Delivering the Goods: Are our buying habits driving industrial property demand?

In 2020, many retail businesses have pivoted their models to incorporate delivery – as opposed to traditional ‘bricks and mortar’. Some businesses are switching back now that restrictions are easing, but not all. So how is this changing the commercial property landscape?

The new, newer normal

In a year full of uncertainties, there’s no doubt that our love of home-delivered, on-demand online shopping has shown no signs of slowing. In fact, it’s grown during 2020 more than anyone could have expected.

According to AustraliaPost’s Inside Australian Online Shopping update, the first week of August saw online sales grow by 157% in Victoria and 89% across the country, when compared to the same time last year.

And while some businesses have been struggling, consumer electronics retail chain JB HiFi recently announced record sales during the first half of the year – up 41% to $3.69 billion, with their online sales up 40.6%.

That’s on top of NAB’s recently-released Online Retail Sales Index for June, too. It says that in the previous 12 months Australians have spent an estimated $35.69 billion through online retail, about 23.1% higher than the 12 months to June 2019.

Ever thought about what it takes to get all those orders from a website to your place? Where they’re sitting when you hit ‘buy’? How many places they visit along the way? All these questions are impacting on the commercial property market too – with industrial development taking its place alongside office and retail.

Room to move

With many people considering continuing to work from home even in the post-pandemic period, this growth looks to continue – although perhaps not quite at the same levels.

“Post COVID, the acceleration and penetration of online may slow down, but it won’t revert to pre-lockdown volumes,” Leigh Williams, founder of eStore Logistics – a fulfilment company backed by online retail entrepreneur Ruslan Kogan – told the Australian Financial Review in June.

“From a property perspective, as volumes drop for traditional retail, there is an increasing requirement for warehouse and distribution centres.”

Williams said that his company is looking to expand their warehouse spaces by over 100,000 square metres in response to the growth in logistics work needed to meet the demand of online sales.

AustraliaPost themselves have repurposed and opened 15 new processing facilities, as well as chartering an additional eight freighter flights a day – meaning there are now 17 dedicated planes carrying goods for delivery across Australian skies each day.

“Back in March, intense demand due to COVID-19-infuenced in-store panic buying caused both Coles and Woolworths to halt online orders and home deliveries due to a supply chain breakdown. And those kinds of problems can be solved by what are known as ‘dark stores’.”

Supply and demand

This demand doesn’t come as that much of a surprise, because – according to the AustraliaPost’s Inside Australian Online Shopping update – we’re not just buying more online, we’re buying more online from inside Australia – not overseas.

The main reasons for that are because people want to support local businesses and the economy, and because overseas orders are taking too long to arrive. But it means there are gaps emerging in our existing infrastructure.

Back in March, intense demand due to COVID-19-infuenced in-store panic buying caused both Coles and Woolworths to halt online orders and home deliveries due to a supply chain breakdown. And those kinds of problems can be solved by what are known as ‘dark stores’.

That name might sound a bit like something out of an episode of Black Mirror, and – even though their use is more common than you might think – the concept is a little bit, too.

Put simply, a dark store is a warehouse or distribution centre set up for online shopping, but they’re often smaller, and and located in suburbs rather than giant industrial parks – and their operation is becoming more and more reliant on emerging technology.

Both Coles and Woolies have secured property and announced plans to build highly-automated dark stores in Sydney and Melbourne – stores that will replace existing staff with robot workers. Some supermarkets and retail chains have even begun to convert existing suburban outlets into dark stores, too.

Hot property

In April, Ray White Commercial head of research Vanessa Rader said that factors like the growth of online retail and delivery, and technology-driven logistics means a growing opportunity for a rise in locally-manufactured goods that could be easily and quickly distributed.

Something smaller, more ‘agile’ businesses – already buoyed by our governments’, our councils’ and our own desires to “support local”, post-pandemic – are primed to take advantage of.

“Overall, the outlook for the industrial market is bright, with this asset class being the most robust to overcome the issues imposed by COVID-19,” she concluded in her report.

“The overarching demand for stock will rebound particularly in the distribution and logistics space.”

And a few months later, the news seems to back up Vanessa Rader’s thinking, with The Sydney Morning Herald reporting during August that commercial landlords appear to be diversifying their portfolios away from office and retail property, and into the industrial.

These landlords include Charter Hall, who recently announced the signing of a 10-year lease for 14,200sqm of purpose-built, temperature-controlled space in Western Sydney with the online food distribution company Marley Spoon.

If you’re looking to diversify your commercial property portfolio, or are a first time investor looking to enter the market, speak to a qualified mortgage broker today.