Logistics & Industrial Occupier Market Outlook 2024

Slowing Consumer Consumption The largest impact on warehouse demand over the next 12 months will stem from weaker demand for goods and services as households continue to reign in their budget, given the current cost of living pressures. However, partly offsetting this is population growth, which is currently at its highest level on record and will continue to stimulate warehouse demand in each market. The impacts of slowing consumer consumption will be most pronounced for discretionary based retailers. Supply Chain Volatility Beyond local demand and supply dynamics, broader geopolitical issues will continue to impact occupier leasing strategies . At their core, the issues witnessed over the past 12 months, including the events in Europe and the Middle East, have placed a greater emphasis on supply chain resiliency. Continued supply chain challenges will support further demand as retailers and other occupiers continue to hold “buffer” stock. Our experience during the pandemic showed that occupiers were holding anywhere from 10%-25% more stock than pre-pandemic, which was used as a buffer. While the top end of this range is unlikely, given that businesses are cost-conscious in the current

environment, it is expected that 5%-15% more stock will be held than pre-pandemic levels, however, this will vary from occupier to occupier. As a result of these challenges, occupiers are exploring a hybrid model of inventory management, including a mix of ‘just in case’ and ‘just in time’ strategies, ensuring the supply of high-flow goods should occupiers wish to meet customer demands and stay competitive. Beyond geopolitical risks, several other issues could potentially impact demand, including climate risk . This was most recently evidenced by the current drought conditions being recorded at the Panama Canal, where shipping capacity had been reduced by almost 50%, and underscores the potential impact of issues beyond the control of occupiers. Slowing Demand From China A downside risk to the Australian economy, and therefore, warehouse demand, is the outlook for economic growth in China . Since the GFC, China has been the main recipient of Australia’s exports, receiving approximately one-third of total export volumes. With several forecasters anticipating GDP growth in China to fall below 5.0% in 2024 and 2025, this will negatively impact Australia's export demand.

Headwinds Impacting Demand

High Interest Rates & Inflation Inflation remains stubbornly high and above the Reserve Bank of Australia’s (RBA) target band of 2%-3%. The knock-on effect of inflation is reduced spending power from consumers. This is playing out as there has been a pull back of discretionary spending as consumers direct their spending to essential and non-discretionary retail items like food and housing costs. Higher inflation levels have impacted occupier balance sheets as costs of producing goods and providing services to their customers have increased . The largest impacts have stemmed from higher transport, insurance and energy costs , which collectively make up a significant

share of total operating costs. At the same time, occupiers have been impacted by rising rents and statutory outgoing costs, given the growth in land values, which has further compounded the impacts. To offset cost pressures, occupiers are continuing to invest in automation and technology and targeting locations that reduce transport costs . These factors will continue to support gross take up volumes. The impact of higher interest rates on occupiers is most pronounced for those seeking financing to facilitate business expansion.

Figure 1. Australia Inflation & Cash Rate Outlook

-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

Figure 2. World Container Index ($US per 40-ft container)

$4,500

$4,000

$3,500

$3,000

$2,500

$2,000

$1,500

Pre-pandemic average = $1,420

$1,000

Inflation (YoY Change)

Cash Rate

Source: ABS, RBA, Oxford Economics, Cushman & Wakefield

$500

World Container Index

Source: Drewry, Cushman & Wakefield

7 | CUSHMAN & WAKEFIELD | LOGISTICS & INDUSTRIAL

OCCUPIER MARKET 2024 OUTLOOK | 8