0:09

Hello and welcome to CBRE's Talking Property

0:11

Podcast where our team of experts, our

0:14

clients and industry specialists share insights

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into the way we live, work, and invest

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through the lens of commercial real estate. I'm

0:21

Kathryn House, CBRE's Australian communications

0:24

Director, and I'm your host for this latest Talking

0:26

property episode. Today we'll

0:29

be discussing multi-storey warehouses, sky-high

0:31

facilities towering up to 17 storeys are

0:34

common in markets like Tokyo, Hong Kong and

0:36

Shanghai where land is pricey

0:38

and in short supply. But could

0:40

going vertical also be one of the solutions in

0:43

Australia for ongoing supply challenges

0:45

in the industrial and logistics sector? While

0:48

we won't reach the lofty heights here that we have

0:50

in Asia, some vertical projects are

0:52

already underway in South Sydney, where the industrial

0:54

vacancy rate is extremely tight at sub

0:57

1%. Indeed, CBRE's

0:59

new multi-storey warehouse report has identified

1:01

that approximately 15% of the total

1:03

industrial floor space to be delivered

1:06

in Sydney between now and 2027 will

1:08

be in multi-storey developments. So

1:11

to talk us through some of the drivers and what

1:13

to expect going forward, I'm joined

1:15

by Charter Hall Development Manager Jack

1:17

Hansen, CBRE's Head of Industrial & Logistics

1:20

Research Sass J-Baleh and CBRE's South

1:23

Sydney Managing Director Nathan Egan. So,

1:26

Sass you've just completed CBRE's Australian

1:28

multi-storey warehousing report. Getting back

1:31

to basics, can you talk us through what multi-storey

1:33

warehousing is and how

1:35

it differs from multi-level warehousing?

1:39

Yes. So a multi-storey warehouse

1:41

is a facility consisting of more than one level

1:44

increasing the usable floor space per square

1:46

metre of land. Since they're built vertically,

1:49

access is provided by a set of ramps, freight

1:52

lifts, or conveyor system. And therefore,

1:55

each floor can operate as an independent

1:57

warehouse used by multiple occupiers. The

2:00

upper floors also contain docks and

2:03

doors and investors or developers will

2:05

charge rent for each loadable square metre on each

2:07

floor. Multi-storey facilities

2:10

are typically three to four levels. However,

2:12

they can reach up to 17 storeys

2:16

as seen in locations like Hong

2:18

Kong, Shanghai, and Tokyo. And

2:21

clearance heights can range between three and a half and 10

2:24

metres. Multi-level warehousing

2:27

is largely driven by operational efficiencies

2:30

and can typically be used by one occupier

2:33

and the rent is typically charged for

2:35

lettable area on the ground floor. Now

2:38

historically multi-storey warehouses have

2:40

been developed within the densely populated areas

2:43

of Asia, and in recent years these type

2:45

of warehouses are appearing in Europe and

2:48

the US and we are soon to witness multi-stoery

2:51

warehousing in Sydney, Australia, as

2:54

you mentioned. So we expect to see at least

2:56

six multi-storey facilities being

2:58

built in in Sydney just over the next

3:00

two years.

3:02

So why do you think we're starting to see developers

3:05

go vertical in Australia? What's really driving it?

3:08

The key drivers for multi-storey developments

3:11

are a shortage of land and it's

3:13

firstly a means of adding new floor

3:15

space to precincts that have no further scope

3:18

for development on undeveloped land parcels.

3:21

And secondly, high land values from

3:23

the lack of land supply, creating greater scope

3:25

for feasible developments with respect

3:27

to construction costs. Also,

3:29

you have greater demand from e-commerce related

3:32

occupiers. And with that fast

3:34

delivery requires goods to be stored close

3:37

to consumers in urban infill locations. And

3:40

as we know, warehouse space is becoming limited

3:42

in urban areas and land is

3:44

becoming more expensive. So a solution to

3:46

this could be the development of multi-storey

3:49

warehouses to make use of the limited land available whilst

3:52

also being more cost effective. Now

3:54

with respect to reducing total logistic

3:57

costs, transportation represents

3:59

a large share of overall supply chain costs

4:01

for e-commerce and logistics operators,

4:04

accounting for an average of 50%

4:06

of the total. So occupancy costs

4:08

on the other hand account for about 10%.

