Australian Logistics & Industrial Market

The Australian industrial sector is moderating from an historically strong period over the last three years. But despite the escalation of geopolitical tension and ongoing domestic economic issues, there has been a level of resilience in the market. While occupier demand is slowing and relocation decision timeframes are extending, activity in the sub-10,000 sqm size cohort is buoyant, and large blue-chip occupiers continue to upgrade accommodation into large, efficient, technology-capable warehouse space with high sustainability credentials.

However, this lessening occupier demand has catalysed two rarely seen market factors – a rapid acceleration in leasing incentives, and an inordinate volume of sub-lease space reintroduced to market. However, these factors have broadly been isolated to the east coast markets, with conditions in Perth and Adelaide less severe.

Conversely, supply levels are well above average, driven by positive pre-lease demand over the past two years, coupled with a stronger speculative warehouse development. Over the past 12 months, almost three million sqm of new warehouse space as been introduced to the market nationally, of which, only 57.5% was absorbed upon completion. Most warehouse space was delivered to the east coast markets (89.5%).

Considering the slowing occupier demand environment against a backdrop of historically high speculative development, it is unsurprising that vacancy rates increased sharply. Total vacancy increased 10 out of the 13 tracked precincts along the east coast in Q2 2025 with the vacancy rate along the east coast increasing to 4.8% - up from 3.9% the previous quarter.

As vacancy increased, upwards pressure on asking rents dissipated. While rents broadly plateaued, incentives increased sharply as the potential occupier pool shallowed, particularly in Sydney and Melbourne. In Sydney’s outer western precincts and in Melbourne’s West and North precincts, average incentives now exceed 20.0%. Average incentives in Brisbane’s Southern precinct are following the same trajectory as other east coast markets, reaching 17.5% in Q2 2025.

Despite the challenges in the physical market, investor demand for logistics and industrial assets has remained positive. A total of AUD 10.2 billion of assets transacted over the last 12 months, above the long-term 10-year annual average (AUD 8.2 billion). Average prime yields have been broadly stable across most markets over the last 12 months with the next compression cycle already commencing in some precincts in Sydney and Brisbane.

As we look towards the end of 2025 and into 2026, It’s expected that improving domestic factors like lower interest rates and inflation levels will translate to increased consumer spending. However, this increased retail trade is unlikely to materialise to a tangible uplift in occupier activity over the short-term. Inventory levels from traditional retailers, e-commerce operators, and wholesalers are in balance for the current retailing environment, and it can be expected that only sustained above-average consumption will support expansionary activity.

We expect that efficiency and consolidation will continue to be a key driver of pre-lease activity over the next 12 months. Organisations are increasingly focussed on the cost, efficiency and technology capabilities of every part of its supply chain, which is translating into occupiers seeking modern facilities along major transport corridors and relinquishing ageing, inefficient warehousing outside of key freight networks.

Supply will slow from the robust levels recorded over the past 12 months as developer appetite for speculative development weakens and occupier demand trends lower. Completions will remain relatively robust in Sydney and Melbourne, but a significant decrease is expected in Brisbane after back-to-back record years in 2023 and 2024.

In the leasing markets, we expect that the sharp escalation in incentives recorded over the last 12 months will plateau, which will support moderate growth in effective rental levels along the east coast. Average face rental growth and stable incentives in Adelaide and Perth will maintain effective rental growth in those markets.

Investor demand for industrial assets is likely to support further yield compression as we move into 2026. Despite the recent volatility in Australia’s economy, the fundamentals that support the logistics and industrial sector – population growth, retail trade, and economic growth – are trending the right way. This is expected to encourage further investment into the sector over the next 12 months.