ON THE UP AND UP THE RISE OF MULTISTOREY WAREHOUSING IN AUSTRALIA CBRE RESEARCH2THE RISE OF MULTISTOREY WAREHOUSING IN AUSTRALIA WHAT ARE MULTISTOREY WAREHOUSES? A multistorey warehouse is a warehouse consisting of more than one level, increasing the usable floor space per square metre of land. To date, the concept has seen limited take-up in Australia due to the availability of relatively cheap and developable land; however, in many Asian countries, particularly Singapore and Hong Kong, limited land availability has led to the development of several multistorey warehouses, at times over 20 stories tall. Also driving demand for multistorey warehousing is the growing necessity for occupiers to be located close to ports and customer bases, despite having to pay higher rents. Photo credit: Goodman Business Park3THE RISE OF MULTISTOREY WAREHOUSING IN AUSTRALIA DEVELOPERS In Australia, the fundamentals that drive the development of multistorey warehouses have emerged only in recent years. Key drivers of multistorey warehouse development include: High land costs Industrial land values in Melbourne and Sydney have grown significantly and consequently developers are seeking better returns by improving the productivity of land developed. This growth in the cost of land has resulted in limited industrial development in these precincts in recent years, despite rising tenant demand. Land in and around transport hubs such as airports and sea ports is scarce and is consequently more costly than other industrial areas. As location and accessibility become increasingly vital for industrial occupiers and their supply chain cost management, availability of serviced land in the right locations is becoming harder to come by. This is especially true in areas with good port and arterial road access such as Inner Melbourne and South Sydney. Land values in Inner Melbourne and South Sydney have increased by 91% and 67% respectively over the past five years, making them the most expensive industrial precincts in Australia (Figure 1). With growth well above rental values, developer margins have eroded due to this divergence. As overall land supply dwindles - land continues to be taken up for residential development - and occupier demand rises, land values will continue to climb. WHAT ARE THE DRIVERS OF MULTISTOREY WAREHOUSES FOR BOTH DEVELOPERS AND OCCUPIERS?4THE RISE OF MULTISTOREY WAREHOUSING IN AUSTRALIA Limited land availability and small site areas in key locations Residential development has put pressure on land availability in city fringe and infill locations, leading to a scarcity of land suitable for industrial development. Remaining sites tend to be smaller, leaving them unfeasible for larger industrial and logistics occupiers. Source: CBRE Research OCCUPIERS Connectivity to population centres Customer expectations are changing rapidly as fast delivery becomes increasingly important to consumers. Warehouses in close proximity to occupiers’ customer bases and supplier networks are important to facilitate fast delivery. Reduce rents The upper levels of multistorey warehouses generate lower rents than the ground floor; however, as a result of their prime location, overall facility rents are likely to be higher than a single storey asset. The lower rents on higher levels are a result of reduced ease of accessibility and lower floorplate efficiencies: an incentive for businesses to utilise the upper storeys of multistorey developments rather than pay ground floor rates. Reduce cartage and container costs through optimal network location For occupiers with import and export supply chains, having a warehouse located at the port can result in significant cost savings, offsetting the associated higher occupancy costs. Transport costs can be reduced significantly when warehousing is optimally located near key distribution routes. Furthermore, as ports look to increase charges for access, container handling and penalties for container pick up and return outside of agreed timeframes, port access is an important cost consideration. Figure 1 Indexed changes in 1.6ha industrial lot land values and prime net rents 80 100 120 140 160 180 20142015201620172018 G ro w th ( 100= 2014) South Sydney Land ValuesSydney South Prime Rents Melbourne Inner Land ValuesMelbourne Inner Prime Rents5THE RISE OF MULTISTOREY WAREHOUSING IN AUSTRALIA MANY AUSTRALIAN OCCUPIERS ARE STILL UNFAMILIAR WITH MULTISTOREY DEVELOPMENT In 2016, CBRE undertook a survey of industrial and logistics occupiers to better understand what drives their decision making. It was found that multistorey warehousing has a high level (90%) of awareness from respondents but only 25% of respondents would