4:11

So location really is paramount,

4:13

particularly for those occupiers who transport

4:15

time-sensitive goods and occupiers

4:17

with a stronger requirement to lower transport

4:20

costs, including things such as fuels

4:22

and tolls, will have a greater capacity

4:25

or elasticity to pay a rental

4:27

premium. So based on these

4:29

key drivers alone, the

4:31

South Sydney market is really well positioned

4:34

to accommodate multi-storey warehouses.

4:37

That's probably a good segue to you Jack because

4:39

at Charter Hall, you've just commenced construction

4:41

on your first multi-level warehouse, the

4:43

Ascent Logistics Centre in South Sydney. This

4:46

development's going to unlock nearly 27,000

4:48

square metres of logistic space across two

4:51

levels, including 5,000 square metres of

4:53

A-grade office and some wellbeing amenity.

4:55

Jack, can you give us some insights around why Charter

4:57

Hall decided to go down this path and what

4:59

the tenant response has been like?

5:01

Absolutely Kathryn. We've been looking

5:03

at multi-level across Asia for probably the

5:06

last five years and you know, I

5:08

think from the outset it was always clear to us that this

5:10

was a direction that we saw the Australian market

5:13

going down. And I think as

5:15

Sass touched on, for us it was always the

5:17

likely location being South Sydney. So

5:19

we were lucky enough, I guess,

5:21

to secure a site on the

5:23

corner of Gardeners Road and Bourke Road

5:26

in Alexandria. And I think

5:28

from a fundamentals’ perspective, the proximity

5:31

to arterial roads, the

5:33

significant population within the

5:36

surrounding area, we can reach approximately

5:38

54% of Sydney's metropolitan population within

5:40

30 minutes. So that

5:43

was a really important

5:45

driver for us. And then really it was then dealing

5:48

with our customers, and I think the

5:50

biggest feedback that we had from our customers,

5:52

particularly with Covid was the inability to

5:55

secure sites in this location to really

5:57

meet that demand for fast-moving

5:59

goods. And you know, I think the

6:02

customer response was actually really

6:04

positive when we were able to secure this. So

6:06

from a tenant perspective, I think we

6:08

were actually surprised of the

6:11

positivity towards the approach.

6:16

And how is the leasing going at this stage?

6:18

Yeah, it's great. We've been able to pre-commit 80%

6:21

of the facility prior to construction.

6:23

So on the first floor

6:26

and office we have Schindler Lift

6:28

company and on the ground floor

6:30

we've got Coles across the entirety.

6:33

Great to hear it's going so well. So

6:35

maybe this is a question for both of you, but

6:38

do you see multi-storey developments working

6:40

anywhere else in Australia? Obviously, it's really stacking up

6:42

in South Sydney at the moment because of land

6:45

costs and availability, but maybe

6:47

first for you Sass, do you think the economic feasibility

6:49

stacks up elsewhere?

6:52

Well, I think just for the South Sydney

6:54

market it has the highest rent in the country. So

6:56

it really does stack up from a rent cost perspective.

6:59

And what we've done is we've compared average rents

7:01

from six precincts within the Asia Pacific region

7:03

where multi-storey projects are most

7:05

attractive or prevalent and rents in some

7:07

of these regions have varied from about

7:09

$180 a square metre, that's Australian

7:12

dollars. For example, that's in Beijing,

7:14

to a high of $600 a

7:17

square metre, which was in Hong Kong. So that

7:19

South Sydney market average rent for super

7:21

prime grade assets we're currently there in

7:23

the mid-range of these precincts. So they're at about $325

7:25

a square metre. We are

7:28

seeing however, multi-storey projects in the

7:30

pipeline for precincts outside of the

7:32

South Sydney market, but still within Sydney. There

7:35

is close to a hundred thousand

7:37

square metres of multi-storey floor space currently under construction,

7:39

with most of these projects

7:41

being speculative developments. So the pre-commitment rate

7:43

for these projects that are currently under construction

7:46

is at about 70% at the

7:48

moment. And I think you mentioned before

7:51

a lot of the new floor space expected to be

7:53

delivered in Sydney over 2023 and 2027, 15%

7:56

of that will

7:58

be attributed to multi-storey developments.

8:01

So Jack , is Charter Hall looking at this elsewhere?

8:05

Yeah, we definitely are. I think probably the

8:07

biggest inhibitor that we see at the

8:09

moment is construction costs. So if you

8:12

take a standard single level warehouse facility,

8:15

say in Western Sydney, that might

8:17

cost a thousand dollars a square metre to build

8:19

once we go to two storeys.

