Supply Constraints and the Flight to Quality for Industrial Property

The Melbourne industrial property market is expected to stabilise in 2026. While conditions softened throughout 2024 and 2025 due to higher interest rates, yield expansion and increased supply, the sector’s long-term fundamentals remain sound. Melbourne’s role as Australia’s largest industrial and logistics hub, supported by population growth and infrastructure investment, continues to underpin demand. Leasing conditions are expected to improve in 2026 as economic stability and business confidence return, with occupiers maintaining a clear preference for modern, well-located facilities, reinforcing the ongoing flight to quality.

On the supply side, development activity is forecast to peak in early 2026 before moderating. Vacancy rates may rise modestly in the first half of the year but are expected to stabilise and tighten later as demand strengthens and new supply slows, particularly in prime precincts. Prime rents are forecast to grow by around three to four per cent, while capital values are expected to stabilise and gradually recover as yield pressures ease. Transaction activity and investor confidence are anticipated to improve, with continued focus on high-quality, institutional-grade assets. Overall, 2026 is expected to mark a period of consolidation and selective opportunity, with asset quality, location and tenant strength remaining key drivers of performance.

Across south-east Queensland, land values have continued to be underpinned by a persistent shortage of supply, resulting in ongoing price growth. In 2025, agents active in the large-format (big-box) leasing market reported a softening in tenant demand. This led to the stabilisation of net face rents and a corresponding increase in incentives, which in turn reduced net effective rental levels. These conditions were most pronounced in the south-western corridor, largely due to the significant volume of pre-leasing activity undertaken in prior years and the substantial amount of new stock delivered to the market.

In contrast, the outer northern precincts, including Narangba, recorded strong leasing activity, with some pre-commitments exceeding $200 per square metre net and incentives reported at approximately 15 per cent. The Sunshine Coast also experienced solid leasing outcomes, with transactions occurring in the high $100s per square metre for brand new buildings. The TradeCoast precinct continues to be Brisbane’s premier industrial location, supported by limited available supply and sustained demand.

Owner-occupier activity remained robust across south-east Queensland, with numerous acquisitions recorded from the Gold Coast through to the Sunshine Coast. While the majority of transactions were below $10 million, several deals exceeded $20 million, highlighting the strength of the underlying fundamentals within the industrial sector.

For prime industrial assets, yields are anticipated to remain in the range of 5.00% to 6.00%, reflecting modest firming following the three interest rate cuts throughout 2025. Secondary assets, however, may experience yield softening of up to 1%.

The land market has continued to outperform all other segments, with values increasing across all precincts. The Gold Coast has led this trend, with the Coomera land estate achieving rates of up to $1,600 per square metre. Additionally, land values in Burleigh are now reported to be approaching $2,000 per square metre. These elevated land prices are expected to place increasing pressure on development feasibility moving forward.

In the north, Darwin has continued to witness a modest increase in rental growth for better-quality, larger industrial spaces after several years of stagnant or declining values. However, land values have been held back due to an oversupply of land and limited demand, partly due to high construction costs making new developments unviable. Yields for good-quality industrial property assets in Darwin are typically between 6.50% and 7.50%, with a premium of up to 2.00% for secondary properties due to the abundance of older-style accommodation.

In South Australia, the industrial market has outperformed all other market segments over the past 12 months, and limited availability for suitably zoned industrial land in already established metropolitan precincts is forcing a surge in values in the outer north.

Adelaide’s outer northern industrial precinct, once an inaccessible and undesirable location positioned amongst rural and horticultural uses, has been enhanced by the establishment of the Northern Expressway. Burton, Edinburgh and Edinburgh North have seen rapid increases in land rates since the opening of the Expressway in 2023, which has reduced travel times to the Adelaide CBD by up to 45 minutes.

For example, 18-20 Deuter Road, Burton, a lightly improved 6192 square metre storage yard, sold with vacant possession for $1.5 million in June 2023 and was resold in September 2025 for $2.3 million ($371 per square metre) in comparable condition. This represents a 53 per cent increase in value over just over a year.

Given the increase in demand for land, approximately 50 hectares of farming land in Waterloo Corner is currently undergoing a zoning amendment for a proposed industrial land use, which should be formally approved in early 2026. This is a major step forward in solidifying the outer north as an industrial hub.

There is also evidence of further yield compression occurring in Adelaide, on the back of rising face rents throughout 2025. 9-11 Playford Cresent, Salisbury sold at auction for $5.335 million in December 2025 at a passing yield of 4.36% and lease expiry of 2.39 years. The property comprises a well-presented, 2004 built office and warehouse which previously sold for $1.95 million in June 2021 (a 273 per cent increase over 4.5 years).

Meanwhile, in Perth, land values in historically secondary industrial locations have surpassed $600 per square metre, caused by a significant undersupply of development-ready land and limited prospects for additional supply entering the marketplace in the coming 12 months. Yields in both of these locations mirror other parts of the country in line with the cost of debt.

Like the major centres on the eastern seaboard, owner-occupiers are driving the majority of transactions. Face net rental rates (i.e. before any incentives) for modern, high specification premises appeared to stabilise at circa $150 per square metre per annum of GLA in 2024. However, evidence emerged to demonstrate another uptick during 2025, with rents achieving close to $200 per square metre per annum, in selected instances. Such rental rates are unprecedented for the Perth industrial sector.

Lastly, Sydney’s property market was fairly stagnant last year, with minimal growth in property values and rents stabilising after a period of strong increases. These conditions have largely carried into this year, with no significant shifts in pricing trends. Overall, the market has remained steady rather than showing any strong upward or downward momentum, reflecting a period of consolidation after earlier growth.

The main change to note has been a modest increase in buyer activity. Towards the end of 2025, transaction volumes picked up, suggesting renewed confidence among buyers, even in the absence of price growth. At the same time, the ongoing shortage of land and limited new supply continue to underpin the market, acting as a key structural factor that may influence future conditions despite the current lack of strong growth.

Overall, the industrial market across the country continues to show signs of strength and stability, with variations depending on the specific location and type of asset. It is obvious from each major region that availability of industrial land will become a critical issue over the short to medium term with limited supply, while Darwin continues to face challenges in land value appreciation.