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Demand for F&B industrial space is the highest it has ever been

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The food and beverage industrial sector experienced a record uptick in the demand for more industrial space off the back of several external factors including the pandemic and supply chain disruptions. Adam McCleery writes.

As the food and beverage industry continues to recover from the impact of the COVID-19 global pandemic, several of the disruptions caused by the event have also resulted in supply and industrial space concerns in Australia.

CBRE Australia, a commercial real estate group, has seen firsthand how disruptions to the supply chain, and changes in consumer demand off the back of extended lockdowns, has impacted the industry.

“There has been a huge take up over the last couple of years, occupiers have been taking additional space because supply chains have been unreliable and consumer demand increased dramatically,” said Michael O’Neill, CBRE NSW director and managing director of CBRE Western Sydney.

“Many occupiers have moved to a ‘just in case’ model rather than the traditional ‘just in time’ model.

“That has created demand for extra space and contrary to that is the supply of new stock has not kept pace with that demand. Whether it be delays due to COVID, delays due to wet weather, and delays with planning.

“These factors mean users have wanted more space but there has been less supply.”

As an example, 2021 saw the highest take up of industrial space ever in Australia, and by a significant amount, O’Neill added.

Traditionally the gross take-up around the Sydney area has been dominated by postal, transport, and warehousing over the last decade, but in the last two years that has seen an increase in a range of industries particularly food related groups.

“This is largely due to an increasing e-commerce penetration rate,” said O’Neill. “A lot of people have gone to 3PL’s for

overflow, however the manufacturing sector, which includes food production, has represented a significant part of that, 21 per cent in fact.

“The penetration rate will continue to increase, and I think population growth will keep that momentum going moving forward.”

The growth seen over the last two years is trickling across all sectors of the food and beverage manufacturing industry, including at the retail level, which is helping drive the demand for more stock and industrial space.

“With respect to non- discretionary retail spend, this has been growing at an annual average rate of 4.7 per cent over the last five years – according to the Australian Bureau of Statistics,” said CBRE head of Industrial and Logistics Research Australia, Sass J-Baleh.

“Although the online grocery sector is relatively small within food retail spend by Australian consumers, representing only 5 per cent, this sector has been growing significantly. Online grocery spend has increased fivefold over the past five years, totalling AUD 10 billion in 2021, and expected to double to AUD 20 billion by 2026.”

These changes have also resulted in new approaches to the types of industrial buildings companies are now looking to construct.

“We are seeing that many developers recognise the strong demand by specialised food users, especially in in-fill locations like Auburn but also in outer west locations like Eastern Creek and Glendenning,” said O’Neill.

“I would estimate that for somewhere between 30 and 40 per cent of occupiers on new development stock on inner locations is being driven by food users. Groups like ISPT have recognised the demand and have actively pursued specialised users for their Elevation Estate in Greystanes and will be speculatively building a 9,995m2 freezer facility in 2023.”

O’Neill added that one of the challenges is that supply is so tight that developers do not necessarily need to build specialised buildings to attract occupiers because demand for ambient space far outstrips supply.

Figures from CBRE Research also show that Australia’s food and beverage exports totalled $47 Billion in 2021, which made up 10 per cent of the nation’s total merchandise exports and is expected to increase to $66 Billion in 2026 off the back of Australia’s comparative advantage in food production.

“The growth in the food and beverage industry, associated manufacturing, and distribution operations, is led by both domestic and global demand factors,” said Sass J-Baleh.

“Another major element driving the demand for Australia’s food and beverage is a growing international consumer base. Given Australia’s comparative advantage in food production, coupled with strong export ties with countries exhibiting a grow- ing middle-class population, we expect further expansion of Australia’s food and beverage sector.”

These industries which fall under non-discretionary retail trade sector underpin the long stability of the industrial and logistics sector and by extension the cold storage sector.

All of these factors mean the demand for space and the industrial space available, is imbalanced significantly, O’Neill said.

“At the moment, the vacancy in NSW is 0.3 per cent (as at 1H22), we are talking about a total market of approximately 25 million square metres and there would be less than 20,000 square metres of vacant building right now,” he added.

This figure is possibly the most impactful when it comes to addressing the current demand for space and the supply available and CBRE are specialists in helping solve these types of issues.

O’Neill added that occupiers in all industries were well advised to consider their requirements no less than 18 months in advance to ensure they can consider green field solutions.

“The prevailing market conditions mean that occupiers will need to compromise if they are not in the market 18 months from their desired commencement date.

“There are definitely some ideal pre-lease and speculative solutions provided occupiers engage earlier than in the past. There is always the chance of finding a good solution with 6 months lead time, but it’s unlikely.”

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