Industrial property could be set for its biggest revolution in the past 50 years. The sector has had to adapt to the offshoring of manufacturing, arrival of online shopping and the exponential increase in residential property values. Now more than ever, the lack of quality industrial land in Sydney and subsequent augmented pricing is placing pressure on industrial property owners and investors to reinvent the asset class.
It is common knowledge that Sydney is geographically constrained by both water and land, and as a result appropriate land for industrial use is in short supply, forcing developers and business owners to reconsider their footprint and evaluate the absolute best use and ROI per square metre. Enter the notion of multilevel industrial.
The final frontier of real estate growing upwards, industrial has been slow to follow office, residential and retail developments which have moved to increasingly dizzy heights in an effort to maximise value. Multistorey industrial spaces are relatively commonplace in countries such as Hong Kong and Japan, and are increasing in popularity in Singapore where state of the art buildings can often be up to 15 storeys high. These buildings offer most of the advantages of industrial buildings, however require a fraction of the land being used by on grade single level warehouses.
Multilevel industrial isn’t as simple as considering secondary floors that traditionally housed offices as usable space. It is instead a complete overhaul of the traditional warehouse model, maximising storage and access to meet modern industrial needs.
Multilevel industrial buildings, while not common, have been a part of the Sydney market for the past century. However, restricted access, generally facilitated by goods lifts, was a key reason for the limited take-up of this style of property. Modern interpretations can feature circular ramp systems, allowing semi-trailer access to each level of the building.
The new wave of multilevel industrial provides the opportunity for developers to supply denser parts of capital cities with a much needed supply of industrial space, as the supply of industrial land diminishes over time.
Ideal potential locations for multistorey industrial development include the more dense and expensive parts of industrial Sydney, such as Alexandria, Mascot, Lane Cove and St Leonards. For example, the owner of 10,000 sqm site can potentially develop a 30,000 sqm industrial building, as opposed to a 7,000 sqm traditional single level building. When considered in this way there is potentially significant economic windfall for owners of industrial or mixed use land in these locations as they can effectively increase the density of their site by more than three times.
“Many prospective buyers in South Sydney are looking for vacant lots to construct multilevel industrial complexes,” comments Cushman & Wakefield’s Tim Cassidy, Head of Industrial Sales and Leasing NSW. “The only way to justify soaring industrial land values in the area is to maximise the floor space ratio. Traditionally, industrial sites have yielded a maximum of 70% building area, whereas developers are now looking to achieve floor space ratios of between 1:1 and 1.5:1 in South Sydney, meaning a minimum of two or three level complexes”.
Infrastructure projects, particularly upgrades to Sydney's orbital road network continue to shape the dynamics of the industrial market. The ongoing search for development sites is pushing users outwards, where new infrastructure is located. With this move comes opportunity, especially for those considering innovative industrial solutions and modern approaches such as multilevel industrial. The combination of market conditions, land availability and the high cost of construction ensures Sydney has reached the critical point in which the building of multistorey industrial can be justified.
The changing needs of industrial occupiers, Sydney’s geographic constraints and the ongoing challenge of stock availability and increasing price pressure continue creating the perfect industrial storm. A scenario in which multilevel industrial becomes the best option for both developers and occupiers. Industrial development will be well and truly ‘moving on up’.
To discuss your industrial property needs, please contact a team member from our industrial sales and leasing team by clicking here.
This article was also featured in the Sydney Morning Herald, 16 June 2017.