Online retail slowdown impacts industrial property outlook

The rapid growth in online retail sales during the pandemic has plateaued, potentially affecting demand for industrial property.

Ray White Head of Research, Vanessa Rader, said the proportion of online retail sales has remained static over the past 18 months, raising questions about future demand for industrial facilities.

“The growth trajectory of online shopping has paused, with consumers returning to brick-and-mortar stores, particularly for food and groceries,” Ms Rader said.

Online transactions now account for 10.9 per cent of all retail sales across the country, down from 15 per cent during the COVID peak.

The industrial property sector was a standout performer during the pandemic, with large distribution facilities attracting significant institutional investment. Over $9 billion in industrial assets changed hands in the year to March 2022, leading to fierce competition and sharp declines in investment yields.

However, the landscape is now changing, with advancements in technology potentially impacting space requirements.

“AI-driven efficiencies, multi-level racking systems optimising space, and increased automation suggest that additional capacity could be absorbed within existing industrial footprints,” Ms Rader said.

The past 18 months have seen a slowdown in large industrial transactions, with changing financing costs contributing to rising yields and some land value declines across the country.

“Despite persistently low vacancies, rents have levelled off, and new supply has been limited due to high construction costs further dampening investment demand,” she said.

Ms Rader suggested these developments could signal a significant shift in the industrial property landscape.

“As logistics demand potentially wanes, the status of large distribution facilities may shift,” she said.

The renewed preference for brick-and-mortar shopping could bring stock back to stores, potentially energising retail assets across the country.

This shift in consumer behaviour and technological advancements may reshape the industrial property sector, with investors and developers adapting to changing market dynamics.

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