Goodman upgrades as warehouse development boom rolls on

The warehousing giant’s global empire has passed $80bn, and it sees more opportunities to expand.

Industrial property powerhouse Goodman Group has shrugged off the sluggish global economy and boosted earnings guidance on the back of the boom in warehousing.

The company, which is worth $37.79bn, is riding the tailwinds from the broad based e-commerce boom and the shortage of space in major global cities where it operates and lifted its fiscal 2023 operating earnings per security growth forecast to 15 per cent, up from 13.5 per cent.

While industrial property has slowed in some parts of the globe and high-leveraged players are under pressure, Goodman famously slashed debts during the peak of the boom and now believes it is well positioned in the niches where it has projects.

Chief executive Greg Goodman cited the scarcity of space in major locations and big companies demanding larger and more productive warehouses.

“These are driving development demand and rental growth. Despite the global macroeconomic volatility, we have almost zero vacancy and continue to execute on our development strategy with annual production rate for fiscal 2023 averaging around $7bn,” he said.

Industrial property values have been hit in the US and Britain by headwinds from capitalisation rates expanding, but the property chief said these were being mitigated by growth in rents in most markets.

“We’ve got a very strong workbook around the world but, more importantly, we’re building and developing into very niche specific locations where there’s demand for greater productivity,” he said.

Big companies looking to slash costs are overhauling their supply chains and often shifting into large, automated warehouses.

“We are in a world where, globally, the economies are slowing down and, globally, the world is slowing down,” Mr Goodman said, noting that the US inflation rate was off because that economy is slowing. But Goodman is only targeting cities with growth, which was feeding its development business and translating into higher rents.

Mr Goodman said capitalisation rates were moving out in Australia, as properties that had attracted a 3.5 per cent cap rate a year ago had now shifted to a 4.5 per cent rate as the cost of capital had risen. But with higher rents, there would not be much damage on the valuation front, he said.

Goodman Group boss Greg Goodman. Picture: John Feder/The Australian

Goodman’s developments, undertaken in its funds business, are also producing strong returns as they sit near major infrastructure. “It’s increasingly challenging to supply space in these locations given tight planning controls, access to power, the scale of our properties, and continued investment in sustainability initiatives,” Mr Goodman said.

Mr Goodman cited demand for space across the portfolio and called out the rising importance of data centre assets, which is creating strong demand.

He cautioned that the economic outlook remains uncertain and noted that capitalisation rates would likely expand over the next 12 months. The group is banking on high occupancy, rental growth and profitable developments, to get it through, and it may pounce on new sites.

“We have significant liquidity, low gearing, extensive hedging, and our partnerships remain in a strong financial position to leverage opportunities as they arise,” he said.

The company has $13bn of projects on the go across 79 projects, almost all of which are fully committed. It is spinning off 4.4 per cent like-for-like net property income growth on properties in its funds empire, which has topped $80bn.

There is a renewed focus on infill locations as customers seek faster delivery times on products and many companies have renewed leases early to ensure they keep their facilities, which is supporting property values.

Goodman called out the potential rent reversion of its facilities to market rates with its North America complexes showing the most potential, followed by Australasia, Europe and Britain, which will boost medium-term cashflows.

The company said that despite the volatility in markets, margins have remained steady through strong risk management and cost control, and it is targeting tightly-held, large scale sites with infrastructure-like characteristics. It is also looking at rezoning plays, and it has the firepower to chase new deals as Goodman funds have more than $18bn of equity commitments, cash and undrawn debt.

The company acknowledged that overall investor demand across commercial real estate appears to have declined but said there was demand for prime located logistics and data centre assets, with the group selling more than $700m in the quarter.

Goodman shares were up 11c cents to $19.90 on Thursday.