The past few years of the pandemic has changed the landscape for industrial which has been a beneficiary from the boom in online trading as e-commerce tailwinds continually fuel greater demand.

This has had massive implications on the need for industrial real estate, with observers seeing record tenancies from logistics firms and retailers alike. Many of them are making investments into the additional distribution space to cater for last-mile fulfilment as well as to house extra inventory to protect against shortages.

For Stewart Hutcheon, executive GM of the Dexus industrial, retail and healthcare portfolios, the onward effects of the pandemic and its disruption to the supply chain couldn’t be clearer.

“What we’ve seen is occupancy up around 99 per cent in core logistics portfolios,” says Hutcheon, “so it’s critical to understand where our customers need to be in the future as they grow, which is why there was very strong activity in industrial leasing relative to the past 10 years up to 2019. This is coupled with a shortage of industrial space – which is a global theme. From the West Coast of the US to key gateway markets like Amsterdam, London and Tel Aviv, they’re all experiencing the same dynamic.”

According to Hutcheon, pure-play online retailers need around three times the amount of space as a regular retailer, especially with the high volume of product returns that come with the territory.

“That space needs to be located somewhere,” he says. “Retailers, especially the larger businesses, need to be able to manually pick their stock because automation isn’t always possible – and also to manually override things if systems break down to be able to deliver their goods to customers quickly, which means they need more floor space. Without the chains or the shops on the ground to be able to help with fulfilment and returns, it all has to come back to warehouses and warehouse hubs.”

Old-school retailers and supermarket chains are also contributing to the burgeoning demand for industrial space. Australian retailers are now far less likely to stock for “just in time” inventory management, now opting for “just-in-case” models. At Dexus, Hutcheon sees somewhere between 15 to 20 per cent more space in traditional retailer logistics portfolios and warehousing as these players guard against further disruption in supply by making sure they have a place for their inventory.

As an Australian-listed real estate investment trust, Dexus has a sizeable $45.3 billion portfolio of properties that stretches nationwide, giving it an unparalleled perspective across changes in industrial customers’ needs. The group has a more than 35-year track record with a property development pipeline of around $17.8 billion across all sectors. Its assets include a 310,000sqm industrial estate in Western Sydney; the 410,000sqm Truganina industrial estate in West Melbourne; the 350,000sqm Jandakot Airport industrial estate in Perth that currently houses 51 tenants and developable land; and an industrial portfolio across 470,000sqm in the growing Brisbane region.

The company is actively building out its development pipeline at speed and has the capacity to feed its investors with products already available on its development book while continuing to restock the business, adding around 95 hectares of industrial land since August 2021. On completion of its current development pipeline, the group’s industrial portfolio will grow to $11.7 billion across 4 million sqm.

This ability to provide close-proximity real estate to industrial clients as well as bespoke arrangements throughout its development pipeline is part of what allows Dexus to solve critical retail supply chain issues. They carefully consider how those issues have affected clients’ use of their spaces.

“It’s fair to say that older warehousing and real estate in places where there’s been a lot of residential build-up has access issues,” says Hutcheon. “What that means for industrial occupiers is that they want to steer clear of these locations because they don’t want their transportation sitting in traffic. If you look at their P&L, up to 50 per cent of their cost base is in transport, but only somewhere between 6–8 per cent is rent. That’s why good locations have a very material impact on P&L. And then for e-commerce operators, it’s about access to their customers in terms of last-mile fulfilment.”

Hutcheon sees these trends as continuing well into the foreseeable future. “By 2030, it’s estimated that some 25 per cent at a minimum of Australian retail sales will be online,” he says. “That doesn’t mean that physical retail isn’t growing. It’s just that online is growing at a greater rate. But because of the growth online, for a long time yet, there will continue to be strong demand for industrial space to service it.”

To source warehousing space or learn more about how Dexus develops and maintains its portfolio, visit www.dexus.com/industrial