8:21

So that multi-level we're looking at anywhere

8:24

from $2,500 up to

8:26

$3,500. But going beyond

8:29

that and even further to say three levels and

8:31

above that could be anywhere in the

8:33

range of $3000 to $5,000 a square metre.

8:36

So I think there's cost in, I suppose construction

8:38

methodology really becomes important and I think

8:41

there's got to be a bit more maturity in the Australian construction

8:43

market to actually understand these facilities

8:46

and really appropriately address some

8:48

methodology of construction because

8:51

I think there's been a lot of learnings

8:53

that Charter Hall have gone through with this process and for

8:55

our builders and design consultants it's been

8:57

actually a big challenge, but I think

8:59

we're pretty lucky that we've gone two levels, but

9:02

the four or five sixes and,

9:04

and probably further I think it'll take some

9:06

time.

9:09

So construction costs definitely being one of those

9:11

issues, but are there any other considerations

9:14

for other developers considering multi-storey developments? Is there

9:17

anything else that they really need to be addressing and looking

9:19

at, do you think?

9:20

Yes, definitely. I mean I think for Charter Hall

9:23

we were really cognisant when we were

9:25

designing and going back to principles on Ascent on Bourke

9:27

that we didn't minimise the functionality that

9:29

an occupier would typically expect

9:32

and is probably used

9:34

to within the Australian market. So it was really

9:37

important for us to be able to facilitate,

9:39

for example, B doubles and 90 metre

9:41

articulated vehicles throughout the site.

9:43

So on the ground floor

9:45

we can load with B doubles, which is probably the

9:48

primary source of transporting goods up

9:50

and down the east coast. And then for

9:52

40 foot containers, which 19 metre

9:55

av’s are used, we can

9:57

do that on the first floor. So that was really important

9:59

to maintain that functionality for our customers.

10:02

And I think if you

10:04

take Hong Kong or Tokyo and some of those

10:07

examples, the types of vehicles and the

10:09

methods of transporting freight are actually a lot

10:12

more compact or in some cases

10:14

rail. So

10:16

there's sort of a differing approach there.

10:19

I think being really Australian-centric is important.

10:21

One of the other things that we were

10:23

sort of toying with through the design

10:26

phase was probably the height and at seven

10:28

and a half metres floor to floor, which

10:31

is where we are at Ascent on Bourke,

10:33

we were sort of a bit apprehensive at

10:36

the design phase as to whether that was

10:38

too low. So you know, the standard racking

10:41

heights in Australia, sort of on

10:43

your standard single level warehouse might be

10:45

anywhere from 10 to 14. But when

10:48

we actually put that to our customers, I think

10:50

what we found out was that the throughput

10:52

and the fast nature of

10:55

these goods meant that it actually wasn't that much of an

10:57

issue. So I think height is probably

10:59

not as big of a concern as we initially thought. And

11:02

then with automation as well and

11:05

the advancements that we're seeing there with

11:07

the automated autonomous moving robots,

11:10

I think that's also become less of an issue

11:12

as well. Probably the

11:14

only other thing that I wanted to touch on was

11:16

just the, I guess the challenges of

11:18

constructing to Australian building codes and

11:21

you know, the fire around fire safety

11:23

or the implementation of council,

11:25

you know, requests such as green roofs, that

11:28

was, that was quite a challenge for the design team

11:30

with waterproofing. But yeah, I think once

11:32

we've got the learnings from that it'll become

11:34

a lot easier.

11:35

Nathan, that's probably a good segue to you

11:37

in terms of the tenant considerations when it

11:39

comes to multi-storey developments and

11:42

how they're being received. Jack’s

11:44

talked about height considerations for instance.

11:46

I know you've been involved in a lot of the new multi-storey

11:48

pre-commitments that have happened, so I'd be

11:51

really interested to hear from you the kind of conversations

11:53

that you're having with occupiers and what's really

11:55

top of mind for them.

11:57

Thanks, Kathryn. The biggest

12:00

consideration when you're intensifying the

12:02

use of these sites is traffic accessibility into

12:04

the site and

12:06

accessibility off the site.

12:08

So it's the number one discussion

12:10

point for all of these tenants. How are

12:12

their inbound deliveries going to be

12:15

handled? Is there any queuing, is there any bottlenecking with

12:17

their outbound deliveries because they're choosing

12:19

to be in this inner-city location.

12:22

Speed to market is crucial for

12:24

all of these operators and having

12:27

that ease of access and efficiency

12:29

of movement is the number one

12:32

priority for all of these tenants in

12:34

this space. So that comes down to design, it comes

12:37

down to the road network and all

12:39

of these tenants, they've got to

12:42

have comfort on that, especially with multi-levels when you

12:45

are having, as I said,

12:47

that intensity of use

12:49

of the site increase as they do.

