Will we see multi-level warehousing in Australia and if so, when?

“These range from three stories in Shanghai to 25 stories in Hong Kong and the warehouses have internal storage heights from 5.5 metres in Japan to 12 metres in Singapore. The 5.5 metre clearances in Japan and 6.5 metre heights in Hong Kong operate as cross dock type facilities with limited storage, in Singapore and China these are fully functioning warehouses and logistics facilities.”

Their requirement is driven by the shortage and cost of industrial land and the requirement to be in key strategic locations, for tenants to quickly service their customers.

Until now, land values in Australia have been too low to warrant the take-up of multi-level warehousing, but change is on the horizon. 

With restricted supply, the growth of automation and e-commerce and a rush of capital into the space will drive industrial land prices in last mile locations to levels that will require four levels (with a 2:1 site coverage) to support the land prices and provide rents that tenants can afford to pay.

“Right now everyone wants to get into industrial,’’ says Simons.  “And we are seeing foreign capital flowing into Australia, setting up boutique funds and chasing investment opportunities. Some of these groups have multi-level assets already in their portfolio and may be more comfortable around the metrics of developing and owning such assets.” 

While the shortage of greenfield sites in outlying industrial areas is currently a major issue, Simons also expects a strong increase in demand for space in established industrial areas closer to capital city CBDs.

This will result from growing e-commerce requirements for more last-mile facilities. Online spending currently accounts for approximately nine per cent of retail sales in Australia, and is growing at 15 per cent annually.  Simons says:

“At the moment in terms of online purchases, Australian consumers are happy with two-day delivery.  But elsewhere, for example in the major cities in the US, people's expectations are closer to two hours.’’

While this may not be an imminent reality for Australia, demand will eventually start to push fulfillment centres closer to the population hubs, in order to meet these expectations around delivery time frames. 

“There’s going to be a requirement for new facilities in the traditional older-style industrial areas closer in’’ says Simons. “And given the lack of land and the price of land, multilevel warehousing will be necessary, to make it work.’’

Moving fulfilment centres closer to residential areas, to provide the timely service customers will demand, will be a challenge when it comes getting the communities and councils on board. 

“The truck movements around these cross-docking facilities may restrict where you can place them,’’ says Simons. 

In a recent report titled On the Up and Up, CBRE says Australia is on the verge of  reaching the point where rents are high enough to provide conditions conducive to the rise of multistorey warehousing. 

It predicts that industrial regions with good accessibility to ports and customer bases, such as Inner Melbourne and South Sydney, will likely be the first to develop multi-level facilities.

Simons agrees this is now inevitable.

“We're not at that point where we can build multi-level for a price that makes sense, so there's a real disconnect in the market at the moment".