Properties & Pathways

5 reasons industrial real estate is the most resilient commercial property sector (JLL)


21 July, 2020

Cover Image for 5 reasons industrial real estate is the most resilient commercial property sector (JLL)

“The industrial & logistics sector has proven to be the most resilient of the core commercial property sectors” according to a new report from global property group JLL Research.

The report analyses the three major commercial real estate sectors – office property, retail property and industrial real estate – noting their challenges during COVID-19 and future outlook.

Out of the three sectors, industrial property has been the strongest force during the recent crisis. JLL tips it will stay that way as COVID-19 leaves a permanent mark.

Why so resilient?

Supermarket, eCommerce, pharmaceutical and storage companies have all leaned on the industrial & logistics sector for their smooth operation.

industrial real estate most resilient

With coronavirus pushing these industries to innovate, meet demand, or enhance their processes, that reliance has only become stronger.

Coronavirus headwinds for many industries have translated to tailwinds for the industrial & logistics sector.

1. Industrial & logistics is an essential service

JLL: “The industrial & logistics sector is now viewed as an essential service for its role in the creation, assembly, storage and transportation of goods.” – Jamie Guerra, Head of Industrial & Logistics – Australia

Tenants that serve the community with essential needs and services have outperformed during COVID-19. Property investors want to fill their premises with more of these types of businesses.

Industrial & logistics occupants fit that tenant profile, with their business activity and their contribution to Australia’s economic pie at all time highs during COVID-19. Cold food storage, delivery services, and even manufacturing are all in high demand.

2. Online delivery relies on logistics more than ever

NAB: “The e-commerce penetration rate increased from 9.4 per cent at the end of 2019 to 9.6 per cent in March 2020.”

More customers are turning to eCommerce for their day-to-day shopping as they realise the existing retail experience in Australia is fragile.

industrial real estate most resilient

Grocery stores, clothing outlets, and many other retailers have put more pressure on the industrial & logistics sector for swift and stress-free delivery of their products. And logistics companies have been eager to meet the increased demand.

3. Mining

JLL: “The wildcard for Australian economic recovery” will be the mining sector.

Mature and developing countries are ramping up infrastructure spending, and the splurge expected to increase into 2021. The impact on Australia’s raw material exports is very positive.

Want more economic updates and Australian commercial real estate news? Subscribe to our newsletter.

This gives many mining-linked industrial tenants more muscle for the coming years and adds to the resilience of the industrial sector.

4. Automation

JLL: “We believe that automation will be become more prevalent in the industrial & logistics sector. Warehouse automation offers benefits for operational efficiency and can improve productivity, reduce order turnaround windows and maximise throughput (amount of materials passing through a system) and capacity.”

We all knew that. But take-up of warehouse automation in Australia remains low. It seems the cost benefits have not been fully explored by many local industrial tenants and landlords.

industrial real estate most resilient

Meanwhile, there’s no stopping automation overseas.

Experts say the US industrial automation market will hit US$287.9 billion by 2026.

While Australia doesn’t have the titanic-sized manufacturing culture as the United States, the increased reliance on industrial warehousing and logistics for Australian businesses means we could expect the sector to adopt automation with similar haste.

The payoff could be huge.

5. Medical and pharmaceutical industries re-emerge

JLL: “We believe that important medical and pharmaceutical manufacturing industries will start to re-emerge in Australia and New Zealand.”

This is an interesting one. JLL predicts the production, storage and distribution of medical and pharmaceutical products will fuel further demand for the industrial & logistics sector.

Australia currently manufactures next to no active pharmaceutical product for most of the products on World Health Organisation’s list of Essential Medicines. With the recent crisis exposing the weak links in global supply chains, there is plenty to say this will change.

Want more economic updates and Australian commercial real estate news? Subscribe to our newsletter.

Subscribe to our newsletter

The latest news, articles, and resources, sent to your inbox weekly.

Past performance is not indicative of future returns. Any information provided on this website has not considered the objectives, financial situation or needs of any investor; investors should consider whether it is appropriate to them to partake in a commercial property investment prior to investing, in light of their objectives, financial situation or needs. Every investor should obtain and consider the investment’s Information Memorandum before making a decision in relation to the investment.