‘Disruptive Industrial’ Days are Numbered, Planning Must Keep Pace

Imagine a future where electric vehicle technology is applied to trucks and people are living in hyper-mixed-use neighbourhoods, where industrial, commercial and residential are all co-located. That is the future we should be planning for, according to Realterm head of investments, Australia, Charlotte Brabant. “You can’t keep pushing industrial and logistics land further out,” Brabant says. “It needs to be close to the ports and the intermodal infrastructure and the businesses and people it services. There’s no vacancy of hardstand between the city and Spring Farm [67km south-west of the Sydney CBD]. “I think the challenge we have is industrial is seen as a heavy user, a disruptive asset class.” Speaking simply, not a good neighbour. But Brabant says we should be developing a planning system for a more futuristic, ESG-focused industrial sector that remains in development lock-step with road and transport infrastructure projects. Brabant, along with her colleague and fund manager for Australia, Toni Ryan, are spearheading global business Realterm’s expansion into the Australian market. The group’s focus within the industrial market is, however, singular and peerless in Australia. Location, location Realterm is a global investor that focuses on real estate for the transport industry. It is hyper focused on the niche subsector of industrial outdoor storage, or as Brabant puts it, the vertical movement of goods. It’s a first mile and last-mile strategy, and Realterm has just inked its second deal for another low-coverage, well-located site in Sydney, at Fairfield. It’s one of Sydney’s oldest established and most tightly held industrial markets. The 3609sq m warehouse features about 1.7ha of secure storage space and a warehouse with seven raised docks. ▲ The Fairfield asset, a 28,760sq m industrial outdoor storage facility at 311 The Horsley Drive, was acquired for $28 million. Brabant says they look for sites that they know occupiers are looking for, with low-site coverage. They intentionally target sites with a good understanding of the kinds of clients they will be approaching for the site. “We map them and put them on our pipeline for off market opportunities. But we also look at on-market opportunities,” she says. “There’s no one else in the market who is solely focused on industrial outdoor storage … we have a bit of a competitive edge as we have capital to deploy at the right time. Many of our peers are not in that position at the moment.” The group is in due diligence on a third site in Sydney. Of course, putting your foot on well-located infill industrial sites in Sydney’s tightly held market is a tough business. Land supply scarcity is a real challenge across the board, which has led to the densification of much of Sydney’s industrial land. Sticky tenants pay premium But Brabant says they have big ambitions to grow in Australia and are well-capitalised to cut deals in the current property cycle. Brabant says they have a high conviction in strong industrial pricing off the back of sticky tenants who are willing to pay a premium for industrial outdoor storage. “It’s quite a different strategy from our peers,” Brabant says. “These assets they require, they’re mission critical to supply chain so therefore occupiers will pay a premium and they are sticky … being close to key transport nodes is a really big part of identifying the right assets. “Most of our peers believe for lower cover sites the highest and best use is to develop underutilised land, and we consider that as higher-density industrial.” ▲ Realterm head of investments in Australia Charlotte Brabant spoke at The Urban Developer ’ s Commercial Real Estate summit in Sydney this month. Location is crucial. Brabant says to freight a container from port to Alexandria is about $120, from port to Auburn it’s about $550, and to venture out to Mamre Road is more than $1000. Since Covid the rental price growth of hardstand has outpaced traditional warehousing. “We can underwrite with high conviction,” Brabant says. “We think rental supply-demand imbalance will continue to drive the industrial market.” But, she acknowledges, it is coming off a low base. Low coverage land supply a challenge But the growing value of low coverage industrial sites is significantly undervalued as more industrial developers look for development upside, according to Realterm fund manager for Australia Toni Ryan. “No one was really looking at the value of hardstand … but it can be rentalised,” she says. “Coming out of Covid that’s been a real catalyst in demand for outdoor storage and being able to move freight. “There’s a value attributed and it’s not where it was five years ago … which was about $40 to $50 per square metre.” Ryan says they are focused on Sydney because it is the “most tightly held market and the most difficult to buy in”. Planning for future of mixed-use communities Realterm has $11 billion in assets globally and after just two years in business is about to ink a deal for its third site in Sydney. “It’s about looking at these occupiers in relation to how those supply chains operate and their transport requirements. We’re not big box industrial … we work across different risk/return profiles,” she says. And it’s a strategy that has a strong record of more than 30 years in the US, where it has outpaced the rest of the market. The industry has become more sophisticated and instutionalised, according to Brabant, who says Realterm’s ESG mandate also includes an R—for climate resilience of assets. Brabant says with innovation and greater focus on ESG and built-form design, industrial land needs to be preserved, with greater planning around co-location of different asset classes. “There should be better consideration to how industrial is going into the future,” she says. “I think industrial and commercial and residential, they have to work together. There needs to be better focus on having a planning system that allows industrial to be closer to other asset classes. “We need to plan for the future, not look to the past.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

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