Demand sparks space race
GOODMAN GROUP has more than $620 million of works in progress across the industrial market, reflecting the rise in demand for warehouse storage from e-retailing.
The works have been tipped to ignite another round of developments from smaller developers.
The chief executive of Goodman, Greg Goodman, said development demand remained strong, particularly in continental Europe, China and Australia, with the Australian company starting $618 million of new commitments in the first half of this financial year.
''Consistent with the group's low-risk approach, 78 per cent of current developments are either presold to, or prefunded by, Goodman's managed funds or third parties,'' Mr Goodman said.
''The significant activity in our development business is being driven by the undersupply of prime-quality industrial space and a number of structural changes taking place globally, including the rapid growth in e-commerce and greater supply chain efficiencies.
''This continues to generate strong … demand for our development product.''
He said rents had been stabilising, and developments across Australia had been strong where there was new infrastructure either under way or in the planning stage.
One of the larger deals in the past two years by Goodman Group was the precommitment for an 82,015-square-metre warehouse and office facility to be developed for Metcash at Bungarribee Industrial Estate in western Sydney.
But an increasing number of developers have been responding to the supply-and-demand mismatch in Sydney's industrial sector by adopting speculative projects, according to new research by Jones Lang LaSalle.
Its head of industrial for Parramatta, Casey Greenberg, said speculative development, with no formal commitment from the end-users, provided greater flexibility for in-demand smaller industrial warehouse facilities.
''Speculative projects can be a successful solution in the current market where demand has held up, but supply is likely to remain tight for the foreseeable future,'' he said.
''In Sydney's outer west, speculative development has been adopted in the past year as a successful solution to create product that is attractive to occupiers looking for modern, efficient space, but unwilling or unable to pre-lease or purpose-build smaller … warehouse facilities.''
Mr Greenberg said the lack of smaller industrial warehouses had forced many tenants to stay where they were or lease secondary stock.
According to a Jones Lang LaSalle NSW strategic-research analyst, Rick Warner, the supply pipeline for smaller warehouse facilities had declined significantly since the global financial crisis, from 28 projects in 2007 to only seven in 2011.
''Gross take-up of space in this size cohort held up reasonably well during the GFC and created a demand and supply mismatch throughout 2012,'' Mr Warner said.
''New supply is expected to remain subdued in 2013, with only 221,900 square metres of projects under construction for 2013 completion, as opposed to 596,700 square metres completed in 2012.''