As we come to the end of the first half of the calendar year and the start of a new financial year, amid some economic uncertainty and headwinds we are starting to see Australia’s industrial market normalise after several very strong years of growth. We expect this will continue to be the case for the next six to 12 months.

Over the past 12 months in particular we have seen unprecedented rental growth across all markets due to an ongoing shortage of industrial property in the face of strong demand. This led to record lows in vacancy, which was sitting at 444.681sq m at the end of Q1 2023.

Prime rents rose by 27.65 per cent across the Eastern Seaboard cities over the year to the end of Q1 2023, with Sydney experiencing the strongest growth of 38.65 per cent, followed by Brisbane (24.21 per cent) and Melbourne (15.14 per cent).

Our view is that the industrial market is now entering a more stable period, with the demand/supply imbalance set to reduce in favour of a more balanced market. Demand has cooled a little as consumer spending slows with the higher cost of living and supply chain improvements lead to a reduced need to hold significant stock levels. 

More supply is also coming online - this year a record of circa 2.5 million square metres is planned to be delivered across the Eastern Seaboard cities, which will help to alleviate the chronic shortage that has defined the market for many years. The undersupply issue will continue to persist, however, with greater tracts of land that could be released for industrial zoning still caught up in planning.

Despite the change in conditions, rents remain higher than what they were historically and rent growth will continue – and will certainly be stronger in some pockets where demand is the strongest amid ongoing undersupply. 

This period will offer up some good opportunities for occupiers, with the vacancy rate starting to push out to a degree that will create more opportunities for tenants to have greater choice of stock. They will also see some rent relief with the slowing of rental growth, and with incentives starting to come back into the market.

The longer-term outlook for Australia’s industrial market is optimistic. While there is some uncertainty now about what the future holds economically, if interest rates start to fall next year as predicted by experts, demand will likely rebound, which would see a return to stronger conditions.

For more on-the-ground commentary on the industrial market, see Knight Frank’s latest SPACE Industrial and Logistics publication.

By James Templeton.