28/09/2011 - 10:44

Shortage of large industrial lots linked to infrastructure discourages investment

28/09/2011 - 10:44

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A lack of well-serviced industrial land is hampering investment in WA.

COLIN Barnett proudly promotes Western Australia as the world’s leading mining economy, spruiking expected investment of up to $300 billion during the next five years.

Hiding behind these billion-dollar headlines, however, are some other big numbers the state’s politicians don’t like to mention, such as the cost of industrial land.

Perth boasts some of the most expensive industrial property in the country, with average rents more than 40 per cent higher than in Melbourne and close to double average rates in Adelaide.

The average industrial rent in Melbourne is $73.50 per square metre, compared with $105/sqm in Perth.

It’s a critical cost that is actively discouraging investment in WA and stymieing the expansion plans of companies including German supermarket giant ALDI, which is understood to have baulked at the lack of suitable industrial sites in Perth.

ALDI’s not alone, with the shortage of well-serviced sites over 10,000 square metres hampering the expansion plans of a number of major logistics groups and national retail operators.

The industrial property sector is the nuts and bolts end of the property market and rarely attracts the media attention lavished on shiny new office towers and flashy retail developments; yet it plays a pivotal role in the economy across almost all sectors.

Land not the issue

What troubles industry analysts most is that the high cost of industrial property in WA can’t be blamed on a shortage of land.

There is plenty of land and a number of options for businesses seeking large parcels. What many of these new precincts lack is connectivity to the city’s major freight arteries and, as such, they fail one of the basic tests of industrial land users.

Wayne Chorley leads Colliers International’s industrial team and he keeps a close eye on rents across the Perth industrial sector.

He said rents were on the rise and the shortage of properties over 3,000sqm was supporting the pressure on land prices as well as leases in the design and construct market in privately run estates such as Jandakot City.

“It’s a case of where the land is, Jandakot has done quite a few big deals because it is one of the few places that can accommodate large-scale development,” Mr Chorley said.

“What we are finding is that the size of requirements has increased dramatically, quite often now we get a 10,000sqm requirement.”

Mr Chorley said businesses were tapped into the WA growth story and keen to build their exposure to the strong economic outlook, but finding the industrial property to support that vision was harder and more expensive than ever.

State government agency LandCorp has developed new precincts north and south of the city to address the shortage of large parcels of land.

But without significant investment in transport infrastructure to link these new divisions to major transport arteries, they don’t meet the requirements for many potential industrial tenants.

LandCorp’s Latitude 32 Industry Zone, adjacent to the Kwinana Industrial Precinct, has attracted just one tenant so far, Southern Steel.

While it’s understood another tenant is close to signing up, most industrial analysts claim the area will remain under-utilised until the state government commits to the proposed Fremantle Ports outer harbour.

It’s not an assessment LandCorp agrees with but the value of infrastructure is clearly illustrated by the success of its own 407-hectare Australian Marine Complex at Henderson.

This precinct, which has more than 250 tenants, has benefited from the government’s investment in a 40ha common-user facility, incorporating multipurpose fabrication, assembly and load-out facilities as well as a deepwater port and floating dock.

How did this happen?

How the critical shortage of well-connected, large industrial land parcels arose depends on whom you are asking.

Some analysts suggest the former Labor government didn’t move fast enough to address the looming land shortages and take steps to dampen price rises before the boom took hold.

The abolition of the state government’s dedicated industrial land authority and its absorption into the much bigger, multi-focused LandCorp is also put forward as a possible reason for the inadequate planning for WA’s industrial land requirements.

Talking to WA Business News, Planning Minister John Day sidestepped the question of why WA was grappling with serious shortages of well-serviced industrial land as it headed into the second wave of the resource boom.

Mr Day preferred to focus on the government’s long-term strategy rather than address solutions to the current market constraints.

“The issue of industrial land supply has been identified and is being taken seriously by the state government,” Mr Day said.

