As 2019 draws to a close, industry begins to reflect on the year that was and anticipate the next. But for some industrial occupiers, the year ends with a scramble for extra space to fulfil a short term need and to plug a hole and connect a missing piece in their supply chain network for the coming months. This counter-cycle is not wide spread but niche-like for warehouse users with inventory overflows and distributors in need of extra space to satisfy the end of year “retail rush”.
The Retail Rush
The challenge for 3PL’s, e-retailers and last mile providers to fulfil end of year orders and deadline deliveries before Christmas often results in a need for additional warehouse space. Competition between providers is amplified at this time of the year as the need to meet customer orders where on-line shopping and home delivery has fast become the preferred method to obtain goods. Convenience and fast dispatch of goods to all metropolitan areas can often be satisfied, in the short term by leasing an additional warehouse, and ideally a site where a short-term lease is available. 3PL users usually demand a warehouse with a combination of on-grade roller doors and loading dock entries. Stock can be moved more easily and quickly where sites have these features together with good truck marshalling areas and 24/7 capabilities. Admin areas are less important as typically short-term requirements from 3PL’s usually only demand warehouse space.
Equally, 3PL’s often seek out additional warehouse space, outside of their usual footprint for short term periods to fulfil demand and client’s needs. Warehouse space that offers a turnkey solution are in high demand, where racking is in place and vacant possession is available at sometimes a day’s notice. Landlord who can quickly transact and accommodate a 3PL at short notice can receive a rental income injection for a period where a vacancy would otherwise be expected.
For users not affected by the retail rush associated with the end of the year, we see many users seeking short term space to satisfy particular projects. For example, the NSW RMS has leased sites that straddle the Sydney M4, typically for the duration of road projects. A two-year lease on office space at Huntingwood has been taken for a road widening project nearby, and a workshop and depot has been leased at Silverwater have served as a stop-gap for project staff to meet and house infrastructure equipment for Westconnex.
In another more unique example, location managers are regularly seeking unique spaces for film production of local mini-series to larger movie production. The likes of Fox and Kennedy Miller lease warehouses for set construction, prop storage and filming, office space for pre-production where leases usually range from a few months to a maximum of twelve months and beyond for larger, bigger budget films.
Hail, rain or shine
The other area we see short term leasing is for when we experience inclement weather, and users in the insurance industry need industrial space immediately. I received a call on a Sunday evening from Picks Auctions, seeking an urgent warehouse to house 5,000 hail-damaged vehicles. Within a few days, they moved into a 13,000sqm warehouse in Auburn which would have otherwise remained unoccupied for several months. This year alone there have been two major hailstorms across Sydney which resulted in 8 vacant warehouses being leased totalling 85,000sqm. Just after Christmas last year, there was a large storm in Sydney, typically a quieter holiday period for those in the industrial property space. However, property agents such as myself were hard at work, seeking immediate space for users who were dealing with the fallout from the storm. If we look even further back to 2011, the huge damage caused by a hailstorm in one of Sydney’s key industrial pockets, Eastern Creek, resulted in 270,000sqm of warehouse space leased and 16 vacant buildings in sudden hot demand as a result of the storm.
In industrial markets closer to inner cities, a ‘perfect storm’ for shorter term leasing occurs. Developers with dormant industrial buildings awaiting development approvals and an improving residential apartment market are ready, willing and able to accommodate short term tenants. Residential developers are seeking 2-3-year leases and sometimes with development clauses which gives both parties flexibility to end the lease should demolition be required. Depending on the business requirement, it can be a solid solution for the short term.
Another option in the short-term leasing market is sub-tenancies. A tenant who vacates prior to the expiration of your lease, there can be an opportunity to for a short-term tenant to take out the balance of the lease in the perfect scenario.
Working with a trusted expert
A trusted agent will understand how the intricacies of how your business operates and can move quickly to secure you a property to keep your business running. During storm season, we monitor weather alerts and, in some instances, have prepared landlords License Agreements, ready to sign so we can move immediately on any vacant space. In the past, we stopped everything to help find space immediately. Now it’s a much more detailed planning process, well-organised and we can help secure the space faster.
That said, the short-term leasing market may not suit all landlords who typically can prefer longer lease terms. Typically, leases range between 5 to 10 years with set reviews. For landlords who do work in the short-term space, we work with them to ensure the property is in full working order. Often the time to secure the space is limited, and businesses can pay a slightly higher rental to ensure business continuity.
Regardless of your need for a short-term tenancy, it’s essential you have a trusted agent who can source you the right property at short notice. An expert agent will help you make decisions quickly and methodically based on their knowledge of market movements and available stock.
Contact Tony Durante, National Director | Industrial for more information.