The impact of online retailing on Australian industrial demand

August 6, 2015 / By  

Online retailing has grown rapidly over the last decade. Traditional retail operators are being challenged by technological advances, however many have adapted and now offer a multichannel sales approach. Here, we look at how online retailing is impacting the Australian industrial sector.

According to National Australia Bank’s latest online retail sales index, Australian online retail spending increased to AUD 16.9 billion in the year to April 2015, a year-on-year increase of 9.6%.  Online retailing now represents around 7.0% of traditional retail spending excluding cafes, restaurants and takeaway food, up from 4.9% in 2011.

Over the past two years, there has been a strong correlation (0.81) between online retail turnover growth and gross take-up of industrial space by the retail and wholesale trade sectors.  This supports the need for industrial expansion from retailers moving to or expanding their online presence.

Online retail turnover growth vs retail and wholesale trade gross take-up

Blog chart 6 Aug 2015

Traditionally, warehouse space utilised by the retail trade sector was stocked with products for sale at store-based retailers. However, with the ongoing advances in technology and the increasing number of retailers with an online presence, there is a growing trend to deliver goods direct from warehouses to the consumer. As the retail market becomes more competitive, especially given the recent weakening of the Australian dollar, domestic retailers incorporating online platforms are likely to require more flexible industrial property solutions that incorporate non-traditional stock picking (selection of stock as per orders) and delivery methods. These may include higher staff ratios, smaller delivery vehicle access, returns areas and direct customer access.

Online retailers need to locate in areas that will provide an efficient movement of goods to their consumers, as well as close proximity to major postal centres. In Sydney, the Outer West (OW) precincts centred on major transport routes (M2, M4, M5 and M7) have proven to be key areas for retail occupiers. The OW precincts have accounted for 76% of total retail and wholesale trade gross take up annually between 2010 and 2014. These precincts are highly sought after due to the relative simplicity of receiving and distributing stock.

Between 2006 and 2010, retail and wholesale trade accounted for 26% of gross industrial take-up nationally. Since then (2011 to YTD 2015), the retail and wholesale trade sectors recorded an additional 550,000 sqm of activity, and represented 32% of total take-up. Logistics has also benefitted from the increase in online retailing and retailer demand as distribution operations get outsourced to third-party logistics (3PL) providers. The transport and storage sector’s percentage of total gross take-up increased from 25% to 34% over the same period.

Despite the rapid growth in online retailing in Australia, it still comprises a small percentage of total retail sales (the majority of which is through domestic retailers), indicating that there is further room for expansion. It is likely that more traditional retailers will expand into and increase their exposure to the online retailing market and subsequently increase their requirements directly or indirectly through 3PLs for distribution space that can accommodate the special needs of online retailers.


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