720,000sqm of new Sydney logistics space needed as e-commerce booms

Have you recently ordered something online? If you’re in lockdown you’re certainly not alone, with your buying habits expected to help drive demand for at least 720,000sqm of additional Sydney logistics space over the next four years, solely dedicated to supporting e-commerce sales.

That’s one of the conclusions from CBRE’s new Sydney Industrial & Logistics Land Supply report, which forecasts that a lack of industrial land supply in the inner city coupled with rising e-commerce demand will drive a market step change.

Report author Sass J-Baleh, CBRE’s Australia head of Industrial & Logistics Research, noted, “Prior to 2020, Australia’s retail inventory sales ratio had been trending down for 30 years, reflecting a ‘just in time’ model. Global supply chain disruptions have highlighted the need for retailers, particularly those using an online sales platform, to hold more inventory to minimise fulfillment delays, which is driving greater demand for Industrial & Logistics (I&L) space.”

“Rising inventory requirements due to the expansion of the e-commerce sector is a trend we have observed in the US since 2012, and we expect this to be replicated in Australia over the coming years.”

These rising requirements are driving capital and rental value growth in Sydney’s industrial sector, underpinned by the fact that just 5% of industrial zoned land in Sydney is currently undeveloped and serviced – equating to just 605ha of potential supply.

“This lack of land availability is particularly evident in Sydney’s inner precincts, which are becoming ever more sought after as ‘last mile’ hubs as e-commerce penetration rates rise,” Ms J-Baleh said.

“As an example, just 0.2% of the city’s undeveloped, serviced land is situated in Sydney’s north shore, compared to 43.4% in the outer south west, and this is being clearly reflected in land and rental value differences. Over the next 18 months we forecast further limits to the availability of undeveloped and serviced land in Western Sydney, with no availability expected in Sydney’s inner precincts over the medium term.”

CBRE’s report highlights that Sydney land absorption has averaged 137ha per annum over the past decade, while leasing activity has averaged 805,000sqm over the same period.

Retail/e-commerce transactions are playing a growing role, with the predicted 720,000sqm of e-commerce space needed in the next four years translating to a 37% jump in overall supply levels compared to historic averages.

CBRE Pacific Regional Director, Industrial & Logistics, Cameron Grier noted, “Given Sydney’s limited development pipeline and lack of speculative activity, this is expected to drive rental growth rates and result in further land value appreciation over the short to medium term. Even factoring in new serviced and zoned land corridors emerging in the medium term such as the Mamre Road Precinct and Badgerys Creek, a forecast rise in occupier demand is expected to offset any oversupply risks.”

Mr Grier added; “The I&L land market has well and truly been reset and traditional institutional developers are now willing to pay prices that were previously only in the realm of data centres.”

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About Warwick Petschack

Warwick has over 25 years of property investment and management experience. Principally responsible as Managing Director for Capital Management Australia and Joint Managing Director for Chauvel Capital Partners and Editor of Australian Property Markets News.

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