“In fact, the Industrial Land Strategy for Perth and Peel, currently approaching finalisation, focuses specifically on general and light industrial land and provides a framework to ensure ongoing economic growth.”

Developing new industrial precincts involves many challenges, both from an environmental and community perspective, which is why LandCorp has worked with the state government and the Property Council of WA to develop the Industrial Land Strategy (ILS.) 

LandCorp is hopeful cabinet will endorse the ILS by the end of the year; but even if that happens, the government will still have to agree to a separate implementation strategy to ensure funds are put aside by the various government agencies to put the plan into action.

Critically, neither of these reports specifies the funding for the infrastructure such as power, water, wastewater and connections to major freight routes, which are essential for industrial tenants

Strong economy

John Hackett is LandCorp’s general manager of industrial [land] and along with a team of about 30 people is keenly focused on the state’s industrial land requirements.

Mr Hackett views the current industrial land shortage as a symptom of the rapid economic development of the state rather than a planning failure.

“Since the mid 2000s the demand and growth of industrial land has been very strong, and because of the lag time to get approvals government wasn’t able to respond as quickly in that timeframe,” Mr Hackett told WA Business News.

He said LandCorp was focused on meeting the demand for large industrial sites through Latitude 32 and the Rockingham Industry Zone in the southern corridor and Neerabup to the north.

“The big context we are looking at is the ILS, that is a strategy addressing a 30-year time frame (for industrial property) and fits in with Directions 2031, the metropolitan region planning framework,” Mr Hackett said.

 “LandCorp and Department of Planning put together a significant implementation plan which is all about the bodies of work or studies needed to give effect to the rezoning so we can get that (strategy) through the system.

“But to do that we wanted to get a whole lot of priority funding ... that is what we are also putting to cabinet and the success of the ILS will be premised on the success of the implementation strategy.”

Perhaps one of the most important recommendations in the ILS is that the private sector, represented by the Property Council of WA, will have a role in terms of monitoring the effect of the ILS.

Mr Hackett said this was partly to ensure the strategy didn’t drift and end up as just another report.

“The whole intent of the ILS is that it coordinates government ... by getting cabinet to endorse a strategy it will bind those infrastructure agencies to make sure there’s appropriate funding in future years,” he said

“The implementation strategy will document and validate what the costs are associated with some of that infrastructure and that will inform those agencies to put that in their five-year forecast.”

Much of the land earmarked for new industrial estates is privately owned and Mr Hackett said there was a push to get a greater level of engagement from the private sector, which hadn’t traditionally provided a lot of larger industrial lots to the market partly because there are higher profits in smaller subdivisions.

The Property Council has played an important role in the development of the ILS and WA executive director Joe Lenzo said the focus was now on delivery.

“The strategy was quite simple, it was based on the fact that while there were plenty of industrial land identified (around Perth) ... there was no infrastructure, which made it almost useless,” he said.

“And any of the land that was available via LandCorp or other agencies was subdivided to a level where there were no large blocks of land for the logistics firms or retail firms that require not these small warehouse blocks but very large blocks.”

Some of the only big lots that have come onto the market in recent times have been at Perth Airport, which attracted blue-chip retail tenants Coles and Woolworths as a site for their distribution centres.

However, Westralia Airport Corporation has since shifted its focus to upgrading the domestic and international airports and sold a number of its leaseholds to private developers.

Goodman and its successful Stockyards development at Hazelmere as well as Jandakot airport owner Ascot Capital have stepped up to fill the void.

The issue with the private industrial developers is that it’s more lucrative for them to subdivide land into smaller parcels. These parcels don’t necessarily suit larger industrial users such as transport companies that need large areas of open space for fleets of vehicles.

“It’s difficult because where the government has large tracts of land such as Latitude 32, what is required is the funding to bring the transport nodes into it,” Mr Lenzo said

“There is not a lot of land available near Welshpool or near the airport or areas where we already have those nodes so we have to fund the transport nodes, both road and rail.”

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