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Diversification, emerging industries to mop up vacant industrial space

Local industrial sector can weather motor vehicle manufacturing closures: Colliers International

A growing number of Victorian businesses are diversifying in order to stave off potentially adverse impacts of the closure of the local automotive manufacturing sector.

According to new research from Colliers International, around 665,000sqm of space could be vacated across Melbourne’s industrial precinct by motor vehicle manufacturers or suppliers as a result of manufacturing shutdowns. The South East precinct, Melbourne’s original centre for Victoria’s manufacturing industry, has the highest concentration of impacted industrial space, at almost 350,000sqm. If around 30% of local manufacturers survive, as has been estimated, then the South East alone can expect around 245,000sqm of space to become vacant in late 2016 and into 2017.

But a new Colliers International whitepaper, ‘Time is fast approaching’, has found some of the space vacated by automotive suppliers or manufacturers is likely to be re-positioned as logistics space, advanced manufacturing or even alternative uses such as residential or large format retail.

“Early indications are that more suppliers are diversifying into other industries than was previously thought,” Tony Iuliano, Colliers International National Director of Industrial, said. “In the North, a number of suppliers are amending their production techniques to become a supplier to Melbourne’s burgeoning caravan manufacturing industry, which doesn’t face nearly as many export threats and remains in high demand.

“The automotive aftermarket is also a sector that is continuing to demand supplies from local manufacturers. Most of Melbourne’s car manufacturers require at least 10 years’ worth of parts to be made available for aftermarket and servicing purposes, so there is still demand for their product. A number of firms are choosing to produce this 10 years of supply now, store the product – thus creating warehousing demand – and move on to utilising their factories to supply other industries."

Over the past 12 to 18 months, Frasers Property has also witnessed a significant shift from within the automotive industry to relocate to new premises that are centrally located and deliver supply chain efficiencies. Over 150,000sqm has been leased to automotive or related groups at Frasers Property’s prime industrial estates in Melbourne and Brisbane.

This has included a new Melbourne office for BMW (5,000sqm), logistics facilities for Ceva Logistics (parts warehouse for Nissan, Infiniti and Renault – 97,535sqm in Melbourne and Queensland), and Dana (10,000 sqm Melbourne).  In addition to these transactions, existing Frasers Property portfolio customers have secured leases including Sumitomo (12,000sqm in Melbourne) and L+L Products (14,000sqm in Melbourne).

“Frasers Property is witnessing significant automotive movement in Melbourne due to the concentration of users in this state,” Reini Otter, Frasers Property Executive General Manager, C&I, said. “There are several relocation drivers for these companies including a focus on supply chain efficiencies through new buildings that feature sustainability initiatives and accessibility to manufacturers, key dealer networks and major road networks, the airport and Melbourne ports."

Mr Iuliano said there were also a number of emerging industries increasing their demand of industrial space, including research and development (R&D) and agriculture.

“These industries have the potential to mop up some of the vacated space leftover from those parts suppliers that will close down,” Mr Iuliano said. “Melbourne has long been Australia’s R&D capital. Biotechnology, pharmaceuticals, biosecurity and agricultural research are some of the areas in which Melbourne is a world leader. High-tech manufacturers are also still actively looking for space in Melbourne’s north and south east."

Another area making a major impact on Melbourne’s industrial market was the agricultural industry. Chinese demand for Australia’s ‘clean and green’ food products was continuing to grow, and many food and food product manufacturers were emerging locally as a result. Victoria alone accounts for 10% of the total globally traded dairy products, including high quality milk, yoghurt, cheese, butter and infant formula. Colliers International found demand from these suppliers, as well as for warehouse space to store the goods near the port and airport, increased markedly during 2015.

The whitepaper found that the impact of the closure of the motor vehicle manufacturing industry on Melbourne’s industrial market had so far been limited.

“However, we expect that at the end of 2016 – particularly for businesses located in Melbourne’s north – the trickle of manufacturing facilities and excess land entering the market will become much more profound, as some businesses finally cease production,” Mr Iuliano said. “The good news is that a number of parts suppliers seem to be using this time to find ways to diversify their business, and particularly their customer base.

“The huge landholdings of Ford, Toyota and GM Holden also provide opportunities for the institutional development sector, and the imminent sale of GM Holden’s 37ha in Port Melbourne will be the first example. Businesses with excess industrial land or facilities that they will need to dispose of in late 2016 and into 2017 are encouraged to think about their real estate strategy now, as timing in the wake of such a large industry shutdown will be crucial."

Frasers Property also expects to see an increase in activity within the next two to three years in the automotive industry as the impact of structural changes are realised.

“Companies will look to rationalise or leverage their balance sheets through either asset sales or sale and lease back transactions if they are landowners,” Mr Otter said. “3PL businesses such as Ceva Logistics are likely to be key beneficiaries of the automotive activity as car sales in Australia continue to increase. Businesses will continue to seek supply chain network efficiencies to reduce overall costs.

“Many of the older manufacturing facilities are becoming obsolete. The focus has shifted towards the type, grade of the facility and its location. There will also be opportunities for adaptive re-use or redevelopment for modern industrial facilities. The General Motors Holden site in Port Melbourne is an example of this and similar opportunities are likely in the north of Melbourne where land supply is limited.”

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