- The move to multi-story solves a very specific issue
- Sydney, and a growing number of areas, are facing rent and space challenges
- Multi-story requires additional operating expenses
Several sources and companies within the industrial real estate sector have reported on the rise of multi-story warehousing that we are seeing in cities such as Sydney, Hong Kong, Shanghai, and Tokyo.
Operating these types of properties can be expensive. They must use costly systems to deliver stock to and from tenanted areas.
Things to consider include:
- How does a 4-storey warehouse work in practice?
- How do you get goods up?
- Do trucks drive up ramps, or do they use lifts?
- How high is the clearance in the warehouses?
- How close are the supporting columns?
- What is the weight-bearing rating of the floor?
Why Sydney rises and others don’t
Why do these expensive and challenging properties become more popular than the ground floor type of properties in certain areas and not others?
In WA, for example, we do not see this trend. The reason comes back to the land value. Operators prefer a low-cost system rather than the systems described above.
In Sydney, the added costs and challenges of the multi-story warehouse outweighs the financial burden of occupying a ground-floor level warehouse.
Director of X Commercial, Marcus Schraag explained that in Sydney’s high-density areas where we are running out of available land, the only practical solution for moving forward is going upwards.
“Currently, the vacancy rate in an area like South Sydney sits at or below 1% with a leasing rate of $350 / m2 for a 2,000 m2 industrial property. In Alexandria, we might only have availability on one or two streets.
“The reason for this low vacancy rate and high land value is established by the common long-term leases of, for example, ten by ten years and the long waiting lists, where lessees have to wait years for the right warehouse, in the right zone, with the right loading structure.”
Director of X Commercial, Marcus Schraag
In Perth, where we have relatively affordable land, the rents are not high enough to justify building, maintaining, and occupying multi-story warehouses.
We still have plenty of land available, which goes hand-in-hand with the supply and demand ratio and the previously mentioned affordability.
Chair of the REIWA Commercial Network Committee Mike Rowe explained why we do not see these trends in Perth.
“Multi-storey warehousing, like an Amazon multi-level warehouse in cities like Tokyo, is costly to build. Our land and sales values for Industrial have not hit levels supporting this development style.” Mr Rowe explained.
“Also, unlike other major cities, our transport distribution is efficient in the Perth Region. Industrial land is in short supply but has not dried up yet and is more likely to happen in the long term with the implementation of driverless cars/trucks and drones, for example. It is hard to put definitive times on these styles of trends and predictions.”
President of REIA, Hayden Groves reviewed the trend around the country.
“Whilst stabilising in recent times, land values throughout the Sydney market have escalated to levels that support multi-storey warehousing as a solution to the tight industrial market, Mr Groves explained.
“Planning constraints and under-supply industrial land due to an imbalanced focus on other commercial land use combined with residential applications is part of the drive towards multi-storey warehousing applications.”
“One challenge for this market sector is the quality of the new-built warehousing to ensure multi-use and longevity of this asset class. It is reasonable to expect this product will have long-term usefulness and demand in near-city locations.”
In summary, Perth doesn’t meet the requirements of high land values, which makes it suitable for investing in multi-level industrial properties.
It is unlikely this trend will make its way to the west in the short term.
However, considering the number of investments in construction and transport and the long-term predicted population growth within our state, we might follow the example of high-density cities in the future.
Still, it is difficult to put a timeframe for when this will happen.
