In response to evolving consumer expectations due to the growth of e-commerce, occupiers are increasingly seeking strategic sites in central locations to facilitate last-mile delivery. The development of new supply is difficult in these locations, led by zoning and planning regulations as well as fragmented lot sizes and ownership. As a result, supply has fallen well short of demand, driving the outperformance of rental growth in infill locations.
Despite the supply challenges, developers have a large opportunity to capitalise on the strength of occupier demand by adding new or refurbished stock to the market. Alternative use conversion and multi-level warehouses are potential solutions to add supply to these precincts and address the ageing stock profile.
Key Findings
- Given sustained occupier demand and a lack of supply, vacancy rates are sharper in infill markets, which has underpinned the outperformance of rental growth. This outperformance is expected to remain as just 13% of the supply pipeline over the next three years is within infill markets.
- Despite the aged profile of warehouse space in infill markets, occupiers have accepted this efficiency trade-off as proximity to population, and the subsequent transport cost savings to service these households outweigh the downside of an aged facility.
- Delivering warehouse supply in infill locations comes with unique challenges; however, developers have a large opportunity to capitalise on the strength of occupier demand by adding new or refurbished stock to the market. Alternative use conversion and multi-level warehouses are potential solutions to add supply to these precincts and address the ageing stock profile.
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