As Australia progresses towards a 100% renewable energy grid, industrial landlords and occupiers will need to adapt their property strategies to thrive in changing energy and regulatory landscapes.
Several key trends in industrial real estate highlight the need for reliable energy supply:
- Automation – Semi and fully automated warehouse technologies boost energy requirements, particularly as automated facilities operate 24/7.
- Temperature-controlled warehousing – A growing and ageing population, along with shifting consumer preferences towards convenience, are rapidly increasing demand for chilled and frozen goods. As ambient temperatures rise, an increasing range of products require temperature-controlled storage. Refrigeration systems require large amounts of reliable energy, which is critical to ensuring temperature-sensitive goods are stored correctly to ensure safety for consumers and to avoid wastage from non-compliance.
- Electrification – The increasing electrification of buildings, HVAC systems, low-heat industrial processes and vehicle fleets is driving up demand for high-voltage power.
The Australian Energy Market Operator (AEMO) has forecast that total business energy consumption – which includes the transport, mining, manufacturing and data centre sectors – may increase by 45% over the next 10 years (AEMO 2024).
Accounting for committed and anticipated grid upgrades and the decommissioning of coal-fired power plants as part of the transition to renewables, AEMO’s modelling predicts that energy reliability gaps may occur in New South Wales, Victoria and South Australia over the next five years, increasing the risk of energy demand exceeding supply – resulting in potential outages.
The intermittent nature of renewable energy sources complicates grid capacity management during peak and trough periods of demand and supply. For example, during periods of high wind and solar generation, the grid cannot transmit all the power to consumers, leading to curtailment, or spilling, of energy. When this occurs, the cheap renewable energy is replaced with more expensive fossil-fuel generation, diminishing the cost benefits of renewables such as roof-top solar and battery storage.
Looking at just the top 50 occupiers in Australia’s largest industrial markets with leases expiring over the next 5 years, over 3.3 million sqm of industrial floorspace in Sydney and 6.0 million sqm in Melbourne will soon be re-assessed on how it aligns with budgets, sustainability targets and availability of reliable energy.
In a recent report, JLL Research found that 60 out of Australia’s 100 largest industrial occupiers have net zero carbon targets. This figure is likely to rise as large Australian businesses are required to comply with the Australian Sustainability Reporting Standards from 1 January 2025. These standards require reporting on climate-related risks and opportunities that could affect financial positions, including disclosure of scope 1, 2 and 3 greenhouse gas emissions and targets (AASB 2025).
The energy transition poses challenges to industrial landlords and occupiers, who will need to ensure their property strategies align with company targets and mitigate energy security concerns, which will become an increasing driver of value over the life of industrial assets. Collaboration will be key, as landlords who can offer greater energy security and efficiency will attract strong covenants, underpinning property values while contributing to cost savings and operational excellence for occupiers.
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