Recently released data by CBRE suggests that Sydney is solving its industrial & logistics (I&L) supply shortage, created by limited industrial land and high land values in prime locations, by following major Asian cities in the development of multi-storey warehousing.

With Sydney’s average vacancy rate at just 0.2% in the first of half of 2023 (according to CBRE data) construction of multi-storey warehouse facilities is on the cusp of major expansion in Sydney. Based on a new report by CBRE, multi-storey warehousing alone will account for around 15% of the city’s new stock completed between now and 2027.

To the uninitiated, multi-storey warehousing facilities – increasingly popular due to the growth of e-commerce and online shopping – are typically 3-4 levels and can reach up to 17-stories as seen in locations like Hong Kong, Shanghai and Tokyo.

More bang for their high-rise buck

CBRE’s Rise of Multi-Storey Warehousing report expects around 850,000sqm of multi-storey floorspace to be delivered across 20 Sydney projects during four-year period.

Around 30% of this space is currently under construction or has DA approval, with Goodman Group, Charter Hall, ESR, Hale Capital Partners and Logos among those leading the charge.

At least six multi-storey warehouses are expected to be delivered over the next two years.

Despite being more expensive to build than a traditional single level facility, the beauty of the multi-storey warehouses notes CBRE’s Australian head of industrial & logistics research, Sass J-Baleh is it lets developers maximise site potential and hence their returns.

“The key drivers of multi-storey warehouse development include limited industrial land and high land values in prime locations, coupled with heightened demand from e-commerce related occupiers,” J-Baleh said.

“With tight supply conditions unlikely to ease in Sydney due to land constraints, multi-storey warehousing is providing one means of delivering new floorspace to the market.”

South Sydney rules

Based on the market’s out-sized land constraints and the growing occupier demand for ‘last mile’ e-commerce distribution hubs, South Sydney – including suburbs like Mascot, Zetland, Rosebery and Alexandria – is attracting the lion’s share of multi-storey I&L projects.

It’s understood that developer and investor ESR Australia, which acquired a 4.8-hectare property at 49 Stephen Road in Banksmeadow in South Sydney, plans to develop a 2 to 3 level $300 million multi-storey warehouse facility.

Less than 10 km from Sydney’s CBD and within equal distance to 20% of Sydney’s 5 million-plus people, CBRE’s South Sydney Managing Director Nathan Egan believes South Sydney is well positioned to accommodate multi-storey warehouses.

The concentration of multi-storey warehouse developments within this area, adds Egan, reflects heighten consumer delivery expectations, the occupier focus on reducing delivery costs and soaring cost of industrial land.

While the cost of industrial land in Sydney has surged 67% in the last 12 months to $2275 per sqm (double that of Melbourne) land in South Sydney averages $3500 per sqm for a 1.6ha site – the most expensive in the country.

By comparison, rent in South Sydney averages $325 per sqm compared with $237 across the rest of Sydney and $131 in Melbourne. Goodman Group CEO Greg Goodman recently told The Australian Financial Review rents in South Sydney could soon reach $500 per sqm.

“On average, transportation accounts for 50% of overall supply chain costs, while occupancy costs account for around 10%,” said Egan.

“Location is paramount, particularly for those occupiers who transport time-sensitive goods, and occupiers with a stronger requirement to lower their transport costs will have a greater elasticity to pay a rental premium for warehouses in prime, inner-city locations.”