Warehousing: the evolving needs of Australian tenants

Australia's commercial real estate landscape, specifically within the warehouse sector, is undergoing significant changes. While businesses strive to keep pace with the transformations in market demands, technological advancements, and supply chain dynamics, they are met with the ongoing, pressing challenge: a pronounced shortage of available warehousing.

Michael Raymond, Director of LPC Industrial ANZ, sheds light on this issue, noting, "The current crunch in warehouse availability, especially in Australia's major centres, is putting businesses in a tight spot. They have evolved requirements for warehouse spaces, but the suitable stock isn't there."

Evolving tenant priorities in warehouse selection

Between the evolving demands of businesses and the changing dynamics of Australia's infrastructure, the market is caught in an intricate dance. As Raymond emphasises the challenge of limited availability, it becomes clear that the paradigm of what businesses seek in a warehouse location is shifting in response to broader infrastructural and economic trends. The emphasis on proximity to cities, once a given in warehouse selection, is giving way to new considerations:

Strategic locations:

Historically, being close to cities was essential. But as regional transport infrastructure in Australia develops, tenants should now be looking at connectivity to transport hubs. "Typically tenants have been loathe to consider regional areas, but as availability in main centres decrease, and rental prices increase, we encourage tenants to look at alternative options" Raymond points out.

Technology integration:

Warehouses are no longer mere storage units but sophisticated tech hubs. Spaces that support advanced inventory systems, automation, and robotics are in demand. However, the current market conditions mean businesses might have to compromise or await suitable options.

Sustainability:

Australia's push for greener operations means tenants want eco-friendly warehouses. Raymond remarks, "Businesses are now considering sustainability as a brand requirement. Developers are, in some cases, meeting the challenge but the shortage is forcing some to delay their green initiatives."

Enhanced security:

With the increased value of goods and technological assets, warehouses need robust security. The demand for spaces with advanced measures like biometrics is at an all-time high, but scarce in this market.

Optimal ceiling heights:

Vertical storage, courtesy of greater internal clearances, is now a requisite. With space being a premium, especially in key hubs, businesses are vying for warehouses that offer vertical storage solutions.

Employee amenities:

Today's warehouse is also an employee-centric workplace. Facilities with upgraded break rooms and training centres are on tenant wish-lists, accentuating the crunch in suitable spaces.

Lease flexibility:

The uncertain economic climate necessitates adaptable lease terms. "Traditional 5- or 10-year leases are less appealing in today's dynamic market. Yet, finding locations where landlords offer tenant-friendly terms and long-term flexibility can be challenging" says Raymond.

Cost predictability:

It's not just the physical amenities of warehouse spaces that tenants are prioritising. They are equally interested in the financial and administrative clarity that a lease can offer. Beyond just seeking modern facilities, tenants are on the lookout to negotiate leases that provide a transparent breakdown of not only the current costs but also any potential future expenses. This transparency is invaluable for businesses to forecast their budgets accurately, anticipate financial commitments, and ensure there are no hidden costs or unforeseen financial burdens down the line.

Space for flexibility:

As businesses strategise for the future, their physical infrastructure needs to be adaptive. This has magnified the demand for warehouses that offer not just immediate space, but the potential for future expansion or contraction. Organisations are increasingly looking for properties that can accommodate their changing operations, whether it's scaling up inventory, integrating new technologies, or adding additional production lines. Conversely, some tenants are looking for opportunities to contract space requirements in line with economic and supply chain ebbs and flows.

Finding a warehouse that caters to current needs but also possesses flexibility is a way for businesses to future-proof themselves. It eliminates the cumbersome and often expensive process of relocating when current space no longer meets operational needs. By securing a warehouse with flexibility, businesses can seamlessly manage their processes, ensuring continuity and minimising disruptions.

It's clear that while Australian businesses have a clear vision of their warehousing needs, the real estate market is currently struggling to match the supply with the demand. Property owners, developers, and agents are at the forefront, challenged to offer innovative solutions amidst these pressing circumstances. The industry's mettle is being tested as it grapples with evolving tenant needs against a backdrop of limited availability. "The key will be in finding innovative solutions, partnerships, and strategies to bridge the gap between demand and supply,” notes Raymond.

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