Strong dollar, retail boosts warehouse market

The strong Australian dollar is hurting tourism and exporters, but it’s having a positive impact on the industrial property sector, according to experts.

Michael Fenton, national head of industrial at Jones Lang LaSalle, says there is a growing demand from retailers for warehouse space as they take advantage of the favourable exchange rate to purchase imported items online.

“More imported goods means more storage space is needed,” Fenton says.

Fenton says online shopping club Oz Sales is one example of a company that has increased its warehouse requirements. Fashion retailers are also in the market for more industrial space, he says.

The link between a stronger dollar and increased online shopping was revealed in research by consumer research consultancy Directional Insights. It found that when the Australian dollar was at $A0.97 to the US dollar, 25% of consumers said they would be buying gifts online. When the dollar hit parity, this figure rose to 28%.

Earlier this year, the RBA announced that online spending accounted for about 10% of domestic credit card payments, with this figure predicted to grow.

In addition to the strength of the dollar, industrial reports by Colliers and NAB for the first half of 2011 suggest the retailing sector is having a positive impact on the industrial property market.

According to Colliers’ Brisbane report, Kmart is expected to complete construction of a new 57,800-square-metre warehouse and distribution centre in the next 12 months, and discount grocer Aldi is expected to build a 14-hectare distribution centre in Brendale, Queensland, by 2012.

Furthermore, in its Sydney industrial market report, Colliers notes that pre-lease activity is making a slow return, “with a number of large retailers looking to increase the size of their distribution centres”.

This boost from retailers is set to add more momentum to the sector, which is already starting to rebound and attract interest from investors (both institutional and offshore) and businesses looking to own their own warehouses, rather than lease them.

NAB’s Industrial Market report for the March 2011 quarter notes the impact retailing is having on the warehouse sector, with Victoria and Tasmania the stand-out performers in industrial property, “supported by demand from major retailers and strengthening port trade”.

NAB predicts industrial rent rises over the next two years led by strong tenant demand in WA and in NSW/ACT.