Industrial sector – big strides, small footprints

Reproduced by permission JLL New Zealand - www.jll.nz August 2021 Managing Director Todd Lauchlan Head of Research Gavin Read Auckland 09 366 1666 Wellington 04 499 1666 Christchurch 03 375 6600

Industrial sector taking big strides but aiming to leave

small footprints

While COVID-accelerated behaviour changes may have forced the retail, hospitality, and office sectors to change tack to adapt, the industrial sector is riding a tailwind straight out of the pandemic, forging ahead on the same growth path�

The minimum additional 1.1M sqm of space we believe will be needed by 2025 to keep pace with population growth – calculated at a rate of 4.5sqm per person - will require the full current pipeline of projects across Auckland, Wellington, and Christchurch to be completed� However, it’s worth noting that declining land availability and construction cost pressures are making development in these geographic markets increasingly challenging� In our wider look at New Zealand’s prospects at the start of this publication, we highlighted the rise of E and Q-commerce as a core driver of demand for industrial property� But as our population continues to grow, there will be other important factors at play that will shape future industrial development and redevelopment�

New Zealand’s high level of urbanisation – almost 90% of our population is classified as urban, against a global average of 56% – is the perfect foil for our maturing E-commerce market, enabling retailers and logistics providers to service large consumer groups from a single location�

Within this sector, food retailing has emerged as a key driver of growth� Last year food accounted for 40% of retail spend – and as food retailers continue to expand their supply chain capacity, their industrial footprint also grows� Having averaged 38% of all retail sales for the preceding decade, last year’s figure was only partially inflated by COVID and we expect food retail to remain a steady driver of industrial demand over the medium-to-long term�

But perhaps the most defining trend when looking at the future of the industrial buildings will be their environmental footprint, not their physical one� Over 70% of emissions associated with an industrial building’s life cycle are released during the occupation phase, meaning tenants of poor-performing buildings risk significant brand damage. Assets that fail to keep up with industrial occupiers’ evolving environmental, social, governance requirements risk extended let up times, shorter lease terms, and declining asset values� Therefore, we’re likely to see the kind of emissionsminimising technology inherent in contemporary design, such as solar power and water recycling, retrofitted into existing stock.

Artist’s impression: Foodstuffs’ new distribution facility includes 2,915 solar panels on the roof covering approximately 6,000sqm - the largest anywhere in New Zealand.

Improved sustainability is not only better for brand and marketability, but also bottom line� According to a report from the New Zealand Green Building Council, savings on operating costs over a 5-year period can be as high as 15% in Green Star rated industrial buildings; while the World Building Council calculates that a 2% upfront cost to support sustainable design principles can result in an average saving of 20% of total construction cost over a building’s lifetime� The green future of the sector is already here� The roof of Foodstuffs’ new distribution facility features 6,000 sqm of solar panels, creating enough energy to power the equivalent of over 200 new homes, while Air New Zealand’s new 5,000 sqm Inflight Logistics Warehouse is naturally ventilated through operable louvres and features clear roofing to reduce the need for electric lighting� These are the big strides needed to leave smaller footprints