney and Melbourne, as logistics occupiers look to hold more stock to address supply chain risks. With the growth of e-commerce requiring more space for distribution centres and warehousing, inventory management has the potential to drive the expansion of asset sizing.