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Multi-level warehouses will become a feature of the Australian property market as the demands of online shopping bear down on land-constrained cities and force developers to evaluate building design.

Two two-storey warehouses are already being planned for Botany, 10km south of the Sydney CBD, where development sites are scarce. Building vertically is the only option for logistics and supply chain companies under pressure to meet increasing demand for e-commerce led same-day delivery.

Botany is home to Australia’s biggest sea port, as well as Sydney International airport. These factors, coupled with its proximity to the Sydney CBD, make it a key strategic location for logistics and supply chain businesses.

Weighing up the benefits

For a logistics company in Australia, transport is responsible for 50 percent of business costs, while rent makes up only four to seven percent, according to Michael Fenton, who heads JLL’s industrial team in Australia.

“This makes proximity to core markets a critical consideration for occupiers,” he says. “In a land constrained city like Sydney – where a lot of industrial product was rezoned to residential – building vertically is a logical next step.”

Online purchases in Australia increased by 11.5 percent in 2017 compared to the previous year, according to a recent white paper by Australia Post and StarTrack.

With consumers in New South Wales and Victoria the most active in the country, state-capital Melbourne is on track to follow Sydney’s example of maximising industrial land sites.

Besides cost-savings, this development model has added sustainability benefits as building on smaller sites closer to the customer base also equate to reduced carbon emissions. “It’s a win for business, people and planet,” says Simone Concha, Sustainability Director at JLL Australia.

A global template

In February, Greg Goodman, chief executive of industrial developer Goodman Group, announced the company’s plans for multi-storey warehouses, citing south Sydney and inner Melbourne as potential areas for development.

Goodman already owns high rise industrial developments in Asia where, in space squeezed cities such as Hong Kong, Singapore and Beijing, the precedent was set for this global trend.

The multi-level format also features in continental Europe, where, among other developers, UK-based REIT SEGRO has built a two-storey 14,000 square metre facility in central Munich, and another two storey development, over 60,400 square metres, in Gennevilliers, northern Paris.

Having also developed multi-storey sheds in Asia, Prologis took the trend to the U.S in the shape of a three-storey, 54,777 square metre facility in Seattle which is expected to be operational in September. The facility has ramps for truck access to second-floor loading docks, then a freight elevator linking the third floor to ground floor loading docks.

In New York there are no less than three vertical warehouses planned – in Brooklyn, the Bronx and Queens – designed to accommodate the 16 metre trucks commonly used in the U.S.

The multi-level format is about to hit London, too, as Gazeley – which has been recently acquired by the Asian warehouse developer GLP – gets to work on a three-storey, 40,000 square meter freight handling facility in the Docklands area to be used as a last mile logistics hub. The development will be the first of its kind in the UK.

Industrial strength

Industrial property has become a hot commodity in Australia, with strong demand and a scarcity of land combining to drive up land values and rents.

The leasing market recorded gross take-up above the 1 million square meter mark for the third successive year in 2017. Last year also saw the strongest annual growth rate in 12 years, with a 4.1 percent uptick over the year, according to the JLL report An Assessment of Sydney’s Industrial Land Supply

For investors, Fenton says the multi-level format provides the opportunity to acquire larger assets in markets with a broad captive tenant base ensuring strong rental and capital growth into the future.

The trade-off is the higher land values closer to city centres, and expensive automation, which can sometimes be pricier than the cost of building.

Click to find out how investors are finding value in converted warehouses.

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Michael Fenton

Head of Industrial, JLL Australia

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