Australia’s Industrial Market Enters a New Phase of Stabilisation

Australia’s Industrial Market Enters a New Phase of Stabilisation

The 2026 Australian industrial market has so far been characterised by a transition from strong rental growth in 2025 to a tempered easing in the first two quarters of the year. While national vacancy rates have edged slightly upward, they remain significantly below the long-term averages for most major markets. This marginal increase in vacancy is largely attributable to the completion of a significant supply pipeline initiated during the peak of 2024 to 2025, rather than to a collapse in demand.

A key factor throughout 2026 is the disparity between prime and secondary assets. Modern, newly constructed A-grade facilities continue to command premium rents, driven by occupiers seeking operational efficiencies to offset rising labour and energy costs. In contrast, older secondary stock is facing downward pressure, forcing landlords to offer higher incentives or undertake capital works to maintain occupancy. The development landscape nationally is currently hampered by feasibility pressures. High financing costs, protracted planning approvals and a chronic shortage of serviced industrial land have led to a deferral of some new projects. Positively, however, a considerable amount of the forward pipeline for 2026 is already pre-committed, suggesting that once the current wave of speculative supply is absorbed, the market may face another period of acute undersupply by 2027. National investor sentiment remains cautious but optimistic about the long-term fundamentals. Emerging competition for industrial land from hyperscale data centres and AI-driven infrastructure is further underpinning land values, particularly in the main Sydney and Melbourne markets, reinforcing industrial property’s status as a preferred institutional asset class.

In Victoria, the current industrial landscape is defined by a complex interplay of land scarcity and shifting development feasibility. A critical shortage of available land is dictating the pace of new construction, funnelling both developers and owner-occupiers towards outer western metropolitan hubs such as Truganina and Ravenhall. While these areas offer space, the broader development pipeline is being constricted by persistently high construction costs and financing constraints, which continue to challenge project viability. Older secondary stock across Melbourne is facing significant downward pressure. To combat this, proactive landlords are increasingly retrofitting or modernising existing secondary assets to maintain occupancy and appeal in a competitive tenant market. Despite these headwinds, major transport projects and state housing programs are bolstering the feasibility of select new developments, fostering a healthy short- to medium-term outlook for storage and warehousing facilities. However, Melbourne’s investment climate remains cautious in the wake of recent interest rate hikes. Further upward pressure on yields is anticipated, keeping investment sales well below historic norms and likely subdued in the latter part of 2026 and beyond.

In New South Wales, the focus has shifted from just finding more space to making existing operations much more efficient. Building brand-new warehouses is a challenge right now because construction costs have remained persistently high, which, along with very high prevailing land values, has led to a rise in multi-storey industrial developments. These vertical warehouses in areas like Revesby and St Peters are being built to maximise high-value land near the city centre, providing the density needed for e-commerce and logistics operators. This environment has also made the refurbishment of older sites in Sydney’s inner and southern suburbs more popular than ever. Owners are modernising these buildings to stop them from becoming obsolete as tenants look to move into better quality premises. We are also seeing private investors and businesses that want to own their own premises outmuscling the big institutional players for these smaller, well-located sites, mostly as a way to lock in their costs and avoid future rent hikes.

The Brisbane industrial sector is currently grappling with a surge in strata developments, which has led to some oversupply in precincts with lower barriers to entry. Development feasibility for these projects is heavily influenced by construction costs, which generally sit between $2000 and $2300 per square metre of GLA for standard builds, though these figures escalate quickly when higher-spec finishes or more significant office components are included. Conversely, larger freestanding assets have seen pricing ease to more manageable levels, typically ranging from $1450 to $1800 per square metre. The more economical end of this scale is primarily driven by the construction of larger dado panel sheds, which benefit from greater economies of scale. As new development becomes more complex, the strategy of acquiring and refurbishing older, existing sheds has gained significant momentum. This trend is particularly prevalent in tightly held infill locations where high demand and limited availability justify the capital expenditure, whereas supply-heavy outer areas offer less incentive for such repositioning. Underlying the entire market is a persistent and unresolved shortage of industrial land. With no immediate relief in sight, land scarcity continues to put upward pressure on values, subsequently driving up the end value of assets across the Greater Brisbane region.

The Greater Perth industrial market has been influenced by an array of issues, with construction costs and land scarcity being the biggest factors. Construction costs have surged by approximately 60 to 70 per cent over the past few years in Western Australia, the highest growth in the nation. Serviced land is at an all-time low, with new land development largely continuing at the fringes, such as Neerabup on the northern outskirts of Perth. The feasibility of current industrial developments in Western Australia is characterised by constrained land supply and escalating construction costs. We are also observing a distinct pivot in investor strategy due to the replacement cost disconnect. With market pricing for established assets sitting roughly 20 to 30 per cent lower than the cost to build new, the scarcity of stock on the market is forcing capital into the development and refurbishment space to ensure market representation.

The industrial market in South Australia is seeing a significant push into the outer north. While the Northern Expressway has been in place for years, it is the more recent completion of the Northern Connector and its seamless links to the Port River Expressway that have finally made precincts like Burton and Edinburgh truly viable for major projects. This shift is largely a reaction to how difficult it has become to find serviced land closer to the city, with the price of smaller blocks jumping significantly over the past twelve months. We are seeing a lot of new activity driven by defence contractors linked to AUKUS, as well as renewable energy and logistics firms looking for modern space. Meanwhile, the refurbishment market is very active in the inner north. Because prime space is so hard to find, landlords are stripping back and upgrading older buildings to attract tenants who need a higher standard of facility but cannot find any new builds available. In terms of smaller-scale industrial units, there is now an oversupply of this product. The timing for absorption by the market of this product is uncertain.

The Australian industrial market has shifted into a period of stabilisation after a period of significant sustained growth in the post-pandemic period. Current geopolitical events have not yet fully washed through the economy, so it is difficult to ascertain the extent to which these external events may impact the new construction and refurbishment of industrial accommodation across the capital cities.

Development is currently hampered by high financing costs and a shortage of serviced land across most capital cities, leaving much of the upcoming pipeline of larger-scale developments already pre-committed. This constrained supply is even driving a move towards multi-storey developments in land-tight Sydney and a surge in the revitalisation of older stock across the nation.