Savills Australia comments on advantages of building commercial property up, not out
SYDNEY, June 5, 2018 – Heightened demand for industrial development sites by key Australian real estate investment trusts (A-REITs) and private equity groups throughout the past 24 months has driven land values across Sydney to record high levels, according to new research from Savills Australia.
With operational costs continuing to rise, developers and operators in the industrial space are calling for more modern warehouses with a greater reliance on automation and use of robotics.
The data shows that industrial land values in South Sydney are now at their highest level on record, pushing the $2,000 per sqm mark, with industrial sites in Western Sydney transacting at more than $600 per sqm, as groups like Mirvac, Frasers, GPT and Charter Hall acquire large land banks.
Further, Sydney has been the prime beneficiary of Australia’s record run of population growth.
Savills Australia’s associate director for Capital Strategy, Shrabastee Mallik, noted that throughout the past year, Sydney’s population increased by 100,000 people, with 85 per cent made up of overseas migrants.
“With record high levels of population growth eating up available land for residential purposes, current land banks are becoming increasingly more valuable,” she said.
“We have seen prime blocks of land within traditional industrial precincts across Sydney, previously zoned for industrial use, being sold for residential redevelopment purposes in the past 18 months.”
Ms Mallik went on to say that “an increasing population means that trade volumes will duly rise”, with recent trends supporting this.
“While the manufacturing and logistics sector accounts for 10 per cent of NSW’s Gross State Product (as at FY 2017), projections point to significant growth over the next 30 years,” she said.
“As such, stellar growth in land values in the South Sydney precinct is understandable, which include Port Botany and Port Kembla. These ports are NSW’s import and export gateways, and are critical to the future economic growth and development of NSW, jointly contributing $4billion a year to the state economy.
“NSW Ports’ 30 Year Master Plan points to these two ports tripling the amount of container volumes processed over the next 30 years.”
Savills Australia’s senior analyst for Research & Consultancy, Houssam Yakzan, said that while Australia has traditionally lagged behind the rest of the world in terms of technology on industrial sites, a lack of available land for development in Sydney meant that “developers are now looking to utilise available technology not considered before – to build up, not out”.
“In order to maximise potential use and reduce ongoing operating costs, developers are identifying innovative ways to incorporate technology within the warehouse design and development,” he said.
“New vertical lift technology allows exactly this – building up rather than building out – with lifts reaching almost 10 metres, which has the effect of reducing warehouse size from 200sqm to just 14sqm.
“These types of technologies also have the added advantage of requiring fewer workers, thus reducing ongoing operating costs. Already, most new warehouse and supply chain environments are making use of such innovations.”
The development of Moorebank Logistics Park, in its use of robotics and purpose-built facilities, has attracted significant interest across the warehousing and logistics sectors.
Target Australia has signed on as the first tenant at Moorebank, with a 10-year lease (plus options) for a new 37,860sqm warehouse, due for completion in 2019.
Mr Yakzan said that groups like Target would benefit from new developments like Moorebank Logistics Park, with the added benefits of surrounding works on infrastructure that would help drive efficiencies in logistics.