12:53

And what do you see that some of the other benefits

12:56

of multi-story being?

12:58

The benefits are particularly for

13:00

a market like South Sydney where the general

13:02

product is older, established

13:04

estates that might

13:07

be 30, 40 years old. So the

13:10

design and the features that are

13:13

included in these new multi-level are generally offering

13:15

better operational efficiencies than the

13:18

existing product. And that's

13:20

everything from the number of roller doors

13:22

that allow simultaneous loading and outbound

13:26

delivery. The hard stand areas

13:28

that these new multi-level developments offer are

13:31

generally more generous in size than

13:33

the existing availabilities within the South

13:36

Sydney market. The number of roller

13:38

doors that these new developments have is generally

13:41

two, three or four times

13:43

more for the same size that

13:45

they'd get with the existing product in South Sydney.

13:47

And a lot of the existing

13:49

product doesn't even offer ANets where these multi-level developments

13:52

have covered breezeways, which

13:54

allows all weather loading for

13:57

these, these occupiers. So

13:59

in some ways the product is much

14:02

more advanced than what

14:04

the alternatives are in the South Sydney market.

14:07

And back to Jack's comment on height, although

14:11

compared to more traditional industrial

14:13

that that offers 13.7 metre roof

14:15

height in a market like South Sydney

14:17

where speed to market is crucial

14:19

in the generally storing and moving fast

14:22

moving goods, that height isn't

14:24

as high on the essential needs list

14:26

as other elements like covered loading

14:29

multiple doors. And back

14:31

to that existing stock and availability

14:34

comment, a lot of them don't have much more

14:36

height than what's being offered within these

14:38

multi-level developments. So quite

14:41

often these features that

14:44

these new developments have outweigh what they might

14:46

be getting in these traditional existing single level

14:48

warehouses in South Sydney.

14:51

Fantastic. And I know ESG,

14:54

Jack, you mentioned before the inclusion of

14:56

green roofs in Ascent with ESG becoming

14:59

an increasingly important focus in industrial developments, what

15:02

are some of the wins

15:04

that you think can be delivered through multi-story on this front?

15:08

Well I think the standard ESG inclusions

15:11

from an industrial perspective at

15:13

the moment are really your focus on

15:15

solar and at Gardeners Road and Bourke

15:17

Road we've got 350 kilowatts on the roof.

15:20

We've also got EV charging and having

15:22

a rooftop car park, you know, gave

15:24

us a really good opportunity to maximise, the EV

15:27

charging facilities available. Some of the other

15:30

things that we were looking at was enhancing it for

15:32

the occupier and the employees

15:34

that were using the building. So, we

15:37

use our cross-sector approach with our office team to

15:39

include end of trip because I think those sort

15:42

of elements are really a blend between

15:44

industrial and commercial. So that was a big

15:46

consideration within this development.

15:53

So Nathan, looking at these ESG considerations,

15:55

I know from our conversations that there's a lot

15:58

that can be delivered in South Sydney on this front.

16:00

Can you talk us through the potential that you see?

16:03

Definitely it's becoming

16:05

increasingly important for tenants

16:08

to have these ESG elements within

16:11

any buildings they occupy. And back

16:13

to my comments on the existing stock within

16:15

South Sydney, that's generally said 30,

16:18

40 years old, these older buildings

16:20

don't have any ESG elements to them. They might have solar if you're lucky, if the structure can allow that, but these new developments are really offering that ESG component that really aligns with a lot of the major users’ corporate goals in that space.

16:40

Well, that's a great way to end the episode. Thank

16:42

you so much for your time, Jack Sass

16:45

and Nathan, while multi-story warehousing

16:47

isn't going to be the total silver bullet for

16:49

the supply challenges in the Australian market,

16:52

the only way up does seem to be an

16:54

appropriate adage for the South Sydney market and

16:57

there's much to be learned from what's happening in overseas

17:00

locations. Thanks for tuning into

17:02

this latest episode of Talking Property with CBRE.

17:05

If you like the show and want to check out more follow

17:07

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17:10

or your favorite podcast hosting platform,

17:13

you can find a link to our multi-story warehousing

17:15

report in the show notes. And if you have any

17:18

questions in relation to this episode or

17:20

ideas for future podcasts, please

17:22

email us at talking [email protected].

17:26

Until next time.