The change in the composition of Australia’s industrial occupier landscape (away from domestic manufacturing and into logistics and distribution of imported goods) has stimulated industrial development in new locations as well as investment in new logistics management technology. Outsourcing of various supply chain management functions, such as freight, transport and warehousing, to external transport and logistics companies and their requirements for bigger, cheaper and more efficient industrial facilities, has increasingly driven the cycle of growth in take-up and supply.

For example, in the year 2000, gross take-up by the Transport and Storage sector (encompassing logistics operators) in Australia was 285,000 sqm. The sector accounted for only 14% of the total gross take-up recorded that year. Fast forward to the year 2012 and the Transport and Storage sector was responsible for 711,000 sqm of gross take-up – an increase of 250% from just over a decade previously. Furthermore, the Transport and Storage sector accounted for 31% of the total gross take-up recorded in 2012, more than any other industry sector that year.

Drivers of the Logistics Sector

Source: ABS, Jones Lang LaSalle Research

Two of the factors influencing warehouse and logistics sector trends in Australia are improvements in inventory management practices and strong growth in consumer goods imports. Australia’s imports-to-sales ratio has been rising steadily over a period of at least 40 years. The recent strength of the AUD has contributed to import growth but there are evidently long-term structural factors at work as well. Rising import volumes imply an increased demand for warehouse capacity, which results in further investment in distribution and logistics facilities.
Offsetting this trend, however, has been the long-term decline in the inventories-to-sales ratio, which reduces the demand for physical storage capacity. This trend highlights the steady improvements in efficient inventory management and just-in-time delivery from well-located facilities close to major road transport infrastructure and points of sale. Further use of automation in distribution centres will improve this ratio further.

The falling inventories-to-sales ratio means that industrial construction has been lower in the past than would have been the case with a stable inventories-to-sales ratio. It has allowed us to do more with less; while Australia’s relatively strong population, employment and income growth over this period has been a key driver of new industrial warehouse construction.

At some point, factors such as urban sprawl, increasing travel times and road congestion will limit the capacity to drive the overall inventories-to-sales ratio lower. At this time, we can expect a noticeable increase in the rate of new industrial construction to service Australia’s growing population.

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