Pandemic sparks logistics rethink

The recent panic buying of essential goods and increase in delivery services could have a lasting impact on Perth’s industrial property sector.

The full implications for business of the COVID-19 lockdown will likely become clearer as the state’s economy gradually reopens, but already evident is how devastating supply chain disruptions have been across sectors.

Panic buying of household items early in the pandemic response left shelves in major retailers empty for weeks, despite assurances supply was not an issue.

For many organisations, that experience has highlighted the pre-existing issues associated with moving goods in and out of one of the most isolated capital cities in the world.

Nick Goodridge, who is senior director and head of industrial WA at real estate services firm JLL, said Perth’s isolation had proved a plus from a health perspective, but not so much for logistics as businesses sought to adapt to disrupted global supply chains.

“We’re very remote in Perth, that’s a good thing when you’re talking about COVID-19 … but at that top end of the supply chain that created issues,” Mr Goodridge told Business News.

Beyond the strain on supermarkets, border closures and restrictions have also exposed issues for the building industry, with more than 60 per cent of the country’s construction-related materials sourced from China, according to the Australian Construction Industry Forum.

“There’s going to be a lot more emphasis on supply chains,” Mr Goodridge said.

“No doubt businesses will look at what they’re doing in regards to the inventory of certain products and components, so that if something like this happens again it won’t slow down or stop them from being able to operate.”

He said adjusted delivery curfews, more flexible leases, and the decentralisation of distribution centres were some of the options being explored.

Looking long term, Mr Goodridge said that could translate to warehouses being restructured to hold more stock, a look at local manufacturing opportunities, and a likely increase in the take-up of industrial space.

Demand for Perth’s industrial space had remained relatively subdued in recent years, tenanted in the main by engineering and manufacturing businesses.

Average prime rents (see graph) peaked during 2011-2015, a period Mr Goodridge said during which almost every industrial building of more than 3,000 square metres was leased as a result of the oil and gas project boom.

“Since about 2014-15, when we had a lot of demand generated by the resources industry in WA, we’ve been in a flat market with quite soft demand,” he said.

“In saying that, this environment has fast-tracked discussions with other sectors.”

Mr Goodridge said there had been an uptick in enquiry for industrial space off the back of an immediate need to handle the increased movement of goods as a result of COVID-19, pointing to JLL’s most recent deals with Australia Post.

During the past two months, Australia Post has added an extra 11,000sqm of warehousing space to its Perth bases, signing a three-year lease (with potential for an additional three years) for 4,774sqm at an office-cum-warehouse at 82 Pilbara Street in Welshpool.

Australia Post secured a second, short-term lease for 6,500sqm at a Kewdale warehouse owned by Australian property fund manager Charter Hall, located at 123-135 Kewdale Road.

“The WA market from an e-commerce perspective is pretty behind the east coast, more so the world, when it comes to online shopping,” Mr Goodridge said.

“A few of the major groups are starting to put the feelers out looking for opportunities to help support that sector.”

CouriersPlease is another delivery business seeking extra industrial space in Perth, according to LJ Hooker licensee and head of industrial, Colm McHugh.

“COVID-19 did have an immediate impact,” Mr McHugh said.

“About eight weeks ago people just wanted to sit on their hands and see what was going to happen.

“Since then there’s been some decent requirements come to market: CouriersPlease currently have a requirement for 3,000 to 4,000sqm in that eastern market.”

In terms of future supply, Mr McHugh said the majority of new large-scale industrial developments had already been pre-committed.

“There’s definitely an opportunity for tenants to acquire some high-quality logistics centres for three- to five-year terms at lower rents and lower annual increases,” he said.

Mr Goodridge said the Perth market before COVID-19 had been starting to show some signs of recovery: over the 12 months to March 2020, industrial gross take-up totalled 237,700sqm, surpassing the 10-year annual average (206,400sqm) for the first time in five years.

“Getting closer to customers as part of looking at the whole supply chain is certainly a trend that we’re seeing; whether that lasts or not will be a wait and see,” he said.