Sites with potential for logistics developments are now the rarest and most coveted across the Sydney commercial property market. Latest analysis reveals only 5% of the city’s industrial-zoned land is undeveloped and serviced, and of this, not all is available for development at least in the near future.

The dearth of available land is most apparent in inner Sydney – the ideal location for ‘last mile’ storage and distribution hubs given the rise in e-commerce. CBRE’s Sydney Industrial and Logistics Land Supply paper states average land values in southern and northern industrial precincts of Sydney are now more than double those in outer western precincts. The large sums being drawn by inner city sites was recently demonstrated by last week’s $802 million purchase of 13.8 ha near Sydney Airport from Qantas Airways by Logos Property Group. A four-level logistics hub is proposed for the site which when complete will be worth in the vicinity of $2 billion. Ideal for the purpose, a Logos spokesperson said the site represented “one of the last available scalable logistics and commercial development sites in the coveted South Sydney market”.

Increasing e-commerce

With internet sales growing apace, CBRE calculates at least 720,000sqm of additional logistics space dedicated to e-commerce will be required across Sydney in the next four years alone. Considering that the Sydney market has absorbed around 490,200 sqm of space per annum since 2010 according to CBRE, there will need to be an almost 40% increase in the amount of space to cater to the demands of e-commerce.

Most of the demand for industrial and logistics-dedicated property in the last 12 months has been concentrated in Sydney’s outer north-west precinct. Along with transport and logistics, demand is being driven by manufacturing and retail/e-commerce. Global supply chain issues since the start of the pandemic are now forcing retailers – especially those using online sales platforms - to store more inventory to avoid delays in fulfilling orders. The closer storage space can be located to a “final mile” distribution point, the better, another factor forcing up land values and rents for sites close to the metropolitan centre.

Storage wars

Rising inventory requirements due to the expansion of the ecommerce sector had been observed in the US since 2012, said CBRE’s head of research Sass J-Baleh, and Australia was following suit. Globally, the rise in e-commerce was being seen as “transformational” following a 140% increase between 2015 and 2020 to make up 18% of current global retail sales. Ove the same period, Australia’s e-commerce sector rose by 105% ($22.6 billion) to account for 13% of current retail spend, CBRE data shows. 

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

“For instance just 0.2% of the city’s undeveloped serviced land is situated in Sydney’s north shore compared to 43.4% in the outer southwest 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.” No availability is expected in Sydney’s inner precincts over the medium term.

Big players

With all signs pointing to the ongoing strength of Australia’s industrial and logistics sector, some big players are wasting no time on wanting in. This month, Australian Real Estate Investment Trust Dexus which has traditionally dealt in offices continued its move into the sector with the $44 million purchase of an industrial site in the southwestern Sydney suburb of Moorebank. The purchase with parent company Dexus Industria REIT was reported as a 50-50 off-market deal managed by Colliers’ agents.

Dexus also recently picked up the Jandakot Airport in Perth and a Victorian logistics facility that’s leased to Australia Post.

Plans for the Moorebank site involve a logistics hub offering 15 to 20 units in a multi-level storage facility scheduled for completion in 2024. Moorebank is central enough to be viewed as a location suitable for ‘last-mile’ logistics.

Colliers agent Fab Dalfonso said Dexus saw “an opportunity to take advantage of the bullish market” given the significant demand for industrial land in inner Sydney.

“With land rates under pressure in the southwest  growth corridor of Sydney future concepts will most likely incorporate two-storey warehousing facilities to compensate for land values,” Mr Dalfonso told the media.

Last month Dexus snapped up 30 ha of vacant industrial land located at Kemps Creek Sold in another off-market deal negotiated by Colliers. Dexus had already secured a pre-lease with McPhee Distribution Services for a 72,000 sqm site, buying agents describing the move by Dexus as strategic. According to Colliers estimates, vacant land zoned for warehousing and logistics purposes in the inner Sydney region will run out in close to 5 years.