Demand for sustainable warehousing is growing rapidly across Australia, according to new JLL research, which predicts a supply shortage driving rent increases in the lead up to 2030.

The trend is being driven by factors including increasing regulatory pressure to reduce carbon emissions, growing consumer expectations and accelerating timelines for organisations to meet their Net Zero Carbon targets, according to JLL’s new report Assessing demand for low carbon warehousing in Australia.

JLL’s study of the largest occupiers in the Australian industrial sector reveals a future Net Zero Carbon Ready Asset market with capitalisation of more than $46 billion. This accounts for around 11.5 million square metres, or approximately 13 per cent of all stock.

The report found 60 of Australia’s biggest 100 logistics and industrial occupiers have Net Zero or interim Net Zero carbon targets, up from 56 in 2023. There was also a significant increase in occupiers with published quantifiable or material interim targets, doubling from 27 in 2023 to 54 this year.

JLL’s Head of Strategic Research – Australia, Annabel McFarlane said, “Industrial owners and occupiers are really stepping up their game when it comes to reducing emissions. They understand that leveraging sustainable real estate practices and optimising the supply chain and transportation are crucial in turning their commitments into tangible results.”

JLL’s Head of Industrial & Logistics – Australia, Peter Blade said, “The topic of sustainability is at the heart of virtually every occupier engagement we have currently. Crucial climate change policies have implications for every business.

“Scope 3 supply chains are becoming increasingly relevant with Net Zero targets and the nexus of renewables, ‘electrify everything’ and improving building performance, so there is value to leverage,” said Mr Blade.

As lease expiries approach, industrial tenants will be focused on the supply chain sustainability and sustainability credentials of the accommodation they occupy. Industrial landlords are also becoming increasingly aware that their occupiers will form the bulk of their Scope 3 emissions.

Ms McFarlane said, “Many landlords are already considering tenant screening, in which they will favour tenants with lower operational carbon intensities and a willingness to collaborate on emissions reduction activities and share data.”

The report found company boards and chief financial officers are playing an active role in the fight against climate change, increasingly integrating sustainability into financial strategies. It also found 45 per cent of companies have a transport emission reduction strategy.

A key driver is the staged implementation of the Australian Sustainability Reporting Standards (ASRS), which is expected to begin on January 1, 2025. The new standards will cascade down from large businesses to medium and small businesses over three years, including reporting on Scope 1 and 2 emissions in year 1 and Scope 3 emissions in year 2.

Logistics and industrial real estate have an important role to play in helping occupiers reduce emissions, the report found. As well as physical properties such as all-electric industrial assets, proximity to rail, air and road infrastructure will continue to play a key role in reducing transport and distribution emissions.

With mandatory emissions leading to more large tenants seeking Net Zero-aligned space, the report found demand will exacerbate the supply gap in the market in the lead up to 2030. Low vacancy will likely lead to increasing rents and a supply shortage.

Large businesses are leading demand for Net Zero Carbon ready assets, and many are already reporting Scope 1 and 2 emissions while reviewing Scope 3 emissions.

JLL predicts that as sustainability reporting becomes more sophisticated and decarbonisation of industrial and logistics real estate and operations increases, progressive landlords will partner with tenants that are actively decarbonising their operations.

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