Logistics & Industrial Occupier Market Outlook 2024

Figure 17. Supply Chain Costs by Sector

Figure 18. Warehouse Consolidation Case Study

100.0%

+

=

90.0%

80.0%

70.0%

Warehouse 2 - 10,000 sqm

Warehouse 1 - 10,000 sqm

Warehouse 1 + 2 - 20,000 sqm

60.0%

Outbound Transport

$42.5

Outbound Transport

$42.5

Outbound Transport

$85.0 $30.6 $22.4

50.0%

Inbound Transport

$15.3

Inbound Transport

$15.3

Inbound Transport

DC Fixed Costs

$11.2

DC Fixed Costs

$11.2

DC Fixed Costs

40.0%

DC Variable Costs $20.5 Inventory Holding Costs $10.5 Total Supply Chain Costs $100.0

DC Variable Costs $20.5 Inventory Holding Costs $10.5 Total Supply Chain Costs $100.0

DC Variable Costs $41.0 Inventory Holding Costs $21.0 Total Supply Chain Costs $200.0

30.0%

20.0%

10.0%

0.0%

Transport & Logistics

Consumer Goods

Building Materials

Retail

Pharmaceutical Manufacturing

DC Fixed Costs DC Variable Costs Outbound Transport Inbound Transport Inventory Holding Costs

Source: Cushman & Wakefield

DC fixed costs include net rent | DC variable costs include outgoings and labour costs

The focus will remain on consolidation and efficiency Despite real estate representing only a small share of total supply chain costs, it is a long term commitment. Subsequently, occupiers are looking at their real estate strategy and footprint to maximise operational savings. This includes analysis around the future role of the warehouse in their network, proximity to customers and access to intermodal nodes. More often than not, businesses may discover that the consolidation of warehouse operations is more cost-effective. By consolidating multiple warehouses into one facility, even if it’s of the same size or larger, it can yield significant efficiency gains , subsequently reducing costs and enhancing processes. The reduction in costs stems from lower labour, outgoings and transport costs as it will eliminate trips between multiple facilities and, for the right location, shorter trips to customers.

Breaking down average supply chain costs, figure 18 illustrates a hypothetical scenario (however based on a real life example) where an operator consolidates from two facilities into one of an identical collective size. Assuming total supply chain costs of $100, this scenario shows that despite paying 30% more rent, by consolidating into one facility, there are substantial supply chain cost savings that can be achieved and highlights the scope for tenants to pay more for rent on a per sqm basis.

New Warehouse - 20,000 sqm

Outbound Transport

$63.8 Assumes 75% of existing outbound costs given superior facility location Assumes 80% of existing inbound costs given the removal of transport costs between facilities $24.5 Assumes the rent on the new facility is 30% higher than previous facilities Assumes 75% of variable costs through a reduction in labour and outgoing costs (less land tax, council rates and area maintenance) Assumes they remain unchanged given the need for similar stock levels to service customers $30.8 $21.0 $29.1

Inbound Transport

DC Fixed Costs

DC Variable Costs

Inventory Holding Costs

Total Supply Chain Costs $169.1

Despite paying 30% higher rent for the same size facility, the overall cost savings to an operator are in the order of 15.5% in this scenario.

Source: Cushman & Wakefield

25 | CUSHMAN & WAKEFIELD | LOGISTICS & INDUSTRIAL

OCCUPIER MARKET 2024 OUTLOOK | 26