The Amazon Effect on Australia s property market

The ‘Amazon Effect’ on Australia’s property marketAs US retailing giant Amazon looks for warehouse space in Australia, its influence on bricks-and-mortar retailing and the commercial property market could be profound, finds a new report from m3property.In April, Amazon announced it would extend its range of retail services in Australia, with founder Jeff Bezos promising to bring “thousands of new jobs to Australia [and] millions of dollars in additional investment”.Morgan Stanley has found that Amazon already earns around $1 billion in sales from Australia by shipping from overseas, and Bezos says he is employing “almost 1,000 employees” here.Founded in 1994, Amazon started as an online bookstore but now has a full range of products through a multi-level e-commerce platform. The online retailer now sells more non-food goods in Germany and the United Kingdom than any other retailer, and Morgan Stanley has estimated that it was responsible for around a third of the growth in all retail sales – both on and offline – in both these markets.At the end of last year, Amazon employed more than 340,000 people around the world. Sales hit $136 billion last year, growing by 28 per cent on 2015.Amazon Marketplace, which Bezos says will “empower small Australian businesses” allows third-party sellers to sell new and used products. Bezos has said close to half of all items sold on Amazon websites globally are through Amazon Marketplace.Among its other service offerings, Amazon also operates a grocery deliver service, AmazonFresh, in the US, London and Tokyo; and it is trialling an air delivery service using drones in the UK.According to NAB, Australians spent $22.23 billion online in the year to March – just 7.3 per cent of what was spent in bricks-and-mortar stores. NAB estimates that around 80 per cent of money spent online is through domestic retailers. But online retailing in Australia is expected to grow as Amazon does. Analyst Hitwise has found monthly searches for Amazon have increased by 93 per cent since July 2016. Nielsen Australia says Amazon converts 49 per cent of Australian visitors to its US site into sales, behind eBay (78%), The Book Depository (74%) and The Iconic (53%).When it launches in September, the impact of Amazon on retailing could be profound.Nielsen research has found three quarters of Australians aged over 18 are interested in Amazon Australia. Broker UBS has said Amazon could slash discretionary retailer earnings by 16 per cent within years of entering Australia, with electronics, appliances, fashion, department stores, sports and leisure the sectors expected to experience the strongest margin pressures.The m3property report says Amazon’s expansion will “undoubtedly have an effect on the commercial property market” although it is “difficult to gauge” to what extent.”In the US and UK, the number and size of bricks and mortar stores has declined”, m3property says, which is partly attributable to the growth in online retailing.”In the US, retail construction has been extremely subdued since the mid-2000s, with retail expansion currently being driven by services that typically do not compete with online retailers”, such as food and service retail. Australia’s much lower penetration of online retail may mean Amazon’s impact is not as significant as that seen overseas. However, m3property argues that “the common inclusion of percentage rents in retail leases” may mean shopping centre owners “could see rental income come under pressure if they are heavily exposed to those retailers that are forecast to see reductions in sales”.Amazon has confirmed that it is looking for a distribution and fulfillment centre in Australia, and reports suggest floor space of up to 93,000 sqm – or about five MCGs – is on the cards.m3property says Amazon has various types of warehouses in the US, and has recently expanded its delivery station distribution network to include smaller facilities to sort packages for last mile delivery. “These warehouses are typically 5,000 sqm to 10,000 sqm in size and are located close to large metropolitan cities and often near airports.”While details on the size and location of Amazon’s warehousing facilities remain sketchy, “it will be located in Melbourne, Sydney or Brisbane and will most likely be purpose-built”.Amazon’s move Down Under “will not see a substantial increase in demand for industrial space proportionate to the size of Australia’s industrial market,” but m3property expects the number of distribution centres required by the company would increase “in line with the company’s growth in Australia.”Download m3property’s update: Amazon’s expansion into Australia.