The large surge in new space in Melbourne’s industrial market has continued to flow into the city, but a strong rebound in take up over Q2, following a quiet Q1, has meant vacancy levels have only risen marginally. 

The overall industrial vacancy rate in Melbourne has ticked up by just 0.2% over Q2 to reach 2.8%. Given it had fallen to an historic low of 0.6% in the first half of 2023, it is still below the 10-year average of 2.9%. However, a quieter start to Q3 does risk vacancy rates rising further as extra new supply is delivered.

Melbourne’s Eastern precinct remains the tightest market with a vacancy rate of just 0.2% (3.1% is its 10-year average), with a mere 5,947sq m to lease.

A strong pipeline of new supply has seen vacancy rates rise the most in the North of the city. Rates have risen from 0% in Q1 2023 to 5.4% now.

This is the highest vacancy rate of all the major precincts, however it is still below the North’s 10-year average of 5.5%. On current trends though, the rate will exceed its long-term average next quarter.

Indeed, the only precinct where vacancy rates are above their long run average is in the fast-growing West. A large drop of new developments started this year and has raised vacancies to 4.6% (the 10-year average is 3.5%).

New supply coming online in 2024 in the West is 712,224sq m – the highest out of the Melbourne regions, and accounting for 61.2% of all new supply in Melbourne’s industrial market this year.

The West has grown so rapidly that its total stock now challenges the size of that for the historical heart of industrial space in Melbourne, the Southeast. Given the pipeline for new supply, it is expected that the West will probably overtake the Southeast within the next 6 to 12 months in terms of stock size.

Take up in Melbourne’s industrial market recovered in Q2 after a sluggish start to the year, with 327,979sq m of warehousing leased, putting it ahead of its five-year average. In Q1 take up fell 43.5% to 195,573sq m, the lowest figure in five years, as deals took longer to complete.

Take up over Q2 increased by 69% in the North and 120% in the West. However, as we head well into Q3, take-up has fallen back, and vacancy rates are expected to rise further.

In the North, prime rents remained flat from Q1 to Q2 but this precinct saw the highest rise over the year, at 22%, to sit at $133/sq m.

To find out more about Melbourne’s industrial precincts, see Knight Frank’s latest Melbourne Industrial Precinct Addendum Q2 2024.