Logistics & Industrial Occupier Market Outlook 2024

Solving the outbound logistics side of the equation As highlighted, inbound and outbound logistics costs are the biggest costs for most occupiers , particularly for high volume occupiers such as retailers and transport and logistics operators. For this reason, rather than assessing rent on a rate per sqm basis, an alternative viewpoint is on a rental rate on a population reach basis . Essentially, this measures how much rent you pay to service your 30-minute catchment. While there are multiple other factors that need to be considered, it highlights the logistics benefits and efficiencies for select occupiers. Figure 19 highlights how this is calculated. We note, this metric will not be relevant for occupiers who do not deliver direct to customer (B2C) or those with lower throughput volumes. However, based on recent take-up trends and current enquiry levels, occupiers delivering B2C are expected to represent up to 50% of the demand pool. For this reason, looking at rent through this lens would make more sense for a large number of occupiers. On a population reach basis, rents in South Sydney, for example, are $12.9 per 100,000 residents within the catchment, representing a 40%+ discount to select non-infill markets of Sydney. The catalyst for

this is that South Sydney can service a much larger population in a 30-minute drive time to a non-infill market despite it having the highest gross rents in the country. For this reason, despite the higher rent in inner and central markets, significant supply chain savings can be achieved given reduced transport costs to service the surrounding population. Other markets in Sydney that benefit under this metric include Central West markets such as Rosehill and Homebush. This analysis rings true across all cities, albeit the spread is less pronounced in Melbourne, Perth and Adelaide and reflects the population spread of each city and less variance in rents across submarkets. Outer ring markets tend to serve a separate purpose and the businesses that are seeking distribution centres in these markets aren't B2C, but rather business-to-business (B2B), either to another warehouse or retail network.

Figure 20. Prime Gross Rent Per 100,000 Residents, by Select Precincts

$30

$25

$20

$15

$10

$5

$0

Direk

Wacol

Netley

Naval Base Malaga

Mascot

Gillman

Moorebank Rosehill

Berrinba

Dandenong South Clayton South Eagle Farm Brendale

Wangara

Jandakot

Kemps Creek Ingleburn

Campbellfield Truganina

Welshpool

Bundamba

Tottenham

Port Melbourne Tullamarine

Acacia Ridge

Huntingwood

Eastern Creek

Sydney

Melbourne

Brisbane

Perth

Adelaide

Source: Cushman & Wakefield

What does this mean? When an occupier assesses a location to provide B2C customer fulfillment, the assessment criteria moves away from rent on a sqm basis. In most cases, access to population takes precedence over rent in a traditional sense given the cost savings it can provide in other parts of the supply chain. Using this metric, it supports the continued rental growth for infill markets and the view that occupiers can pay higher rents; however, they are looking at the bigger picture to do so, including focusing on: • Achieving supply chain efficiencies and optimisation through warehouse footprint reduction and new technologies to reduce labour costs.

• Choosing locations that are strategic to their business operations where more customers can be reached in a shorter period of time, thereby reducing the biggest piece of the cost pie – inbound and outbound logistics costs. • Adopting hub-and-spoke distribution models, which incorporates an inner-city transport hub linked to a larger distribution fulfillment centre. Under this approach, smaller and more efficient vehicles can be utilised in infill markets which will facilitate faster delivery times and reduced costs across the last mile.

Figure 19. Rent on a Population Reach Basis - How much rent you pay per 100,000 people within a 30-minute drive

Current gross rent per sqm (No. of people within a 30 min drive time/100,000) =

Rate per 100,000 people

Source: Cushman & Wakefield

Gross rental efficiency based on how much rent you need to pay to access 100,000 people

27 | CUSHMAN & WAKEFIELD | LOGISTICS & INDUSTRIAL

OCCUPIER MARKET 2024 OUTLOOK | 28