Inland Rail: Infrastructure Leads Industry

Cities Into Action Inland Rail: Infrastructure Leads Industry Australia 20/07/2017 Contents Introduction 2 Project details 2 Commercial property impacts 2 Case study 2 Conclusion 4 Inland Rail Details Australia s freight task is expected to grow significantly over the coming decades, but existing freight rail infrastructure is insufficient. Inland Rail is the identified solution. A 1,700km route will link the ports of Melbourne and Brisbane. Key services offerings will improve reliability, transit time (<24hrs), costs, and availability. The project is due for completion in 2024-25. Construction will commence in the second half of 2017 after $8.4 billion of Federal Government funding was secured in the 2017-18 budget. Commercial Real Estate Implications: Historically infrastructure has been a catalyst for uplift in property values and development opportunities. The Moorebank Intermodal project, and the Western Sydney Airport are recent examples of how infrastructure can impact land/rental values due to an increase in overall demand. Commercial Real Estate Opportunities: Opportunities exist for private entities to construct complementary infrastructure, which will be required to maximise the benefits of Inland Rail. Tottenham (inner west Melbourne) and Acacia Ridge (central south Brisbane) stand to bookend the route, and could be targets for further investment and (re)development. Parkes and Toowoomba are expected to be the most significant inland stops, and each have plans underway to develop intermodal hubs. Authors Rhys Byrne Research Analyst +61 (0)406 388 362 rhys.byrne@cushwake.com Figure 1 Inland Rail Route Dominic Brown Head of Research, Australia & New Zealand +61 (0)431 947 161 dominic.brown@cushwake.com Contact John Sears National Director, Research +61 (0)2 8243 9973 john.sears@cushwake.com Source: Cushman & Wakefield Research cushmanwakefield.com AUSTRALIAN PROPERTY INSIGHTS 1

Introduction Inland Rail is a nationally important major infrastructure project which will produce significant opportunities for commercial real estate. The route will connect Brisbane and Melbourne via 22 stops positioned through regional Victoria, New South Wales and Queensland. The project is in response to current and pending freight constraints which are expected to compound as the population of Australia s eastern seaboard expands. This insight aims to explore what impacts this project may have on commercial property; particularly at the route s terminals of Melbourne and Brisbane. Given there will be significant opportunities for commercial real estate stakeholders, we highlight potential opportunities that may be worthy of further investigation. Project details The Inland Rail project aims to alleviate projected pressures on Australia s freight network caused by growth in Australia s freight task. Without a boost to current rail infrastructure, increased freight volume will likely compound the inefficiencies that already exist and constrain regional growth. For large freight volumes, rail is safer, more efficient, and environmentally superior to road, given that one 3,600m freight train is equivalent to approximately 149 B-Doubles on the road. The Australian Government s $8.4 billion equity commitment to Inland Rail in the 2017-18 Federal Budget will ensure that construction will begin in the second half of 2017. Project completion is expected in 2024/25. What (and where) is the solution? The Federal Government believes that Inland Rail is part of the solution to current and pending freight constraints along the eastern network. Upgrades to 1,100km of existing track, and the construction of 600km of new track will link Melbourne to Brisbane (Figure 1). The Inland Rail will form the spine of a freight network through regional Victoria, New South Wales and Queensland; transforming and boosting the efficiency of export and supply chains in these regions. Rail freight will be able to directly and efficiently travel through regional areas on its way to or from Melbourne and Brisbane rather than using the current route that traverses the limited coastal network. Service offering, key benefits, uncertainties Inland Rail s service offerings target improvements to freight supply chains and community amenity. It will be a roadcompetitive service based on transit time, price, reliability and availability. Key service offerings: 1. 98% reliable 2. Transit time will be under 24 hours from Melbourne to Brisbane. 