Australia is living up to its reputation as one of the biggest online spenders in the world, fuelling a surge in demand for cold storage warehouses across the country. And investors are racing in to capitalise.
Online grocery shopping is an A$173 billion industry in Australia, with sales projected to rise 12 percent annually over the next five years.
The growth, propelled by the bold online strategies of Australian supermarkets and major e-commerce players, has led to both domestic and foreign investment in supporting real estate sectors.
Cold Storage is quickly becoming a favourite with investors as yields tighten by 100 basis points over the past 12 months.
“From now on we are going to see a huge step-up in the demand for cold storage space, with major potential for further expansion,” says Sass J-Baleh, JLL’s Head of Industrial Research Australia.
“The food and grocery sector is to a large degree demand inelastic, therefore warehouse facilities that cater to this area are unlikely to be hit by any negative shock to the economy,” says J-Baleh.
Major deals to date include fund manager Fife Capital’s A$55 million sale of a 14,479 Ingham’s production facility in Brisbane on a yield of 6.1 percent.
Meanwhile, earlier in the year, U.S. firm Emergent Cold acquired Swire Logistics’ entire Australian portfolio of 15 refrigerated warehouses. It joined Netherlands-based Newcold, backed by U.S. private equity firm Westport Capital Partners, which established itself in Australia with two highly automated cold storage warehouses in Melbourne.
Newcold subsequently claimed a stake in the Sydney market, paying $31 million to Swire for a seven-hectare site in the NSW Government’s Marsden Park industrial precinct.
The deals followed local fund manager Charter Hall’s acquisition of a portfolio of 10 temperature-controlled distribution centres from global food giant JBS, part of the Lederer Group, for AU$180 million.
Three quarters of the 110 cold storage facilities tracked by JLL Research are located in Australia’s east coast markets for their proximity to major population hubs.
But, growth in the sector is set to be hampered by supply, with investment activity already seeing a dip.
Across the industrial sector there have been A$2.5 billion of transactions over the 2018 year to date, compared to A$5.4 billion in 2017 (for sales A$10 million and over).
The situation causes an ongoing challenge for retailers and logistics companies trying to meet demand for next-day delivery, with that pressure intensifying for those handling perishables, says Michael Wall, JLL’s Head of Industrial for NSW.
Australia is a “mature market”, though “the tyranny of distance that Australia has previously experienced is no longer accepted by the Australian consumer,” Wall notes.
Click to read why logistics is becoming an institutional grade sector.