Demand for industrial property at risk as manufacturers consider offshore

Plans by almost one out of two Australian manufacturers to move their operations offshore could have serious implications for industrial property demand, a new survey has found.

Nearly half (46%) of manufacturing executives say their companies are looking into sending their operations offshore, while three quarters are concerned about manufacturing being sent overseas in the future, according to a survey by researcher Huthwaite Asia Pacific.

The survey, which drew response from 101 sales directors, marketing executives and general managers in the manufacturing industry, found that about a quarter of manufacturing companies are already combating competition from cheaper overseas manufacturers by moving their entire operations – or a strategic part – overseas.

Mark Courtney, director of research at Colliers, estimates between 15% and 25 of industrial property is owned or tenanted by manufacturers, meaning a drop in demand from the sector could have serious consequences.

Currently, the industrial sector is the poorest performing commercial sector in Australia. It is performing below the commercial property average, according to NAB’s Industrial Property Index.

However, NAB forecasts a recovery over the next 12 months.

Industrial hotspots have emerged in Melbourne’s west, where rents have risen above pre-GFC levels, and in Sydney’s outer west.

In both cases demand has come from logistics and transport businesses. However, many CBD industrial markets are still trading below pre-2007 levels.

According to the Huthwaite survey, the majority of manufacturing executives want the government and industry associations to do more to help local manufacturers.

Huthwaite managing partner, Adam Thorp says the survey results reflect a worrying trend of local companies heading offshore, which is increasing with the high Australian dollar.

“Australian manufacturing has been in retreat for several years, with the cheap labour, manufacturing facilities and tax breaks of other Asian economies enticing companies to move their operations offshore,” he says.

“These latest survey results, which come in the wake of the rising Australian dollar, suggest this trend will continue and increase in the future.”

The Aussie dollar finished second only to cheap overseas products as the biggest stumbling block to competing with overseas manufacturers, the survey found.

China (79.3%) was identified as the leading competitor, ahead of India and Korea.

Survey respondents came from diverse manufacturing sectors including food, textiles and clothing, petroleum and coal, metal products, and machinery and equipment.

To combat the threat of cheap imports, more than half of respondents said their companies were repositioning their products as superior to overseas alternatives, while 24.7% said they were decreasing operational costs and/or downsizing.

Manufacturing executives believe about a third of Australian consumers are willing to pay up to a 10% premium for Australian-made goods.