Repurposing Gains Ground as Last-Mile Logistics Saviour

Until recently, Australian last-mile logistics had been a goal rather than a reality. Now, a number of major players are making it happen. In July, Goldman Sachs Alternatives announced it had acquired 65,300sq m of leasable last-mile logistics space across Adelaide, Brisbane, Perth and Melbourne. Meanwhile HMC Capital last year reached first close for its Last Mile Logistics Fund that targets traditional retail properties that can be repositioned to provide last-mile, omni-channel solutions. Throwing its weight behind the sector, HMC is targeting $1 billion for the fund. It has already secured $350 million from Funds SA and $50 million from the big box retail HomeCo Daily Needs REIT. HMC Capital managing director for real estate Sid Sharma says retailers are working to solve the customer demand for convenience. “Customers of tomorrow will want goods and services accessible within one hour of the demand,” Sharma says. “In a country like Australia with a big land mass, and a population base with low density and high wage costs, retailers need to solve the last-mile cost challenges creatively.” The last-mile landscape The sub-sector’s landscape in Australia is, to say the least, nascent. In-house operators including Amazon, Coles and Woolworths are the most dominant, while Australia Post is among the biggest groups undertaking last-mile operations for other companies. JLL head of logistics and industrial, capital markets, Australia, Ben Hegerty says infill logistics is what everyone is chasing. “You need to be as close to the biggest population as you can, but you can’t build another warehouse,” Hegerty says. The industrial sector is tightening further despite the growing pipeline of development in the works while, according to JLL’s research, national quarterly gross take-up rebounded in the second quarter of 2024, increasing by 97.1 per cent to 732,035 square metres. JLL says this was “driven largely by increased occupier appetite for larger warehouse space with the volume of occupier moves exceeding 20,000 sqm, increasing from three in the first quarter of 2024 to 12 in the second”. ▲ The HomeCo Daily Needs REIT has $4.8 billion worth of neighbourhood retail assets keen to enter the last-mile subsector. And while those occupiers are seeking space, the problem is getting goods to the customer from these larger warehouses. “The theory around last mile is how do you get your goods to the consumer as quick as you can,” Hegerty says. “And people aren’t trending away from consumption—they are consuming more but just in a different way, and not moving away from bricks and mortar either.” AusPost research says that in the second quarter of this year, an average of 5.7 million households shopped online—that’s a 3.8 per cent increase on the same period last year. However, the ability to increase orders is being held back by decreasing delivery times. Shipping software firm Shippit’s 2024 State of Shipping Report found that in 2018 standard shipping promised at an average of two days and cost $9. This year that has blown out to 5.6 days and costs $10.26. In that same period, the demand for faster shipping has driven a 136 per cent increase in retailers offering express delivery. That is putting pressure on the sector—the biggest increases in online spend are in regions with less last-mile infrastructure. Annual online transaction growth by state ▲ Source: Australia Post 2024 Inside Australian Online Shopping eCommerce Industry Report And while drone deliveries are being trialled by the likes of DoorDash, that method will remain out of reach for most retailers in the foreseeable future. The issue has become so critical, governments are investing in a solution. Earlier this month the NSW Government’s Transport Asset Holding Entity (TAHE) announced it was seeking partners to begin an 18-month trial of three last-mile freight microhubs, at Waverton Station and the Wynyard Tunnels, aiming to “transform urban logistics by reducing congestion, lowering emissions, and enhancing delivery efficiency”. Property Council NSW executive director Katie Stevenson says that given the current chronic shortage of logistics space in Sydney’s inner-city areas, the initiative is welcome. “Innovative solutions to last-mile delivery challenges can help to reduce congestion and lower emissions in critical areas of the city, all while supporting the efficient movement of goods.” And the private sector is turning its attention to the problem too. The potential of repositioning Repositioning assets, whether they be in city locations or in neighbourhood precincts, is being tipped as the way forward for last-mile growth. Office assets could be worth exploring, according to research from Resolve XO, due to sustained high office vacancy rates, growing pressure on ageing assets and the ongoing supply demand imbalance. And given the sustained high rents in the sector, it could indeed be a lucrative choice. Current average rent, incentive comparison ▲ Figures are indicative of cost per square metre. Source: Resolve XO Industrial real estate at Mascot and Ultimo, according to Resolve XO, attracts average net rents of $540 and $630 per sq m, while at Chatswood and Parramatta, net rents sit at $459 and $463 per sq m, it said, and effective rents for both sectors continues to converge. While converting offices to last-mile logistics may be a big ask in the short term, HMC Capital’s Last Mile Logistics Fund is currently supporting the transformation of retail shopping assets “in key growth corridors into convenient daily needs centres with essential last-mile product delivery logistics infrastructure,” according to Sharma. “We are building on our track record in the adaptive reuse and asset repositioning of the former Masters warehouses into HomeCo Daily Needs shopping centres [that are] serving the highest population growth corridors in Australia. “HMC Capital’s LML strategy benefits the capacity of national and local retailers as well as mum-and-dad businesses to optimise product delivery for customers.” ▲ Australia ’ s last mile market is projected to grow at compound annual growth rate (CAGR) of more than 10 per cent over the next five years. The benefits of turning major big box retail centres into last-mile logistics locales is that they have great access, good carparking, and large loading facilities, Sharma says. “These assets are strategically located in A-grade locations with substantial population growth and expansion potential, but they haven’t had the historic investment to be fit-for-purpose for retailer and customer demand—especially as last-mile logistics capacity becomes more and more important.” More investment in the sector is inevitable, but how this plays out in real estate remains to be seen. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

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