Rethinking industrial property footprints

Rising real estate costs and tempered e-commerce demand are prompting companies to reassess their warehouse requirements.

Focus is shifting away from rapidly expanding their footprints to insulate against supply chain uncertainty and towards boosting efficiency, cutting costs and enhancing productivity.

After a period of unprecedented warehouse demand, turbocharged construction and rental growth, analysts are calling 2025 the year of strategic consolidation, with e-commerce penetration normalising and greater clarity over sustainability requirements.

“We have started to see businesses consolidating operations within their existing properties before expanding to new spaces, as well as re-evaluating where they store inventory, balancing leasing costs with connectivity to customers,” says Nathan Bingham, head of logistics and industrial occupier services in Australia, JLL. 

In Australia, industrial supply at 3.06 million square metres was 74.8% above the 10-year annual average in 2024, relieving pent-up occupier demand that surged during the pandemic, according to JLL's Australia National Industrial Market Dynamics report 2024.

National average prime net face rents increased year-on-year by 9.4% as businesses sought warehouse space close to population clusters, though they are now moderating slightly.

In New Zealand, businesses are struggling to find space, with land shortages hampering supply and driving up rents. Wellington’s industrial net absorption outpaced supply for a fourth consecutive year in 2024, supporting 2.8% annual rental growth, according to JLL’s New Zealand Market Dynamics Q4 2024 report. In Christchurch annual prime rents increased 13.8%.

“With recent rent stabilisation and increased incentives, there is now renewed confidence from many occupiers to proactively seek solutions in this new, higher cost environment,” Bingham says.

Their objective, Bingham adds, is to optimise their distribution networks. Companies are primarily achieving this by modernising both their property and operational strategies.

“New warehouse development allows companies to consolidate space and drive greater productivity from a smaller footprint, particularly when operations are supported by investment in technology and automation. The consolidation of operations can also create the opportunity to relocate operations geographically to reduce transport costs,” Bingham says.

Starting a consolidation process early and planning strategically are key to minimising disruption to operations. Bingham advises occupiers to initiate the assessment process and explore options well in advance of lease expiration. The added benefit to this is gaining a competitive edge by keeping abreast of market dynamics, including warehouse pricing, availability and suitability.

“Finding the right balance between managing costs while also being able to provide a high service level to customers has become increasingly challenging. Therefore, when reviewing a supply chain and warehousing strategy it is crucial that companies assemble a project team that truly understands the company’s future requirements and can provide deep on-the-ground insights. Planning is important, but execution is king,” Bingham says. “We are operating in an evolving market, where the proportion of e-commerce retailing in Australia has recovered from the low of 12.7% in 2023 to 13.7% in 2024, and it continues to rise steadily in New Zealand as consumer sentiment improves.

“This, coupled with the increasing focus on sustainability is likely to further drive the trend of strategic planning and consolidation in the coming years. It will pay to think ahead.”