The Australian manufacturing sector remains under the spotlight following recent high profile manufacturing company closures. General Motors Holden and Toyota have announced their intentions to shutdown their car manufacturing operations in Australia in the next few years. SPC Ardmona was also expected to close its fruit cannery before State Government intervention in the form of a $22 million assistance package. The scale of the closures and the quick succession of their announcements illustrate the tenuous economic environment faced by many Australian manufacturers.
In the year to December 2013, while Australian GDP grew by 2.7% (Australian Bureau of Statistics), manufacturing output fell, detracting 0.1 percentage points from the annual growth rate. The fall in the level of output is mirrored by lower manufacturing capital investment over the past two years (Figure 1). While the reasons behind the contraction of the Australian manufacturing sector are complex, the underlying factors include a relatively high Australian dollar, low productivity growth, and competition from countries with lower production costs.
The manufacturing sector has been one of the key industries driving take-up of industrial real estate. However, the sector’s share of take-up has been declining steadily since 2008 (Figure 2). While manufacturing firms have typically accounted for around 25% of all occupier take-up annually, this fell to just 17% in 2013 and mirrors weaker capital investment spending. With operators in many sectors clearly under pressure, developers and investors will need to monitor their exposure to manufacturers and their suppliers when creating assets or investing in existing properties.
While the manufacturing sector in Australia has been contracting for many years, opportunities may become available as a result of relative shifts within the sector itself. A number of manufacturing sub-categories remain active and growing. In particular, Australian Bureau of Statistics data shows robust investment in Food and Beverage Manufacturing. This has ensured its position as the largest contributor to manufacturing output at 24% in the 2012/2013 financial year (Australian Government Department of Industry). Similarly, over the past ten years, the share of total output has increased for machinery (currently approximately 21%) and metal product manufacturing (16%).
Significant growth in some sectors means relative contraction in others. The share of total manufacturing output for the wood/paper industry fell to just 6% in 2013, while textile/clothing manufacturing accounted for just 5%. These shifts will have significant flow-on effects for industrial property, particularly in terms of industrial occupier composition, industrial space creation and usage, refurbishment of existing product, and investment strategies. While the transformation of the manufacturing sector has been an ongoing theme for many years, the recent quickening pace of the sector’s decline may require re-assessment of industrial property strategies.
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