Industrial property is well placed to ride out the short-term uncertainty caused by COVID-19, says Colliers International.
According to the latest Colliers radar paper, COVID-19 Industrial Implications, recent growth in demand for transport and logistics and the industrial sector’s key role in supply will see the sector through the months ahead.
Malcom Tyson, Colliers International managing director for industrial, says the “fundamentals within the Australian industrial and logistics market remain favourable”.
Several structural and cyclical changes are “playing into the hands of the sector,” Tyson adds.
“Bringing it back to basics, the key drivers of the industrial market in recent years have been population growth, infrastructure investment, growth in e-commerce and low cost of debt.
“Although population growth is expected to take a hit over the short term, as net overseas migration drops significantly off the back of travel restrictions and the closure of the Australian borders to non-citizens, the outlook for the other key drivers in the current environment remains unchanged.”
Colliers notes that the e-commerce sector continues to expand and the coronavirus outbreak is expected to accelerate online retail sales and subsequent demand for industrial space.
“With stores adjusting their hours and political leaders asking the public to stay home, the value of e-commerce has increased exponentially,” explains Colliers associate director of research, Luke Crawford.
Demand for large distribution and warehouse facilities is expected to “continue its strong run”, particularly for “last-mile locations” as Crawford explains.
“Food companies, logistics companies, warehousing and to some extent manufacturing have shown how important they are in times of ‘social distancing’ and keeping the supply chain open.”
Crawford says panic buying has also spurred food manufacturers and suppliers to reassess the adequacy of their distribution and warehousing facilities.
In late March Coles announced its intention to open three ‘pop-up’ distribution centres in New South Wales, Victoria and Queensland to cater for the rapid growth in food and grocery purchases. Colliers expects some companies may need to expand their industrial footprint in metro areas to keep up with the increased demand.
Crawford says while COVID-19 has had an impact on the investment decisions of some groups, there is still “significant amounts of capital chasing assets” and more recently this has seen the return of private investors to the market.
“As a result, it represents a favourable time to offload long-held assets and take advantage of strong capital gains recorded over the past five years.”