Make your move: Why industrial warehouses have replaced retail as the premier commercial asset class

The Ocean Child business park at 300 Melbourne Rd, North Geelong, was pre-sold prior to construction this year.

Industrial warehouses, offices and showrooms have replaced retail as the premium commercial asset class as CBDs continue to grapple with working from home.

Investors and occupiers have flocked to estates such as South Geelong, Breakwater, Moolap and North Geelong where tilt-slab constructions emerged on vacant or previously occupied sites.

Darcy Jarman, Geelong agent Tim Darcy said industrial warehouses had become the modern retail as businesses consolidated their accommodation needs.

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“Retail used to always be the premier asset grade and it’s gone through a realignment over the past five to 10 years,” he said.

“But industrial showrooms, office and warehousing has now become the new retail – it’s the number-one sought-after asset grade.”

Mr Darcy said it’s a simple product and relative affordability.

“The way in which people accommodate their businesses today in terms of both office and warehousing can be done in the one amenity, where historically they might have had two to have their office and a separate showroom or warehouse,” he said.

A short-term lease enabled interest from both investors and owner occupiers at 12 Dendle St, Grovedale. A local investor paid $1.51m for the warehouse, generating a 4.3 per cent yield.

“Now because of the transition, it’s created a greater level of appetite for that type of thing.”

Industrial warehouses support a wide variety of uses outside of manufacturing or automotive servicing. Most are between 100sq m and 350sq m.

“Tradespeople need small warehouses and even a lot of people, because they’re now living in smaller domestic blocks, have a requirement for storage for caravans, trailers and boats.

“There is a whole raft of different needs and wants.”

Mr Darcy said rental values had followed the capital growth in the sector, with high competition to occupy.

“In an organic sense there is a good growth in the rental value,” he said.

“The affordability in that market compared to traditional retail and commercial (property) is a lot less, so that’s why it has created an attraction to end users because the occupation costs are significantly lower.”

Warehouses 15-19/158 Fyans St, South Geelong, sold for a combined $3.87m recently.

Gartland, Geelong agent Michael De Stefano said investors and occupiers had flocked to them during the pandemic when interest rates were at a record low.

“Most you were able to service at a lower level than what you could lease one for,” he said.

Investors also identified that most tenants were immune from the Covid moratoriums in place.

“When you had offices out of action and all the restrictions on retail and hospitality, investors turn their attention to a product that was still classed under the Retail Leases Act, so tenants were paying for all the outgoings.

“It’s a product that has very little maintenance issues, because they are three or four concrete walls.

“So high returns, less maintenance and unaffected by Covid relief and they are now a product in high demand because supply has dried up.”

Other than Geelong’s ring road employment precinct, every other industrial location is landlocked, he said.

The industrial precincts at Armstrong Creek will be the next frontier for development, he said.