The demand for modern warehouses has grown significantly in recent years. Since warehouses are centres for many forms of logistics activity, warehouse investment is on the rise.
It doesn’t look like this growth will slow down any time soon, with CBRE predicting e-commerce will drive requirements for an additional 350,000 SQM of new space each year.
Here are three facts to know about investing in commercial warehouses.
Fact 1: There are a variety of warehouse investment types
Different types of commercial warehouses fit different purposes. Broadly, a warehouse will fall into one of four categories.
- Production warehouse: This type of warehouse is used to manufacture and produce goods. Typically located within a manufacturing or production site, a production warehouse will hold stocks of raw materials to ensure there is always enough supply to make the manufacturer’s product.
- Storage warehouse: This warehouse type is often used for long-term storage of inventory or finished goods. Storage warehouses may also be used to store the components needed to create the finished product, so that they are available quickly when required.
- Fulfilment warehouse: Also known as a distribution centre, this type of facility serves as the link between suppliers and customers. A fulfilment warehouse moves goods along quickly, acting as a centre for order fulfilment, packaging, labelling and transportation. Technology is often used to improve cost and efficiency, and hence customer service.
- Sorting and consolidation warehouse: Rather than being used for storage, this type of warehouse receives inbound shipments from several suppliers and sorts the items according to their end destination. This type of warehouse might combine smaller shipments into larger, more economical loads intended for the same area.
Fact 2: Warehouses may use manual labour or automation
Some of the more traditional warehouses use manual handling systems, operating in a non-automated way. In these facilities, operators manually move the goods with equipment such as forklift trucks, conveyors and pallet trucks.
Semi-automated warehouses are more high-tech than traditional warehouses, but manual handling still plays an important role. A company might opt for a semi-automated solution if there are safety issues or a high number of manual handling errors impacting profitability. A pallet shuttle system is an example of a semi-automated solution, where an operator places the pallet in the first position of a storage channel using a forklift, then a motor-driven shuttle loads and unloads the pallets.
Fully automated warehouses use state-of-the-art mechanised technology to maximise warehouse efficiency. This kind of warehouse uses robotics to assist humans with retrieval, moving, sorting and picking. This machinery helps to save on labour costs and improves both efficiency and operational safety. Due to the additional equipment required for automation there will be more plant & equipment depreciating faster than the building, and therefore higher deductions may be available.
BMT wants to remind both industrial space investors and the businesses that operate from them to ensure they are claiming every tax deduction they are entitled to.
Depreciation is the natural wear and tear of the commercial warehouse and its fit-out, which can be claimed to reduce taxable income.
The sheer size of the structure of a warehouse generally means that there are ample capital works deductions available. Depending on the warehouse type, the capital works deduction fixed rate can change.
For example, currently manufacturing industries (including warehouses used for manufacturing) capital works deductions are calculated at a fixed rate of 4 per cent. Storage and distribution warehouses capital works deductions are depreciated at a rate of 2.5 per cent.
The other side of commercial warehouse depreciation is the fit-out. This is usually owned and claimed by the party that is using the warehouse as their business operations. These assets depreciate at a rate based on their effective life as set by the Australian Taxation Office.
A business that owns a new warehouse with a fit-out including shelving, machinery like forklifts, picking/packing equipment and office furniture could reasonably expect to claim a first full year depreciation deduction of $140,000 and $2,700,000 in total (this does not consider business incentives such as temporary full expensing and backing business incentive).
Tax depreciation schedules are the key to claiming the maximum depreciation deductions when investing in commercial warehouses. A BMT Tax Depreciation Schedule applies all industry specific legislation to ensure commercial depreciation deductions are claimed to their full potential and compliantly.
BMT Tax Depreciation has optimised its commercial process to ensure both owners and tenants claim the most deductions possible. To learn more about commercial warehouse depreciation, call BMT today on 1300 268 628.