National Industrial Overview

This market segment has shown resilience since the onset of the COVID-19 pandemic and continued to strengthen throughout the second half of 2022, however showed signs of levelling out in the first half of 2023, with a reduced volume in transactions. This is largely the result of a sharp increase in interest rates since May 2022, an uncertain construction sector and declining consumer confidence. In the 12 months to June 2024, there has been a reported reduction in transaction volumes, however industrial asset values generally remain stable.

The industrial sector continues to be the strongest of the three main commercial asset classes with demand outpacing supply. Both metro and regional industrial property markets nationally continue to perform relatively well despite the economic headwinds recently experienced due to the above factors.

As a result of the COVID induced e-commerce boom, e-commerce penetration in Australia has leapt to being four years ahead of the pre-COVID trend as Australian consumers increasingly shift their buying preferences to online. It is expected that e-commerce penetration will continue to grow to a forecast share of 15 per cent by 2027.

Furthermore, the surge in demand for “last mile logistics” has been particularly notable in major Australian cities such as Sydney, Melbourne and Brisbane, where a thriving urban population relies heavily on rapid and reliable last-mile deliveries. The strategic positioning of warehouses near these urban centres has become a critical factor in meeting consumer expectations and ensuring timely deliveries in the final stretch of the supply chain.

There are weaknesses to consider as well. Inflationary pressures, increased interest rates and declines in the residential markets are expected to have flow on effects to the industrial segment moving forward. Higher construction costs, as well as planning and servicing delays in several key precincts have added further complexity and costs to the feasibility of new projects which is likely to have an impact on the future supply pipeline of industrial space. 

There remains opportunities in the industrial sector. Supply in Melbourne’s south-east, Sydney’s central west and west, and Brisbane’s Trade Coast falls short of annual demand levels, which is expected to drive an outperformance of rental growth.

Entry point industrial assets with current or potential income streams, close proximity to key transport infrastructure and potential redevelopment upside typically attract strong interest from high net worth investors and developers as land bank propositions.

Despite approximately 2.3 million square metres of warehouses currently under construction across the country and a normalisation in demand following the pandemic boom, Australia’s industrial market is set to remain severely undersupplied, with construction costs and servicing delays set to temper supply completions in the coming years.

Furthermore, there has been a notable demand shift in 2024 to smaller facilities following years of robust demand for facilities above 20,000 square metres, with smaller leases being the most active by a considerable margin. In the first half of 2024, 77 per cent of lease deals nationally by number were in the 3000 to 10,000 square metre size bracket, while the average deal size has fallen 45 per cent from the level recorded in 2022. Additionally, regional industrial markets are attracting owner-occupier buyers from metro locations that are either priced out of that market or selling and relocating with ample capital remaining to reinvest into their business.

The industrial sector has strengthened significantly over the past five years and is showing signs of overheating. Submarkets where supply moderately outpaces long-term take-up volumes include Brisbane’s west, Melbourne’s north and Adelaide’s outer north, however in each case, vacancy rates remain well below balanced levels.

Richard Gell