The Covid Pandemic, international border shutdowns and the Russia-Ukraine War have significantly impacted the local industrial market.
These major disruptions have disrupted supply chains and forced a ‘rethink’ by industry players to remain competitive in a post Covid world.
At the same time, we have low unemployment and rising wage growth in key sectors, which are all indicators of a robust economy.
With the opening of the world again, we are starting to see supply chains return to stable levels but at the same time, “venge spending”, or excessive spending by people in a short period, has taken off as people have come out of lockdown.
This has generated significant demand and rising inflationary pressure, with subsequent moves by central banks on rising interest rates. So, what can we make of all of this?
“It’s actually quite hard to make head or tail of what’s going on.”
Paul Bloxham, Chief Economist, HSBC (Speech to Property Council of Australia Industrial and Logistics Outlook Series, February 2023)
Let’s firstly focus on the positives – with less border restrictions, we are learning how to better operate in a post Covid world.
The opening up of China has also seen a broadscale industrial restart and rising demand for commodities. Secondly.
The impact of war is starting to wane which is helping to reduce supply chain constraints, especially with commodities like oil and gas and agricultural commodities.
Shipping costs are also back at pre-pandemic levels resulting in a freer flow of manufacturing goods around the world with local benefits leading to more balanced supply chains and industrial demand cycles.
So can we breathe yet? Probably not just yet, as the challenge for 2023 has moved from unknown and unplanned world events to a local well-known context.
This includes rising interest rates and cost of living pressures, changing spending habits, a lack of serviced industrial land, and a complex planning approval system which is slowing down investment pipelines.
Rising interest rates are impacting on spending habits which will see a decline in “venge spending” and a shift in focus towards spending on the core living essentials.
Within this myriad of local economic change lies the looming “R word” which will hang around for most of 2023.
Outside of people’s homes is the state of the local industrial and logistics market, which suffers from a lack of adequately serviced land. Industrial vacancy rates are at historic lows (0.2% in Western Sydney), which are forcing up land prices and rents.
For those industries that directly impact on food and consumer goods supply, this will add to cost-of-living pressures, especially at the cash register, as businesses will no doubt pass on additional costs onto consumers.
A complicated planning approval system also prevents the efficient roll-out of industrial lots to address the vacancy rate.
In our “Planning for the urban freight evolution” (2021) report, prepared jointly with major industrial and logistics companies, we stressed “that governments need to be more flexible, less dogmatic and be able to work in a matrix environment.”
We support the fast tracking of major industrial proposals, especially at the Aerotropolis, which is Australia’s fast emerging international gateway, needed to support the next wave of industry with two-way flows that improve domestic competitiveness on the international stage while reducing costs for local consumers and associated “cost of living” concerns.
A new Aerotropolis roads package help enable development on the ground when the planes take off in 2026.
As the industrial headwinds adopt a more local context, the market will need to adapt again and apply the lessons learned from the Covid pandemic more quickly.
This approach will help industry respond to changing household budgets and ease cost of living pressures to lessen the impact of the national economy slow down.
This approach can only lead to more investment in key industrial markets and help build future jobs to ensure that the generational wealth we have enjoyed for the last 30 years continues well into the future.