2 ASX companies that could benefit from warehouse shortages

Here are two ASX companies that are capitalising on the industrial property boom.

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The COVID-19 pandemic transformed our lives in many ways. Some changes were temporary, but others have stayed with us.

One significant change is the shift in consumer behaviour. The surge in online shopping and demand for faster delivery times have added extra pressure on inventory supply and logistics. In response, many retailers are seeking options to enhance their warehouses and logistics centres.

In this article, we'll see two ASX-listed companies benefitting from this global trend.

Why are industrial properties doing well?

Ideally, these logistics centres should be located near metropolitan areas to provide quick access to large consumer markets and minimise transportation costs and delivery times.

However, the availability of land surrounding these strategic locations is limited, with competing priorities for residential and other commercial uses exacerbating the shortage in land supply. Colliers elaborates on this dynamic in its report, saying:

Demand for Australian industrial and logistics assets remains significant, with an unprecedented amount of capital seeking to expand or enter the sector.

Record infrastructure spending on transport projects, coupled with the continued growth of e-commerce and low cost of debt has underscored demand, particularly along the east coast states where 78% of the Australian population resides.

As reported by The Sydney Morning Herald, industrial properties are also benefiting from other factors. For example, there's a big increase in data centres powered by artificial intelligence (AI). In addition, property investors are moving their interest away from offices, which don't have much demand right now.

Which ASX shares are ways to capitalise on this trend?

Goodman Group (ASX: GMG) is a global integrated commercial and industrial property group. The company particularly specialises in owning, developing, and managing industrial real estate assets.

In May, the company reported strong 3Q FY24 results, led by 4.9% like-for-like net property income growth and 98% occupancy across its partnerships. The robust business results led management to raise the company's full-year guidance, expecting operating earnings per share growth of 13% in FY24.

As my colleague James highlighted here, Goodman CEO Greg Goodman remains optimistic about the company's future outlook. He said:

The Group continues to execute on its strategy. The challenge of the uncertain interest rate environment, persistent inflation, combined with slowing economic growth, is prolonging volatility in global markets and increased cost of capital.

In the near term, we believe aggregate logistics demand is likely to remain at more moderate levels compared to that experienced in the pandemic period. However, supply has been significantly reduced globally, and is generally very constrained in our markets.

Our customers remain focused on maximising productivity from their space, preferring infill locations and increasing their investments in technology and automation. Combined with the scarcity of available assets in the markets we operate, should support rental growth and high occupancy.

The Goodman share price is up 77% over the last 12 months.

Brickworks Ltd (ASX: BKW) is a building materials provider on the surface but an industrial property developer at the heart. As I highlighted in this earlier article, much of Brickworks' net tangible asset (NTA) worth $5.6 billion comes from its investments in listed shares and property ventures, which the company estimates to be worth $3.3 billion and $2 billion, respectively.

In fact, its building material business accounts for less than 15% of its NTA, with the remainder comprising the company's large stake in Washington H Soul Pattinson & Company (ASX: SOL) and property development joint ventures with Goodman group.

Brickworks owns many parcels of land in prime locations around metropolitan areas, previously utilised for manufacturing building materials. Brickworks partnered with Goodman Group to develop its land holdings. Over time, the partnership has evolved, leading to Brickworks' property division now managing two 50%/50% joint venture property trusts.

One of its important land holdings is in Oaklands Estate located in Western Sydney, which is partially developed. Brickworks' current rent in this area is well below the market rate, leaving room for rental income growth in the future. The company explained this in a recent investor presentation by saying:

Theses structural trends, along with land supply issues, have driven up rent for prime industrial property in western Sydney by 55% in the past two years. We estimate that the current passing rent within the Industrial JV Trust of $147/m2 is now 35% below average market rent of $225/m2.

Including the Brickworks Manufacturing Trust, the current annualised rent across our portfolio is $172 million. At market rates, the rent potential of Property Trust assets once fully developed is around $340 million. This includes an additional $88 million in rent from completion of our development estates (Oakdale West and Oakdale East) in western Sydney over the next five years.

The Brickworks share price is up just 1.45% over the last 12 months.

Motley Fool contributor Kate Lee has positions in Brickworks. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Goodman Group. The Motley Fool Australia has positions in and has recommended Brickworks. The Motley Fool Australia has recommended Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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