Goodman could become Australia’s most valuable property company

Goodman could become Australia’s most valuable property company

15 November 2019

Goodman Group has produced a strong first quarter as it continues to deploy capital through development in key urban locations.

Greg Goodman, Group CEO said: “Structural changes continue to positively impact the industrial property sector. As consumers’ demands increase, our customers are responding by consistently seeking to create more efficient logistics networks.

“Locations close to consumers, coupled with technology advancements, are helping to increase productivity and efficiency in the supply chain to help fulfil consumer expectations. While the overall consumer market is subdued, online sales continue to grow, reaching 14.1% of total global retail sales as at June 2019. The online share of the market has almost doubled over the last five years with estimates that it will grow to 22% by 2023.”

If these estimates are correct, Goodman Group will, within a few years, exceed the value of Australia’s most valuable property company of all time, Westfield. It was worth $33 billion when taken over in 2018 by Unibail-Rodamco.

Goodman, which reaffirmed its full year profit guidance in a quarterly update on Tuesday, is worth $26 billion. It has increased in value by $7.2 billion over the past year. The guidance is for a 9.3 per cent increase in operating earnings to 56.3¢ per security.

But Mr Goodman says the growth in the construction of warehouses within the urban boundaries of mega-cities to serve the giants of e-commerce, such as Amazon, will not necessarily mean bigger and bigger buildings.

Mr Goodman also pointed to record sales this week by e-commerce giant Alibaba on China’s Singles’ Day and cites figures showing online shopping accounting for 14.1 per cent of total global retail sales by the middle of this year.

“The desire for consumers to have convenience is a truism round the world,” Mr Goodman told The Australian Financial Review.

Retailers are responding to that by allocating more of their effort to online shoppers and demanding a reconfiguration of their logistics – good news for Goodman – with more highly automated warehouses, closer to city centres.

“They will know what you want before you know it. That predictive technology is already being embedded in some of the supply chains,” Mr Goodman said.

Its development pipeline is also expanding, evidence that demand is exceeding supply, it said. Work in progress is at $4.2 billion and on track to reach $5 billion later this year with Goodman both acquiring land and redeveloping existing assets.

Commenting on the political instability in the region, Mr Goodman said: “It’s a very different game to 10 years ago.”

He pointed to the potential for further penetration by e-commerce over the next decade, with this to advance despite political instability, including the US-China trade wars, the Hong Kong protests and uncertainty over Brexit

“What we are seeing from our customers is a real desire to get domestically sorted out,” he said

Mr Goodman said even though political regimes and strategies around trade had uncertainties the group’s big customers were focused on improving their domestic markets and supply chains.

Phil Montgomerie, head of research at Savills Australia, said industrial property and logistics remain an attractive asset class for investors, driving the sector to a record low capitalisation rate.

“The asset class continues to benefit from densification and location infill,” Mr Montgomerie noted.