Online retail plateau affects industrial property demand. Technological advancements and return to brick-and-mortar shopping reshape commercial real estate landscape.
The rapid growth in online retail sales during the pandemic has plateaued, potentially affecting demand for industrial property.
Ray White Head of Research, Vanessa Rader, said the proportion of online retail sales has remained static over the past 18 months, raising questions about future demand for industrial facilities.
“The growth trajectory of online shopping has paused, with consumers returning to brick-and-mortar stores, particularly for food and groceries,” Ms Rader said.
Online transactions now account for 10.9 per cent of all retail sales across the country, down from 15 per cent during the COVID peak.
The industrial property sector was a standout performer during the pandemic, with large distribution facilities attracting significant institutional investment. Over $9 billion in industrial assets changed hands in the year to March 2022, leading to fierce competition and sharp declines in investment yields.
However, the landscape is now changing, with advancements in technology potentially impacting space requirements.
“AI-driven efficiencies, multi-level racking systems optimising space, and increased automation suggest that additional capacity could be absorbed within existing industrial footprints,” Ms Rader said.
The past 18 months have seen a slowdown in large industrial transactions, with changing financing costs contributing to rising yields and some land value declines across the country.
“Despite persistently low vacancies, rents have levelled off, and new supply has been limited due to high construction costs further dampening investment demand,” she said.
Ms Rader suggested these developments could signal a significant shift in the industrial property landscape.
“As logistics demand potentially wanes, the status of large distribution facilities may shift,” she said.
The renewed preference for brick-and-mortar shopping could bring stock back to stores, potentially energising retail assets across the country.
This shift in consumer behaviour and technological advancements may reshape the industrial property sector, with investors and developers adapting to changing market dynamics.
Further questions
How has the growth of online retail sales impacted the industrial property market in Australia?
The growth of online retail sales significantly boosted the industrial property market during the pandemic, with over $9 billion in industrial assets changing hands in the year to March 2022. This led to fierce competition and sharp declines in investment yields. However, recent data shows that online retail growth has plateaued, with online transactions now accounting for 10.9% of all retail sales, down from 15% during the COVID peak. This shift may affect future demand for industrial facilities, particularly large distribution centers.
What technological advancements are influencing the industrial property sector?
Technological advancements are reshaping the industrial property sector in several ways. AI-driven efficiencies, multi-level racking systems, and increased automation are optimizing space utilization in warehouses and distribution centers. These innovations suggest that additional capacity could be absorbed within existing industrial footprints, potentially reducing the need for new, large-scale facilities. As a result, investors and developers may need to adapt their strategies to align with these technological trends and changing space requirements.
How is the return to brick-and-mortar shopping affecting the commercial property landscape?
The return to brick-and-mortar shopping is having a significant impact on the commercial property landscape. Consumers are increasingly returning to physical stores, particularly for food and groceries. This shift could bring stock back to stores, potentially energizing retail assets across the country. As a result, the demand for large distribution facilities may decrease, while retail properties could see increased interest. This changing consumer behavior is prompting a reevaluation of investment strategies in both the industrial and retail property sectors.
What challenges is the industrial property sector currently facing in Australia?
The industrial property sector in Australia is facing several challenges. The past 18 months have seen a slowdown in large industrial transactions, with changing financing costs contributing to rising yields and some land value declines across the country. Despite persistently low vacancies, rents have leveled off, and new supply has been limited due to high construction costs. These factors are dampening investment demand. Additionally, the plateauing of online retail growth and technological advancements in space utilization are raising questions about future demand for large industrial facilities.
How might the changing dynamics in online retail and industrial property affect investment strategies?
The changing dynamics in online retail and industrial property are likely to impact investment strategies in several ways. Investors may need to reassess the long-term value and demand for large distribution facilities as online retail growth stabilizes and technology enables more efficient use of existing spaces. There could be a shift towards smaller, more flexible industrial spaces or multi-use properties that can adapt to changing market needs. At the same time, the renewed interest in brick-and-mortar shopping might make retail properties more attractive. Investors may need to diversify their portfolios and consider a mix of industrial, retail, and potentially hybrid properties to mitigate risks and capitalize on evolving market trends.
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