Article | Intelligent Investment

How ESG considerations are reshaping Australia’s Industrial & Logistics sector

How do you green Industrial & Logistics assets, while creating both a sense of community and a level of amenity not previously seen in the sector? There are challenges to overcome but the playing field is beginning to shift.

September 8, 2023

The image shows solar panels on the roof of a building and two engineers discussing the solar panels.

The Industrial & Logistics (I&L) sector is the next ESG frontier. There are rapidly rising expectations of what a building or estate needs to deliver – and not just within a building’s four walls. 

Developers, investors and occupiers are also zeroing in on how to foster a sense of community within industrial estates as well as ways to combat the mental health and loneliness issues that can arise from the often repetitive work involved in warehouse and transport & logistics roles.

However, there are many inherent challenges to overcome and hurdles in the I&L sector that differ from those in the office market.

To help unpack what’s next, CBRE recently hosted a Supply Chain & Logistics Association of Australia (SCLAA) event in Western Sydney to discuss the emerging trends and what ESG means from a supply chain point of view, including how it affects warehouse construction, DC operation, freight transport, procurement and people well-being.

Key take-outs included:

  • Developers are heightening their focus on delivering more sustainable, resilient buildings with more programs and initiatives being rolled out to upgrade existing industrial assets
  • A growing number of owners are seeking to participate in the Green Star Performance Rating program, as the industry’s focus on health and wellbeing rises
  • Power availability and record low vacancy rates across Australia’s industrial & logistics sector has created a range of immediate hurdles, crimping the ability to achieve ESG targets and upgrade existing stock

At the SCLAA event, CBRE’s Asia Pacific Head of ESG Research Sameer Chopra cited the example of a client with a massive site in Perth where power was extremely difficult to source. 

“The client is focused on ESG – as is the new occupier – but they’ll be starting out with diesel generation. Everyone has the right intentions but construction challenges in new industrial precincts cause a few headaches,” Chopra noted. 

“Another client wants to green their warehouse but they can’t relocate the tenant because there’s nowhere for them go to. It’s a very, very tight market.”

In this environment, Chopra said I&L assets whether they were “brown, green or very green” were leasing up. 

“You don’t always see a green premium in a really tight market. But whenever vacancy is a little higher, the number one thing we see is that the best green stock gets leased up, and we typically find that there’s about a 65% advantage in leasing. So, you get about two-thirds more leasing deals done in green stock.”

This is just one of the factors contributing to a heightened focus on ESG initiatives in the I&L sector, with fellow speaker Ella Mudie, the Market Engagement Lead for Green Star at the Green Building Council of Australia (GBCA), noting that I&L participants are pursuing both building and performance ratings.

“We’re seeing a shift in thinking, with a greater emphasis on people and their communities, and a growing concern for the impacts of industrial buildings and business activities on nature,” Mudie said.

There’s also a growing emphasis by owners and occupiers on not just the “E” but the “S” in ESG, underpinned by the changing nature of the workforce and a rising emphasis on health and wellbeing.

It’s a particular challenge in the I&L sector, with one of the many issues being that a high percentage of assets have no access to public transport, which means people often need to drive to work and, once there, might not have access to any amenity.

Said Mudie, “It’s very different to the experience of being in a CBD office environment. So it’s about looking at what you can create on site to help people be active, whether that’s offering some gym facilities, or can you do more with landscaping so there’s outdoor amenity.”

There’s also the issue of vehicle traffic and things that have traditionally made some estates not particularly pedestrian friendly. However, Mudie said a growing number of owners were finding ways to tackle these challenges.

“They’re seeing that they can have cycle tracks and trucks operating in the same area. They’re seeing that there is value in having trees on site both from a nature point of view but also in terms of providing amenity for people to eat outdoors.”

Fellow speaker Mal Siriwardhane, CEO and co-founder of third party logistics provider B Dynamic Logistics (BDL), said another issue the industry needed to tackle was mental health and loneliness, given the often repetitive nature of much of the work – for instance a day spent packing boxes.

For BDL, one of the initiatives has involved creating a “culture club”, which Siriwardhane said was helping to keep employees engaged while reducing sick leave.

From an international context, Chopra said examples of the “S” in action include initiatives occurring in Japan to help tackling gender diversity issues for workers in multi-storey warehouses, such as incorporating child care centres in new and existing assets.

Exploring the real world evidence 

In Australia, a best practice example involves The YARDS in Sydney – a $1 billion joint venture project by Frasers Property Industrial and Aware Real Estate, which recently became the first industrial estate to ever achieve a Green Star Communities rating from the GBCA and at the highest possible rating of 6 Stars.

The image shows the entrance to The YARDS industrial estate.
The YARDS will provide integrated parks, walking tracks and cycle paths.

The 77ha park has a healthy and active design for workers with integrated parks, walking tracks and cycle paths within the masterplan as well as common spaces and amenities within and around the precinct which the occupants, customers and community can utilise.

In addition to a host of sustainability features, The YARDS will feature landscaped areas and a native bush regeneration zone to support local biodiversity and nature.
In a recent CBRE Talking Property podcast, Andrew Thai, the National Sustainability Manager for Frasers Property Industrial noted, “The reason why we decided to go down this path with The YARDS was because traditionally there's been a lot of focus on rating schemes for buildings, and we wanted to understand what does a good industrial estate look like from a community perspective, beyond the bounds of the four walls that we create.”

The image shows an aerial view of The YARDS industrial estate.

For Thai it’s about creating places where people want to come to work, which will help in not just securing but also in retaining occupiers who can see enduring value and benefits beyond what they would traditionally see in an industrial location.

His broader vision is that amenities will be eventually scattered through all industrial estate and that these will be used not just by the sitting tenants, but by occupiers from other nearby estates and the broader community, allowing people to connect to one another. 

“This is the idea that we need to reframe around industrial estates. It's not necessarily for the people who are working there. It's also for the communities that work and live in the surrounding areas.”