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Already seen as the best performing commercial asset in the Australian market, industrial is set to be thrust into another stratosphere as green initiatives stoke manufacturing needs.
A new report from Savills shows that Australia has received a huge $33.3 billion investment in warehousing in the last five years, with desire for transport, storage, and logistics space spurring the industrial market into a new era of demand. Over the past three years, rents have soared up to 80 per cent in select markets and vacancy rates have fallen below 1 per cent.
All this is set to intensify, according to the firm, as Australia’s turn to green energy and environmentally friendly initiatives drives interest in on-short manufacturing, which has lately been the slowest performer of the subsector.
“While industrial demand has historically been driven by warehousing and logistics, manufacturing is poised to see a greater focus going forward. With a strong policy framework and increasing investor interest, this rebound is poised to reshape Australia’s industrial property market for years to come,” said Katy Dean, head of research at Savills Australia.
With the Australian government having made a significant commitment to reduce carbon emissions by 2030 and achieve net zero by 2050, various sectors are looking to rapidly electrify their businesses and turning to equipment and technologies to do so. Savills predicts that industrial property will form the backbone of the industries needed to equip the country with renewable energy, electric vehicles (EV) and energy storage systems that will drive the net-zero transition.
Victoria, South Australia and Queensland are currently expected to lead the charge, with the states having released 10-year roadmaps to improve their manufacturing capabilities.
According to Dean, private equity is already showing appetite for manufacturing investment, “with data from the AEMO in February 2024 showing that proposed battery storage projects are double the forecast set two years ago”.
EV manufacturing in particular has the potential to send already tight vacancy rates plummeting, according to the report.
“The increasing demand for EVs, ESS, and batteries not only fuels the need for industrial floorspace but also extends to infrastructure development, advanced manufacturing facilities, and renewable energy, creating a ripple effect across multiple sectors and contributing to the strength of Australia’s industrial property sector,” Savills explained.
Recent examples in other markets that are further ahead in their EV capabilities have shown what an impact the industry can have.
Following Tesla’s announcement that it would open a $1 billion Gigafactory in the US city of Reno, Nevada, in 2015, the vacancy rate of the wider market reportedly declined from 10.4 per cent to 4.4 per cent, while average rents rose 70 per cent over the next six years.
Savills forecasts similar scenarios to impact Australia’s industrial market as the sale of EVs increases in leaps and bounds. The total volume of sales in the first half of 2023 completely exceeded the total for 2022, according to data from Australia’s Electric Vehicle Council.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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