3. Freight costs reduced by $10 per tonne 4. Freight available when the market wants. Domestic and international freight supply chains will benefit from a step change in the performance of Australia s freight network. Improved linkages will boost the capacity of the network, and will ensure a reduction in distances travelled, boosting the overall network speed and efficiency. Once complete, the new route will allow the double stacking of containers, which in the future may lead to the need for additional capacity at intermodal terminals along the route. Ultimately, Inland Rail is forecast to benefit communities along the route through improved access to key markets. As of May 2017, the majority of the rail alignment has been agreed upon; only 30% of the route remains under refinement. Commercial property impacts There are previous examples of infrastructure positively impacting commercial real estate values. Given the scale and scope of Inland Rail there is opportunity for uplift at each stop. The project will economically benefit Australia. It is expected to provide strong impact on employment with 16,000 jobs during the construction phase and an average of 700 additional jobs per annum for the life of the asset. As a result, gross state product of Victoria, New South Wales and Queensland will benefit, with much of this directed to regional areas. Once operational, Victoria and Queensland will benefit the most as they are the origins for all intercapital freight, and this is expected to add to demand for industrial property. New South Wales will also benefit as it is the most significant origin of agricultural freight. Case study Historically, new industrial infrastructure has been the catalyst for an uplift in property values. By examining what impact infrastructure has had elsewhere, it may be possible to ascertain what impact the Inland Rail infrastructure investment may have on land values at key stops along the route. By a rough analysis of Parkes Land & Property data, there has been no uplift in land values between 2012 and 2016. NSW Valuer General data illustrates a similar trend in small country town and city industrial sites (circa 2,000 sq m). At Moorebank in Sydney s south-west between 2011 and 2015 small industrial properties value growth averaged just 3.0% p.a.. However, this was achieved almost entirely in 2014, the year that the Intermodal Facility Concept Plan was submitted to the NSW Planning Assessment Commission. Land values grew by 6.8% that year, indicating that the infrastructure potential may have been the key driver. At Badgerys Creek, the site of the future Western Sydney Airport, rough analysis of NSW Land & Property unimproved land values illustrates a strong upward trend. Between 2012 and 2016 nominal values increased by 47%, or approximately 10.1% p.a.. This positive trend is also supported by sales evidence which reflects premiums of more than 100% on unimproved land values. Whilst there are multiple contributing factors to land values at these locations, there appears to be a positive correlation between infrastructure potential and unimproved land value growth. For parties seeking investment opportunities, this suggests a need for further investigation. cushmanwakefield.com AUSTRALIAN PROPERTY INSIGHTS 2

In this report we have analysed the route and narrowed our focus to four key stops where we expect commercial real estate to benefit the most. Tottenham & Melbourne s inner-west, VIC Tottenham is an industrial and residential suburb in Melbourne's inner-west. It is strategically located just 5km from the Port of Melbourne, and 10km from Melbourne's CBD. It has been identified as the end of the Inland Rail route in Melbourne meaning that it could be a target for both redevelopment and the potential site of an intermodal terminal. Despite its proximity to rail infrastructure, with space capacity at the existing Dynon Intermodal Terminal and plans for the Western Interstate Freight Terminal at Truganina, these locations may be considered preferential for an intermodal terminal. Property stakeholders in Melbourne's western metropolitan industrial markets have the potential to benefit from a boost in freight infrastructure over the coming decade. The inner-west will accommodate the Melbourne terminal of the rail line as well as the Westgate Tunnel project in 2022. Proximity to such infrastructure suggests a strong likelihood of future demand for industrial premises in the region. As such, Melbourne's freightoriented western industrial markets could become increasingly sought after locations by both tenants and investors. Freight-oriented suburbs such as Somerton, Laverton and Altona are already experiencing strong growth, suggesting that Tottenham may too benefit from increased investor and occupier demand. Typical industrial assets in Tottenham are secondary grade, single story assets on large blocks of land, making them potentially suitable for redevelopment. Furthermore, there are many properties operating below highest and best use that could be repositioned; for example, Tottenham Yard has few improvements and is currently used to store railway cars. Despite the