Our CEO Kirsty Chessher-Brown interviewed Chris Matheson Managing Director at New-Gen Business Park on the increasing demand in the industrial market.
2021 hasn’t been the smooth ride we were all hoping for on a COVID front, but the property market has been a shining economic light. What are you seeing on the ground?
We’re seeing a lot of interest in the industrial market, particularly a lot of investor demand and I think that’s a combination of things including the diversification of funds out of the typical commercial office in the CBD and major retail investments.
The biggest issue is warehousing, and I think it’s fair to say on a national basis the demand is outstripping supply. As a consequence, we’re seeing a significant rate increase on our land values, and of course land value going up is directly impacting on the value whether it be from a pre-lease, into a new facility, or whether it’s as an owner-occupied building or a new facility for the business.
In terms of what investors are looking for, I think it’s a mixed bag. There is the typical shopping list of good covenant, the location and a smart building design that has the flexibility for the next few years down the track. There’s been a fundamental shift in recent years for sustainable facilities that have access to renewable power supply. We’re now seeing demand for warehouses as high as 15 metres because land values are going up so investors have to maximise the footprint on the land, so height has become critical. A lot of the industry that’s using industrial land are volume-based businesses, if they can get nine or 12 pallets high, it is far more efficient for them. We’ve seen a fundamental change in handling equipment, forklifts, for example are being used at higher rates, they move quicker, they take less space, and we’re seeing robotics come through the industry, maximising efficiencies.
There’s been big changes from the old tin shed days to now sophisticated precast concrete, still, a lot of them are extensive spans so they’re minimal columns throughout, and certainly the ancillary offices on the warehouses these days are as good as you get in design. As I say, from a sustainability point of view, we are now seeing the developers and the owners of the Estates putting a lot more either in their landscaping, their smart design, harvesting water, solar hydro, so it’s a lot more sophisticated than what it was 10 years ago. I think it’s a direct consequence of younger people coming into the industry, as well as the big institutions who are investing significant funds and buying existing portfolios to get their asset values.
Companies recognise the value of sustainability, and it is a key area of interest across their portfolios and some of the funds are retrofitting their existing portfolios to bring them up to an EnviroDevelopment rating, because that is what the market wants to see.
While we’re not ‘post-COVID’ quite yet, what long lasting impacts do you think the pandemic will have on the way we deliver spaces and places?
I think it’s really just fundamental change in the marketplace. Manufacturing has picked up, and certainly the larger warehouse distribution requirements have been fuelled by a growth perspective and of course, e-commerce has experienced a surge due to people in lockdown buying online. So those products have to arrive at a large warehouse for sorting then redirection. They can be handled, and then passed out through distributions and ideally, closer to the city where the biggest populations are. So that’s fuelled a very strong market in metropolitan areas.
We’re seeing a lot more interest in manufacturing, so a lot of the old manufacturing plants and facilities that were built in the in the 40s, 50s, and 60s are inefficient, so they’re looking to be repurposed. I think the government is more proactive now in incentivising industry to grow.
COVID has certainly encouraged a lot of people to work from home, and there’s been a fundamental change in the domestic office. Most of us have now got one. The use of online technology for virtual meetings has been a big game changer and I think we’ll see some of that stay with us, and less interstate travel.
What is the greatest challenge you are currently facing as a business in getting stock to market in Queensland?
We pretty much specialise in 50 hectare plus industrial estates and our biggest challenge is getting product, and then getting it into production to be able to deliver the outcomes. The journey in turning englobo land into a project, is massive. The projects we’ve developed in southeast Queensland over the last 30 years all have around a minimum 8-10 year lifecycle. Once you get through the council and government processes, we try to secure a major anchor in the form of a large distributor or large manufacturer and then we will refine the design around them. Then you’re into production and delivering the lots for market. So, the biggest challenge is to find the raw undeveloped land on day one and then have the perseverance with the authorities to see it through to approvals. Having a good team of consultants that will work with you on the journey is critically important as it’s certainly a long journey.
In the middle of all that we see markets come and go and typically in the property industry as you’re well aware, has a fundamental correction of some kind usually every 10 years. So timing is everything. Ideally, you want to time the release into a strengthening market.
Thinking ahead to the next 12 months, what is your prediction on how the property market will perform and are there any potential showstoppers?
I think the industrial market will continue to be strong. The fundamentals are certainly there. I think we’ll see continued growth in industrial, we’re seeing the continued contraction of capitalisation rates from an investment perspective, that will continue while there’s limited good investment stock and on other secure investment options.
I can see that continuing however I am mindful that there’s typically a correction every 10 years or so and 2008 was our last major correction. I think we all initially thought that COVID may be that overdue correction, but we’re just not seeing that.
With a federal election likely on or before the first half of 2022, what are the critical issues from a property industry perspective that you’d like to see discussed during the campaign?
I think there’s probably a whole range of issues, however, I think the government needs to put more focus into sustainability. Whilst we are relatively small in the global sense, we still have a significant role to play. I think there certainly needs to be more focus on renewables because we’re seeing strong demand come through in the property market. I think sustainability will be at the forefront of the minds of the younger voters.
As developers, we are fortunate that we start with a blank piece of paper at the conception of a new development, and we are able to incorporate a range of sustainability initiatives. There needs to be more of that, and I know a lot of developers are embracing a ‘green change’ and if the government doesn’t realise that, I don’t think they’ll get the support that they’ll need.
Sustainability, renewables and their utilisation, there is great technology in our marketplace, and we should embrace change. If our leaders don’t assist in facilitating and attracting positive change, we as either individuals or groups have the capacity to make a difference.