consider it (Figure 2). The level of appeal is higher amongst retail / warehousing and wholesaling occupiers (50% appeal; 50% consideration) and lower amongst manufacturers (20% appeal; 17% consideration) which may be due to the high cost of specialised machinery and equipment, which adds significantly to the construction cost as a result of requiring higher tensile floor strength structures. Unsurprisingly, multistorey warehousing had greater appeal in metropolitan areas as opposed to regional areas (32% v 19%) driven by high land values and limited site availability in key locations. When occupiers were asked what their ideal facility looked like, 25% of respondents (highest response) stated they would want something larger, presenting an opportunity for occupiers to utilise multistorey warehousing and enabling them to maximise use of space on smaller parcels of land. Source: CBRE Industrial and Logistics Occupier Survey 2016 Are aware of multistorey warehouses Found them appealing Would consider 90% 29% 25% appeal of multistorey warehousing Figure 2 Level of respondents’ awareness and level of6THE RISE OF MULTISTOREY WAREHOUSING IN AUSTRALIA INTERNATIONAL BEST PRACTICE 7THE RISE OF MULTISTOREY WAREHOUSING IN AUSTRALIA Many Asian cities where available land is limited and site costs are high - such as Tokyo, Hong Kong and Singapore - already have established multistorey warehouse networks. Generally, the higher the underlying land value, the taller the warehouses. For example, land values in Hong Kong average almost US$2,600 per square metre and developments average 12 floors, while land values in Tier One cities in China average US$161per square metre and developments average two floors (Figure 3). Additionally, rents in multistorey warehouses in these high cost cities are often up to 20 – 30% lower, resulting in a considerable saving in occupancy costs. INTERNATIONAL BEST PRACTICE Figure 3 Multistorey Warehousing in Asia Pacific Source: CBRE Research * All numbers in the tables indicate the averages of each parameter for the country. ** China, Singapore, Hong Kong, and Japan refer to “Ramp-access” warehouses; South Korea refers to “Cargo-lift” facilities. HONG KONG SYDNEY TOKYO SOUTH KOREA (Icheon) MELBOURNE SINGAPORE CHINA (Tier 1) (Beijing, Shanghai, Shenzhen & Guangzhou) # 2 basement floors 8.8m clear ceiling height 90% 2 # of floors efficiency1 land price per developable area (sqm) US $161 9.1m clear ceiling height 85% # of floors efficiency1 land price per developable area (sqm) US $296 5+2B# 5.5m clear ceiling height 75% # of floors efficiency1 land price per developable area (sqm) US $735 5 6.1m clear ceiling height 55% # of floors efficiency1 land price per developable area (sqm) US $2,583 12 9.8m clear ceiling height 95% # of floors efficiency1 land price per developable area (sqm) US $377 1 9.1m clear ceiling height 90% # of floors efficiency1 land price per developable area (sqm) US $969 58THE RISE OF MULTISTOREY WAREHOUSING IN AUSTRALIA MULTISTOREY WAREHOUSES ARE COMMONPLACE ACROSS ASIA Hong Kong Boasting the highest land values in the Asia Pacific region, multistorey development in Hong Kong has been the norm for decades. Displaying the scale of its developments is Goodman’s 24-level Interlink facility in Tsing Yi, New Territories, which was completed in 2012 (Figure 4). The development includes 15 levels with ramp access plus an additional seven levels with cargo lift warehouse access, totalling 225,177 square metres and situated immediately adjacent to Container Terminal 9. Source: Goodman Group Annual Report Figure 4 Goodman Interlink in Hong Kong9THE RISE OF MULTISTOREY WAREHOUSING IN AUSTRALIA China China has also recorded a surge in multistorey warehouse supply in recent years due to tighter regulations around industrial land use, with multistorey facilities making up all new warehouse supply in Tier 1 cities in 2018 (Figure 5). Examples of major developments in these markets include Goodman’s 110,160 square metre three-level development in the Qingpu District, Shanghai (Figure 6) which utilises both ramp and lift-access structures and attracts e-commerce giants such as JD.com due to its accessibility to downtown, airports and transport interchanges. Prologis also developed China’s first multistorey airport logistics centre comprising two buildings at Beijing Capital International Airport spanning 100,000 square metres. Figure 5 Multistorey warehousing as a % new supply in China Source: CBRE ResearchSource: Goodman Figure 6 Goodman Qingpu Centre 0% 20% 40% 60% 80% 100% 201120122013201420152016201720182019F Tier 1 CitiesTier 2 CitiesOverallNext >

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