Energy Priorities, Resilience Shape Industrial & Logistics Leasing Decisions | JLL

Power availability and security are emerging as top priorities as owners, investors and occupiers in the industrial and logistics sector carefully assess their needs, assets and location strategies ahead of the next market cycle, according to a new report from JLL.

The Global Industrial & Logistics Occupier Report found the industrial and logistics real estate landscape was at a critical point with increased automation, fleet electrification, a surge in advanced manufacturing and intensifying competition with data centres for limited energy resources all reshaping market dynamics.

According to Peter Blade, JLL’s Head of Logistics & Industrial Agency – Australia, occupiers are now prioritising cost efficiencies and seeking innovative ways to elevate business practices, while owners are pre-emptively evaluating ways to remain competitive.

“Occupiers have typically focused on technical requirements such as ceiling height, loading docks and so on, but concerns over power availability and surging energy prices in recent years have seen a re-prioritisation towards energy-smart buildings in a bid to drive operational excellence and cost efficiencies,” he said.

According to a recent report by the International Energy Agency, electricity use has grown at twice the pace of overall energy demand in the last decade, with electricity demand projected to increase a further 18 per cent by 2030. Australian year-on-year energy prices increased by 25 per cent in 2024, the JLL report noted.

Mr Blade said industrial users’ transportation-dependency and/or energy intensive operations made them much more vulnerable to fluctuations in energy costs than other commercial real estate markets.

“It follows that savvy owners/investors taking a strategic pivot towards energy management and sustainable building practices, as well as comprehensive tenant engagement, will ensure their industrial spaces are fit for the future and gain a competitive advantage in the coming years,” Mr Blade said.

The report, which evaluated the leased footprint of major occupiers across 18 industrial and logistics hubs in Australia, North America and Europe, found 65 per cent of future space needs across 900 occupiers would be tied to a carbon-reduction target.

Across the key Australian markets of Sydney and Melbourne, it found 70 per cent of the top 50 occupiers in each city (accounting for more than 9 million square metres of space) with leases expiring between now and 2030 had embraced carbon commitments.

The report found that despite an emerging supply/demand gap which could potentially result in a shortfall of low carbon space by 2030, Australia was relatively well placed to meet demand for low-carbon developments, based on strong supply forecasts for 2025-2030 of 4.7 million square metres in Sydney and 5.0 million square metres (Melbourne).

Annabel McFarlane, JLL’s Head of Strategic Research – Australia, said that in the office sector, sustainable assets with a NABERS rating of 5.5 or higher enjoy stronger face rents, sharper yields, and lower vacancy than the wider market.

“Over 2024, vacancy has started to rise in the industrial sector, and now that occupiers have increased choice to meet their requirements, we are starting to see evidence of a green premium for sustainable assets. Some occupiers who have not yet set sustainability targets are favouring low-carbon developments for operational cost savings and to future-proof their property footprints. We expect this to continue, as large businesses in Australia are now required to report their scope 1, 2 and 3 emissions and targets under the Australian Sustainability Reporting Standards.

Industrial and logistics occupiers are working to reduce emissions across supply chains and transport emissions are a huge component. The language of sustainability reports will become increasingly sophisticated, transparent and measured as CFO’s and Boards are required to disclose climate related risks and opportunities. Progressive landlords are partnering with tenants that are actively decarbonising their operations.”

Energy, resilience reshaping leasing decisions

Nathan Bingham, JLL’s Head of Occupier Services – Australia, said with an average 75 per cent of Sydney’s and Melbourne’s industrial stock older than 10 years, the case for energy-smart, sustainable warehouses was stronger than ever.

“Retrofitting buildings has emerged as a crucial strategy for owners to mitigate the risk of obsolescence, to attract top tenants and to enhance value,” he said. 

“Although some buildings over 10 years old are still considered high quality, much of this aging stock will require some form of improvement to maintain competitiveness.

“Moreover, the scarcity of developable land in many industrial markets across the world, coupled with constraints on new supply, reinforces the imperative for upgrading existing facilities. These factors collectively strengthen the case for retrofitting as a key value-add strategy in the industrial and logistics sector.”

Mr Bingham said occupiers were also on the front foot in driving energy efficiency with several examples existing of high-end tenants requiring solar panels, electric vehicle (EV) charging stations, LED lighting sensors and zero-carbon certification across their leasing portfolios, a trend expected to expand rapidly in coming years.  

“Demand is moving from purely functional design requirements to spaces that can offer comprehensive solutions, especially regarding energy security, operational cost efficiencies and fleet electrification, as well as enhancing working conditions in a bid to boost employee retention.

“Now, more than ever, holistic sustainability solutions for the industrial sector are integral to business fundamentals driving a transformative shift that addresses some of today’s most complex challenges,” Mr Bingham said.