potential for industrial uplift, there are neighbouring residential uses, which may limit potential future uses. Acacia Ridge, QLD Acacia Ridge, 15 km south-west of Brisbane s CBD, is a growing industrial precinct, known for its heavy industry and intermodal terminal. The intermodal terminal covers a large portion of the suburb and is one of Queensland s largest rail yards. As the northern terminal of the Inland Rail route it is expected that additional freight volume will pass through the terminal, changing transport mediums from freight rail to shuttle rail or road on its journey to Brisbane s port and domestic markets. In recent years Brisbane s central south has welcomed a significant volume of new stock, highlighting the fact that it is already a growth area. buildings typical of the area were built in the 1970s to 1990s, however newer concrete tilt panel warehouses now make up approximately 30% of stock. The area s strong transport fundamentals have attracted freight and logistics operators, which now occupy well over 50% of stock. As there is now a lack of land supply in the central south, new areas such as Larapinta and Berrinba have become attractive due to better access to the Logan Motorway and the availability of larger premises. Acacia Ridge and Brisbane s central south could challenge to become Brisbane s premier freight hub as the precinct continues to expand. High quality road infrastructure is in place with links to the north and south (and west if needed). Freight currently travels to and from the Port of Brisbane by road or by shuttle rail on links shared with passenger trains. As passenger train requirements expand due to population growth, the capacity for freight growth on the shared line may become constrained. Notwithstanding this, uncertainty surrounding a separate freight-only port link is could solidify Acacia Ridge s potential as a freight hub over the medium term. The link from Acacia Ridge to the Port of Brisbane has been discussed for a number of years, and in the Inland Rail Business Case it is acknowledged that at some point in the future, a new, dedicated route will be required. TOTTENHAM DYNON INTERMODAL LAVERTON CBD ALTONA Melbourne, Victoria; Source: Nearmap Acacia Ridge, Queensland; Source: Nearmap cushmanwakefield.com AUSTRALIAN PROPERTY INSIGHTS 3

The Federal Government opted against funding the $2.5 billion link, however such a link may be possible through a publicprivate partnership although no such plans have yet been formalised. A freight link to the Port of Brisbane could create commercial real estate opportunities on the TradeCoast behind an increase in freight volume. This may drive an uplift in land values in the TradeCoast area; however challenges may arise if industry opts to relocate closer to Acacia Ridge while a dedicated link is debated. Without a dedicated port link, there could be an increase in the number of trucks on key arterial roads, reducing road safety and community amenity. Bromelton, QLD At Bromelton, just 50km south of Acacia Ridge, a new intermodal terminal has recently been completed by SCT Logistics. Bromelton is located just 15km south of Kagaru where Inland Rail will reach a junction with Acacia Ridge to the north and Bromelton to the south. The town has the makings of another freight and logistics hub for South-East Queensland with an industrial estate under construction and the town already connected to the existing freight rail network. The arrival of Inland Rail may help accelerate the town s development as a logistics hub. Parkes, NSW To learn more about the opportunities in the TradeCoast area refer to Cushman & Wakefield s July 2017 report Australia TradeCoast: ready for take-off. Parkes is strategically located to take advantage of Inland Rail. The town is located at the junction of the North-South, and East-West rail corridors, while the Newell Highway also runs through the town. There is B-Double access to Parkes on all major routes, and there is Road Train/B-Triple access available from the west. The Parkes National Logistics Hub is still in its early stages of development, however Asciano (2008), SCT Logistics (2006), and Linfox (1996), all well-known logistics operators, have land-banked and constructed facilities. While the facilities are small, they are productively servicing East-West corridor freight. With support from Parkes Shire Council there is scope for Inland Rail to attract industry and investment to the region. Positive factors include the availability of space, and the discounted cost of freight services relative to Sydney. Due to the infancy of large scale industry in Parkes, unimproved land values have typically shown little-to-no uplift, having remained mostly stable over the past five years. Toowoomba, QLD The Charlton Wellcamp enterprise area is 13km west of the