Health Kick for Australian Industrial Market

How will the upcoming logistical challenges associated with the COVID vaccine rollout, impact the industrial markets in Australia?

February 01, 2021

From February 2021, logistics groups Linfox and DHL will commence one of the largest and most critical supply chain projects in the recent memory – safely distributing a COVID-19 vaccine across Australia. The agreement to work alongside the Federal Department of Health will involve both the national distribution network's design and operation functions. Given the nature of the project, there will be a range of significant challenges that will need to be addressed, including shipment tracking, security of cargo, and consistent temperature control and monitoring.

Both companies have been substantial occupiers of industrial space in Australia for many years, having accounted for an average of 56,030 sqm of gross take-up (>5,000 sqm) each year, over the 10 years to 2019. With the structural changes in consumer behaviour, seen during 2020, take-up accelerated significantly to a total of 273,630 sqm nationally – of which 94% was in Sydney and Melbourne. Given the significant scope of the vaccine rollout this year, there is a further potential upside to the activity of both operators in occupier markets across the country.

Figure 1: Gross Take-up (DHL & Linfox)

Source: JLL Research

In the post-COVID era, there is likely to be a heightened global focus on improving preparedness for future medical emergencies. In Australia, part of this strategy has been focused on improving our manufacturing capabilities for pharmaceuticals domestically because medical products have been identified as one of the Australian Government’s six national manufacturing priorities as part of its $1.3 bn Modern Manufacturing Strategy, launched in October 2020.

With Australia’s renewed focus on self-reliance in the pharmaceutical industry, what scope is there for the expansion of industrial occupier demand from this sector?

Pharmaceutical manufacturing has historically been a relatively minor player in the Australian industrial occupier market. The Basic Chemical and Chemical Product Manufacturing sub-sector, which includes pharmaceutical groups, has accounted for just 6.2% of total manufacturing take-up over the 10 years to the end of 2019. However, activity from the sector has sharply increased in 2020 — accounting for 35% of total manufacturing take-up over the year.

The increase in take-up from the sub-sector last year has primarily been facilitated by CSL’s major commitment (118,000 sqm) to building an $800 million vaccine manufacturing facility at Melbourne Airport, which will expand and complement the company’s existing premises in Broadmeadows.

Looking at a longer time horizon, Australia’s aging population is also likely to continue to support growth in the pharmaceutical industry. This extends beyond prescription medication and hospital supplies to more passive and proactive health supplements. The trend of population ageing is consistent across most developed economies. It provides significant export opportunities for Australia, given its transparent and robust regulatory framework for medical products and proximity to markets in Asia.

Figure 1: % of Total Population by age - June 2020 vs June 2040 Forecast

Source: JLL Research

With significant government support and a renewed interest in expanding our onshore medical capabilities, it is evident that there is ample scope for the pharmaceutical sector to play an amplified role in the industrial occupier market in Australia.