Goodman looks vertically as land supply shrinks

Industrial property juggernaut Goodman has forecast strong rental growth rates across its global portfolio based on the increasing demand for space from e-commerce suppliers to data storage operators, amid near-zero supply.

Given the land constraints in the high-density precincts of South Sydney and the inner ring areas of Melbourne, compounded by low supply, the only way to go is up – and that will underpin more vertical warehouse developments for Goodman.

The industrial sector is remaining strong amid concerns of any slowdown in consumer spending that may see less demand for storage facilities.

Going up: an artist’s impression of Goodman’s proposed multi-level Burrows estate in Alexandria, South Sydney.

Speaking at the interim results on Thursday, Goodman’s co-founder and chief executive Greg Goodman said the demand for industrial property across its portfolio had continued to attract capital partners, boosting its total assets under management (AUM) to $79.5 billion, up 17 per cent on the prior corresponding period.

That led to an increase in earnings guidance to 13.5 per cent in growth compared to the previous guidance of 11 per cent growth rate. For the half, the group delivered an operating profit of $877 million, up 11.5 per cent on the first half of same time last year.

“The ongoing growth in data storage is seeing data centres increasingly competing for space in our markets. The general economic outlook is uncertain, however our portfolio is in high demand, rents are growing, development activity and margins are healthy, and we continue to attract capital from our partners,” Goodman said.

He said that due to the demand and low supply, rents are heading north, and Australia and New Zealand rates are tipped to rise by around 25 per cent.

“We are seeing unprecedented rental growth in some of our markets and effectively zero vacancy,” he said.

In a new report on capital markets, CBRE’s head of industrial and logistics, Australia, Sass J-Baleh, said medium to long-term rent growth will remain elevated as Australia is in the early phase of a strong rental growth cycle, supported by a continued undersupply of floor space across most major markets.

“Vacancy is at an all-time low of 0.6 per cent nationally, and in some markets even tighter, such as Sydney and Perth,” J-Baleh said.

“National super prime rents in Australia grew by 6.8 per cent in the fourth quarter of 2022 to be up 25 per cent year-on-year. We expect high single-digit rent growth across most markets in 2023, and compound annual growth rate (CAGR) of 5 per cent nationally over 2023-26.”

She said rent growth is particularly evident in Sydney, Perth and Melbourne. Incentives have also dropped across markets and are at single-digit levels for secondary grade assets.

Goodman said development margins also remain strong despite cost inflation pressures, reflecting the group’s cost management and healthy rental growth outpacing the increase in construction costs.

Over the half year to the end of December, Goodman’s development earnings increased 7 per cent to $602 million.

The volume of development work and production rate have both increased since the same time last year, as customers continue to look for sustainable, efficient properties that are close to consumers and optimised to house their investments in automation and technology.

Metcash will lease the mega warehouse in Melbourne from Goodman Group.

The work in progress (WIP) is $13.9 billion with annual production rate at about $7 billion. It has 85 projects in underway in 12 countries, covering 3.9 million square metres.

One of the latest is a distribution centre at Goodman Group’s RBR Hub in Truganina, Melbourne that will support close to 4000 stores and premises across the Metcash grocery group’s independent retail network in Victoria.

At almost 115,000 square metres, it will be the largest wholesale distribution centre in the country and 25,000 square metres larger than Metcash’s current facilities at Laverton.

In Sydney, the group entered into a joint venture late last year with Brickworks in the Oakdale East Stage 2 in Sydney’s west. The 50/50 joint venture fund will own the 75-hectare site, which has an estimated 50 hectares of net development area and currently comprises a brick plant and associated quarry operated by Austral Bricks.

The senior vice president, Moody’s Investors Service’s Matthew Moore, said Goodman’s strong results for the six months ended December 2022 were in line with his expectations, as earnings benefited from rental growth, higher fees, and solid development margins and production rates.

“We expect the group’s earnings to continue to be supported by demand for logistic assets in key infill locations, which are benefitting from increased adoption of e-commerce globally and the need for greater supply chain efficiencies and productivity,” Moore said.