Amazon will be a game-changer
NZ Post’s operations centre in Christchurch serves as a processing and distribution hub for the South Island. Photo/ / Supplied
New Zealand’s e-commerce boom and the arrival of Amazon in Australasia will accelerate demand for warehouse space in Auckland, and drive the redevelopment of inner-city brownfield sites into “last-mile” delivery centres, says Scott Campbell, national director, industrial and logistics for Bayleys Real Estate.
This country’s annual online retail spend is estimated to be $4 billion, and though online shopping represents a relatively small proportion of overall retail spending in New Zealand it is growing at a faster rate than bricks and mortar retail.
Campbell says the growth in e-commerce has forced retailers to reassess their property requirements.
“To fulfil customers’ orders quickly, they need warehouses, with international studies showing that ecommerce businesses need three times as much warehouse space as traditional brick-and-mortar retailers.
“Industrial property in New Zealand is already in high demand, as evidenced by the fact the sector comprised 56 per cent of commercial property sale transactions in 2016 in the country’s largest market of Auckland. E-commerce has the potential to turn it into the hottest component of commercial property market.”
Amazon’s entry into the Australian market is set to be a game-changer for retail in the region. The company announced in August that it is opening a 24,000sq m fulfilment centre on the outskirts of Melbourne, and has committed itself to “fast delivery”.
Amazon has not said whether it will establish a presence in New Zealand, but brokerage firm Forsyth Barr has advised its clients that New Zealand presents a logical extension to Amazon’s investment in the region.
Campbell says location is the key to success. “To stand out in a crowded market, retailers are competing aggressively on reducing delivery times, which is creating increased demand for last-mile logistic,” he says.
E-commerce fulfilment is in its infancy, really, and there are a lot of different strategies being employed. One of the more popular approaches is the “hub and spoke”, whereby a main distribution centre — the hub — sends out material to smaller centres — the spokes — for last-mile delivery. Scarcity of land favours this approach.
One of Amazon’s giant fulfilment centres in Germany. Photo / Supplied
“Overseas, retailers are increasingly seeking out warehouse space close to consumer hubs and residential centres. And since competition for land in these areas is fierce, warehouses will need to grow upwards rather than outwards to accommodate stock, as many in Asia already are. For same-day deliveries, smaller distribution centres will spring up near CBDs.”
Campbell says we can also expect warehouses to assume some of the characteristics of stores as more retailing activity starts to happen inside distribution centres.
“It’s easy to write-off warehouses as just big boxes or sheds, but they can be technology-rich and sophisticated in their use of space. For example, some logistics premises offer no-aisle-racking — whereby the product is dropped down on to a buggy for automatic transfer to the staging/loading area.”
New Zealand retailers are already responding to the disruption in the industry. The Warehouse Group — which includes The Warehouse, Warehouse Stationary, Noel Leeming and Torpedo7 — recently partnered with NZ Post to trial a new shipping service for online shoppers, Shipmate, as part of its push to drive e-sales. NZ Post’s network gives it significant last-mile delivery reach and it is talking to a wide range of companies about partnering opportunities.
Already, it handles logistics for food delivery service My Food Bag.
“More and more New Zealand brands are seeking to do business with us on e-commerce projects,” says a NZ Post spokesperson. “We have more than 1.9 million delivery points across the country. We operate in a highly competitive market.”
The launch of Shipmate follows NZ Post’s opening of two processing facilities for logistics services. The 2500sq m Taranaki Operations Centre is a hub for the Taranaki region while the purpose-built 14,600sq m, $8m Southern Operations Centre at Christchurch Airport’s Dakota Park, is a hub for the South Island.
Other large logistic facilities include the 35,000sq m centre in Highbrook, South Auckland, operated by Courier Post.
“That facility also has a satellite pick-up location closer to Auckland city in Morningside, which is likely to become a popular location with other logistics-type operators as large land parcels for large format developments open up across South Auckland, including the Airport Corridor, Wiri and Drury,” he says.
Campbell says competition for land in desirable locations, coupled with the push for last-mile deliveries, will encourage developers to transform land and warehouse stock in brownfield sites into more modern facilities. “Brownfield sites in Mt Wellington, Penrose and East Tamaki will be ripe for regeneration,” he says.
Listed property group Goodman says it is intensifying its industrial development programme, and undertaking a significant proportion of new projects on an uncommitted basis, “to address current capacity constraints and to meet forecast demand”.
Logistics companies form around 30 per cent of Goodman’s customer base in New Zealand and occupy more than 300,000sq m of space within its portfolio.
Chief executive John Dakin says modern distribution warehousing needs to be in the locations close to the end consumer and this is one of the reasons Goodman’s is focusing its industrial portfolio in Auckland.
He predicts distribution warehouses will evolve as online retail sales grow. “Existing third party logistics businesses with good distribution channels and/or specialist services will benefit but competition will intensify. We also expect that infill locations, close to consumers and key infrastructure will become increasing sought after,” Dakin says.