Toowoomba CBD, and is made up of industrially zoned former agricultural land. The area runs from the Interlink SQ intermodal in the north, to Brisbane West Wellcamp Airport in the south. When fully completed, the project will be one of the largest logistical centres in the country as well as a major inland port. The ongoing construction of the Toowoomba Second Range Crossing is underway adjacent to Charlton Wellcamp. The project will divert heavy vehicle traffic north of Toowoomba, rather than through the CBD and will open in late 2018. By 2025 when the Inland Rail route is complete, Toowoomba will have rail, road, air and links to sea adjacent to each other which will maximise the benefits of each mode of transport. As such, it is well set up to accommodate any future increase in demand for land and with several high quality modes of transport infrastructure available, is well positioned to act as a regional distribution hub. INTERLINK SQ & INTERLINK INDUSTRIAL PARK Inland Rail SCT LOGISTICS ASCIANO INDUSTRIAL ESTATE LINFOX WELLCAMP AIRPORT Toowoomba Second Range Crossing Parkes, New South Wales; Source: Nearmap Toowoomba, Queensland; Source: Nearmap cushmanwakefield.com AUSTRALIAN PROPERTY INSIGHTS 4

Conclusion With Inland rail a major response to meeting the future freight needs of Australia, commercial real estate stakeholders should be aware of the types of opportunities that may arise from this significant infrastructure investment. While the route covers many inland terminals/stations in our assessment those at Tottenham, Parkes, Toowoomba and Acacia Ridge appear to present the greatest opportunities for investors/occupiers and are worthy of further investigation to explore their potential. There is strong potential for Inland Rail to drive complementary infrastructure investment, and these opportunities should become clearer as the project proceeds. Stakeholders can keep up to date with the project by regularly visiting the ARTC website at https://inlandrail.artc.com.au/. cushmanwakefield.com AUSTRALIAN PROPERTY INSIGHTS 5

Chief Executive James Patterson Chief Executive Australia & New Zealand +61 (0)2 8243 9946 james.patterson@cushwake.com New South Wales Phil Rockliff Managing Director, Commercial Real Estate NSW +61 (0)410 031 054 phillip.rockliff@cushwake.com Danny Green Head of VIC, +61 (0)458 055 397 danny.green@cushwake.com Andrew O Connell Head of Sales & Leasing, Victoria +61 (0) 409 944 220 andrew.oconnell@cushwake.com Corey Bott Director, QLD +61 (0)421 548 413 corey.bott@cushwake.com Victoria Dominic Long Managing Director, Commercial Real Estate Victoria +61 (0)402 441 074 dominic.long@cushwake.com Michael Kearins Managing Director,, Australia & New Zealand +61 (0)2 9229 6873 michael.kearins@cushwake.com Cameron Ayre Director,, VIC +61 (0)412 488 595 cameron.ayre@cushwake.com David Norman Director, Sales & Leasing, Victoria +61 (0)418 545 511 david.norman@cushwake.com Tim Cassidy Director, Head of, NSW +61 (0)412 115 051 tim.cassidy@cushwake.com Queensland Glen Wright Managing Director - QLD +61 (0)412 879 640 glen.wright@cushwake.com Leah Ong Director, +61 (0)466 484 804 leah.ong@cushwake.com Richard Pearce Senior Director, Tenant Advisory Group, NSW +61 (0)477 349 685 richard.pearce@cushwake.com Michael Callow Director, QLD +61 (0)417 147 528 michael.callow@cushwake.com Disclaimer The information in this material is general in nature and has been created by Cushman & Wakefield for information purposes only. It is not intended to be a complete description of the markets or developments to which it refers. The material uses information obtained from a variety of sources which Cushman & Wakefield believe to be reliable however, it has not verified all or any information and does not represent, warrant or guarantee its accuracy, adequacy or completeness. Any forecasts or other forward looking statements contained in this material may involve significant elements of subjective judgment and assumptions as to future events which may or may not be correct and are beyond the control of Cushman & Wakefield. Cushman & Wakefield is not responsible for any loss suffered as a result of or in relation to the use of this material. To the extent permitted by law, Cushman & Wakefield excludes any liability, including any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this material. All expressions of opinion included in this material are subject to change. 2017 Cushman & Wakefield. All rights reserved. To see a full list of all our publications please go to cushmanwakefield.com or download the Research App Global Headquarters 77 West Wacker Drive 18th Floor Chicago, IL 60601 USA phone +1 312 424 8000 fax +1 312 424 8080 email info@cushwake.com Level 22 1 O Connell Street Sydney, New South Wales, 2000 Australia phone +61 (0)2 8243 9947 cushmanwakefield.com