Nearly two-thirds of new sheds being built by industrial property giant Goodman Group are multi-storey warehouses, a major shift away from yesterday’s large, land-hungry, single-storey buildings.
Land scarcity in urban centres, the online shopping boom and customers’ need to reduce truck transport emissions and speed up deliveries were upsizing sheds in city locations, said Greg Goodman, boss of the $35 billion ASX-listed industrial gorilla.
“Without a doubt, all of them are growing, and growing their footprint,” Mr Goodman said of the group’s customers, which include online retailers such as Amazon, as well as grocery chains, pharmaceutical firms and logistics providers.
“They want more efficiency. They want to be faster to market, more automation and, importantly, they also want sustainable features in the building,” he said.
Goodman is planning multi-storey sheds in Sydney and Melbourne, but most are being built in Europe, Hong Kong and China, where land shortage and proximity issues are more acute.
‘We’re in a structural revolution and evolution which has accelerated during COVID.’Greg Goodman
In some offshore markets, the only option is to build more storeys accessed by exterior ramps for trucks. “In China, for example, in Shanghai, Beijing, we don’t have a choice,” he said.
“Our projects have increased in size and scale, given the concentration in urban locations around the world, with approximately 60 per cent of current work in progress now multi-storey.
“We have concentrated our portfolio in high barrier to entry markets where land is scarce and use is intensifying.”
Goodman has at least two multi-storey sheds in planning stages at Alexandria, in south Sydney, and expects to start work in the next couple of years on another at its Port Melbourne industrial site.
The tactical shift towards inner-city warehousing is paying dividends for the industrial behemoth which, at the end of the March quarter, reported it had a $9.6 billion development pipeline and $52.9 billion of assets under management.
Its $20 billion Australian assets under management account for just 40 per cent of its global portfolio. And at least 90 per cent of the $9.6 billion development pipeline will be retained by the firm under management rights.
Such is the global demand for logistics and industrial space that the property manager says 98 per cent of its portfolio is fully occupied, which is generating like-for-like net property income growth of 3 per cent.
High occupancy and strong cash flow growth in its properties are also supporting increased valuations.
The group says in a quarterly update: “With transactional evidence implying lower cap rates, we expect further growth in valuations.”
Analysts at merchant bank Macquarie think the group will outperform. “Continued asset value appreciation driven by recent cap compression and underlying rental growth will aid assets under management growth,” they said.
“This will also provide continued outperformance at the fund level and performance fees across the platform.”
Mr Goodman said his customers’ desire for sustainability would drive a radical shift towards carbon-neutral warehouses over the next five years.
While the group is already carbon neutral in its operational business and offices around the globe, it was now looking at how quickly it could get to a neutral stance in the steel and carbon it uses to make its sheds.
Goodman said: “That can be done in a number of ways that we’re looking at at the moment. So in a couple of years, you’ll find that projects coming out of the ground will have a very low to zero carbon footprint.”
The group also has a five-year target to roll out 400 megawatts of rooftop renewable energy.
Mr Goodman said: “We’re in a structural revolution and evolution, which has accelerated during COVID.
“While that structural change persists, which we think will certainly be a 10-year story, [there is] pretty good stuff being done around the world to make the buildings more efficient, more serviceable and more usable.”
Goodman Group reaffirmed its forecast 2021 financial year operating profit of $1.2 billion and its full-year distribution of 30¢ per security. Its shares are trading around record highs at $19.30.