What will Amazon’s entry into Australia mean for Australian property?

The impending entry of Amazon is garnering a lot of press. It is expected to boost online sales growth; however, as a proportion of the total retail market, Amazon and other online retail retailers will remain small.

Australian consumers spent approximately $22.5 billion online in the 12 months to May 2017, accounting for around 7.4 per cent of spending at traditional  ‘bricks & mortar’ retailers.

According to the National Australia Bank1, online retail sales rose by 1.3 per cent in May, up 7.9 per cent for the year. Media (movies, books and music), homeware & appliances and online department stores make up the majority of these online sales.

The entry of Amazon in Australia in 2018 is expected to boost online sales growth. However, as a proportion of the total retail market, Amazon and other online retailers will remain small. Overall, online retail is forecast to capture a further 0.5 per cent of traditional ‘bricks & mortar’ retailers and market share per annum over the five years to 2022.

The impact of Amazon’s arrival may be more limited than what media headlines suggest. In the US, Amazon accounts for four per cent of total retail sales, after 20 years of establishment and 63 per cent of their sales are within the electronics and media categories.While rising online retail sales have adversely affected traditional (typically fashion-based and electronics) retailers, the evolution of retail trade has fuelled demand for industrial space from e-commerce business, retailers and third party logistic groups.

The arrival of Amazon will likely provide the impetus for small online traders to expand. This will further boost demand and the development of distribution centres and warehouses to fulfil growing online purchases.

E-commerce growth is demonstrated by the strong take-up of industrial facilities by retailers and associated suppliers, as many attempt to improve and consolidate their supply chains.

Over the year to June 2017, logistics and transport companies, retailers and wholesale traders accounted for approximately two thirds of all Australian industrial take-up.

Amazon currently operates in 14 countries and has 393 active facilities, taking up 13 million sqm of space. In Canada, which has a similar population size and city density structure as Australia, Amazon has six warehouses in total ranging in size from 15,000 sqm to 80,000 sqm.

E-commerce retailers are also taking office space in CBD office markets in Australia as they seek to attract and retain the best talent. In 2012, Amazon leased 800 square metres in the Sydney CBD before increasing its office footprint to nearly 10,000 sqm at 2 Park Street, Sydney in 2015.

The world’s largest e-commerce company and China’s biggest internet company, Alibaba recently opened its first Australian office in Melbourne, Collins Street in 2016.

1,300 Australian brands and 400 New Zealand brands are already sold through Alibaba’s online stores with vitamins, dairy and agricultural products particularly popular with Chinese consumers.

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1 NAB online retail sales index

Source: Charter Hall