Logistics: How to do a building boom sustainably

Australia’s logistics sector is booming.

The retail sector has reported strong growth in online sales for a number of years, fueling demand for logistics, warehousing and industrial land. COVID-19 restrictions have accelerated that growth suddenly and substantially. Customer demand will drive the online retail trend and demand for warehousing even as the pandemic recedes, but work already underway shows how it can be done.

The e-commerce market in Australia will have a compound annual growth rate (CAGR) of 10.3% between 2020 and 2024, according to data and analytics organization, GlobalData. It said e-commerce payments in Australia are estimated to have grown by 13.9% in 2020 to reach A$52.2bn, as wary consumers stayed home and used online channels to avoid physical contact. Some will revert to physical purchases once the worst danger passes, but e-commerce sales are expected to reach A$77.1bn by 2024.

According to the Australian Bureau of Statistics, online sales registered a 55% rise in December 2020 compared to same period a year earlier. The scale of the change in online retail is illustrated by Amazon’s share price, as customers flocked to use it and other online retailers. Between 2018 and the start of the pandemic, Amazon’s share price went above the US$2,000-mark a mere three times. Since April 2021, it has steadily risen and now stands at more than US$3,340 per share.

Australia Post’s Online Shopping Report in January 2021 revealed that more than 5.6 million Australian households shopped online in December 2020, 21.3% up on the 2019 average. Indeed, December 2020 was the busiest month in the 211-year history of Australia Post. It has some 80% market share, and delivered more than 52 million parcels, an almost 20% increase on the previous year.

However, Australia Post has had to contend with a lack of internal flights and social distancing requirements that keep warehouse workers spaced further apart. These factors have required it to sharply increase its industrial warehouse space, with 50 extra pop-up sites and 5,000 more casual workers.

Property companies have been quick to react. Frasers Property, for example, has started work on the $300 million Vantage Yatala estate midway between the Brisbane CBD and the Gold Coast, scheduled for stage one completion in September.

The impact is being felt throughout Australia’s warehousing market. In Victoria, online sales are up by more than 90% from March 2020, and in NSW by more than 50% - trends that show no sign of slowing. Melbourne’s market will benefit hugely, as it offers proximity to a major CBD and significant space in the outer suburbs, supported by good quality transport infrastructure, so warehousing can be located close to major company offices within the business hub. The city’s industrial land values are growing at the highest rate nationally - at 22.8% for 1.6 hectare lots over the past year - but all Australian capitals are expected to experience direct growth in industrial property markets as online commerce expands.

Capital allocation to the industrial and logistics asset class has surpassed the retail sector as investors perceive a long-term shift in shopping habits. The increase in online sales activity has put sites at a premium, and developers are scrambling to snap these up - in particular, those closest to their demand.

Retailers unable to secure such sites must locate further away, increasing their delivery journeys and so their carbon footprint. Herein, lies the challenge, as the logistics sector will come under growing pressure from the public and regulators to start tackling, and indeed lowering, it’s emissions.

The Australian Government has set a target to reduce greenhouse gas emissions to 26–28% below 2005 levels by 2030, marking a clear direction of travel for environmental policy. In many cases from around the world, the total energy demand of warehousing can equal around 25% of related transport emissions. Warehouse energy systems must become smarter, using technology to reduce consumption. Energy efficiency in the industrial sector must be balanced against illuminating and heating working space to keep the workforce safe and comfortable, often in what are effectively large sheds.

Building greener distribution and warehousing facilities should be a no-brainer for operators, leading to lower operational costs alongside improved green credentials. This is leading to developments which point the way towards an environmentally-friendly future, and developers are also considering the carbon footprint generated by a building’s construction – the embodied carbon.

Environmentally-aware building methods – including modular and steel frame – have been used in housing and commercial schemes, and it is encouraging to see the increased use of these greener construction methods when creating industrial warehousing space.

Linesight is already active in the Australian market; helping clients to build greener is a cornerstone of Linesight’s approach. As the logistics sector continues to thrive, its role in helping Australia to achieve net zero emissions will only grow. By acting now to go green, logistics can - and should - set an example of how to do a ‘building boom’ sustainably.