Amazon to eye off Sydney and Melbourne warehouses
US-based online behemoth Amazon could spur the development of industrial buildings worth more than $300 million when it arrives in Australia, with logistics landlord Goodman Group a potential beneficiary, according to Shaw and Partners research.
The forecasts follow Amazon’s confirmation this week that it is making plans to bring its retail offering to Australia, a move that has been widely tipped.
In the short to medium term, Amazon might look for two purpose built fulfilment centres of around 100,000sqm each, with one in Sydney and one in Melbourne, Shaw and Partners analyst Peter Zuk says.
“Assuming average rent of $110 per square metre in Sydney and $75 per square metre in Melbourne, and a cap rate of 6%, this implies a total value of about $308m,” he wrote in a note to clients.
Commercial Insights: Subscribe to receive the latest news and updates
Even though Amazon is expected to be a threat to local retailers, Zuk struck a downbeat tone on the industrial real estate demand, saying it is “not that large in the context of the total Australian market”.
Goodman Group is a “potential, but not guaranteed beneficiary”, with its established relationship with Amazon leaving it well placed to win the business, he wrote.
Amazon fulfillment centres could boost the industrial property sector. Picture: AP
Goodman Group pre-leased almost 93,000sqm of space to Amazon outside Los Angeles in February and will build a new logistics centre for Amazon to move into next year.
Any benefit from winning Amazon’s new business is already reflected in Goodman Group’s share price, Zuk says, reaffirming a hold rating on Goodman Group’s stock.
But plenty of other landlords who have “big chunks of land” in Melbourne and Sydney could not be ruled out, Zuk says.
“Either way, we suggest the Amazon effect in Australia should not be that great for industrial landlords (in terms of new supply) in the nearer term.”
If winning the business means covering the cost of the fitout upfront and recouping it, this could rule out landlords with lesser access to capital than Goodman Group, he said.
“Amazon is not a charity, so do not expect them to pay overs on rent — like any tenant, they will look to be incentivised. Moreover think about what they ‘squeeze’ into a warehouse … build a ceiling high enough, and all of a sudden mezzanine levels can be put in without necessarily generating higher rent for the landlord.”
This article originally appeared on www.theaustralian.com.au/property.
