Online retail slowdown raises questions over industrial property


Online retail sales have started to plateau after the Covid lockdown-led boom, and it could have significant implications for industrial property going forward, according to an expert.

Ray White Head of Research, Vanessa Rader, said that after experiencing a surge during the pandemic, online retail growth has now levelled out, potentially affecting 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.

“This has kept the proportion of online retail sales static over the past 18 months.”

Ms Rader said online transactions accounted for 10.9 per cent of all retail sales across the country – down from 15 per cent during the Covid peak.

“If this stability continues, it raises questions about the future demand for industrial facilities for storage, distribution, last-mile delivery, and even cold storage,” she said.

The industrial property sector emerged as a star performer during the pandemic, with large distribution facilities attracting significant institutional investment.

“Over $9 billion in industrial assets (over $50 million) changed hands in the year to March 2022, leading to fierce competition and sharp declines in investment yields,” Ms Rader said.

Ms Rader said the landscape was 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,” she said.

The past 18 months have already seen a slowdown in large industrial transactions, according to Ms Rader.

“Changing financing costs have contributed to rising yields, resulting in some land value declines across the country,” she said.

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

Ms Rader said the 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 further energising retail assets across the country.”



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