Vertical warehouse take industrial sector to a new level

Vertical warehouse take industrial sector to a new level

Total Property - Issue 2 2018

For New Zealand's industrial property sector, vertical construction is the final frontier.

Office, retail and residential developments all shoot for the sky in an effort to maximise value. Now, with prime industrial land in short supply and inner-city sites commanding higher prices due to competition from other sectors, the pressure is on industrial developers to follow suit and seek to reinvent the asset class.

“Multi-level industrial sites are relatively commonplace in Asia, where industrial buildings in densely populated cities can reach up to 15 storeys high,” says Scott Campbell, Bayleys National Director Industrial and Logistics.

“Asia is leading the way forward in other ways too. The constraints on warehouse space has spurred development of technology-based solutions facilitating higher storage density.

“Automated systems have helped cut down space and time needed to store goods. Some systems in operation in Asia have cut space requirements by 30 percent and speeded up the processing of goods by up to 10 times, compared to traditional warehousing methods.

“The growth in e-commerce is driving much of the change in the sector, and inevitably industrial sites in New Zealand will need to be developed along similar lines in the future.”

LOW VACANCY

The industrial sector saw record growth in 2017 and is ripe for further growth and innovation, says Mr Campbell. “Business growth in and around well-located industrial precincts has peaked to levels not seen since before the Global Financial Crisis and the boom in e-commerce has been rocket-fuel for the logistics industry. Also driving demand for industrial property are successes in food production and niche manufacturing businesses.”

Traditional industrial precincts are experiencing unprecedented low vacancy rates and strong capital growth, he says. “Competition for centrally located industrial properties that can tap into transport arterials to optimise efficiencies is growing, and owners in these established areas can expect to command strong prices if or when they decide to sell.

The squeeze on existing industrial property stock has forced the sector to come up with creative solutions, such as developing new multi-storey stock in brownfield sites, or to look to emerging population nodes and areas targeted for significant infrastructure spending, Mr Campbell says.

“The demand for industrial property that can fulfil the needs of a ‘click and collect, same-day delivery’ culture is only going to increase.”

Most major centres have plans in place to spur industrial growth. Local councils seem keen to future-proof their economies.

“The economic conditions are favourable for more activity in the market, and the lack of available space in key areas should also spur the development of more purpose-built facilities,” Mr Campbell says.

“Pressure is building to upgrade industrial areas to meet the changing needs of tomorrow’s industries. Businesses are pushing inwards; they want to stay in the orbit of a CBD or the communities they support.”

With a shortage of undeveloped industrial-zoned land for new-build industrial properties in most of New Zealand’s main centres, the challenge for the sector is optimising existing space in order to achieve operating efficiencies.

“Industrial buildings in New Zealand tend to be single level. If there is a second level or mezzanine it is most often used for related office space. Multi-level industrial will become increasingly feasible for high-value industrial users who can afford rents that would be needed to support the additional cost of multi-level construction,” Mr Campbell says.

“While square metre rates in New Zealand are still some way off, as the sector becomes more technology based and consumer demand for products distributed in an increasingly shorter time-frame continues to rise, the cost gap will become smaller and smaller.

“This will accelerate the development of multi-storey industrial properties in New Zealand.”


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