Reflecting back on the year to date, the industrial market in Australia has been stable overall, and in many areas we have seen the market turn more in favour of tenants. Leasing take up is still in line with the 10-year average, but as vacancy has risen – largely due to supply additions - there has been greater choice for occupiers than we saw in recent years, and tenants are taking longer to make occupancy decisions. Tenant demand is stronger for new and more efficient buildings, with a flight to quality playing out, and there is greater demand for smaller buildings of sub-10,000sq m. While rental growth has continued – albeit at a slower rate – landlords have had to meet the market to ensure ongoing solid returns for their properties. These trends are being seen right around Australia and indeed, is consistent with what our networks tell us is happening in the industrial and logistics property sector globally.

How is the investment market tracking?

In the industrial investment market we have seen greater liquidity in Australia as the year has progressed, with more transactions, and we expect this to continue for the remainder of the year. While activity on the leasing front remains steady, industrial property remains a sought after asset class, with both local and offshore buyers active. Knight Frank’s recently-released APAC research report Horizon Report III – Look Beyond the Norm found the industrial sector was the most favoured for cross-border capital in Australia, equal with the office sector, with 27% of capital expected to be allocated to both sectors.

Industrial property continues to be sought after 

In line with the wider property market, the industrial sector has been impacted by the economic uncertainties that have prevailed over the past few years, with high inflation and interest rates. However, it remains one of the most sought-after asset classes because it is considered to be relatively low risk, with long-term growth potential. Prime industrial yields have also stabilised more quickly than other sectors, indicating pricing adjustment has likely completed. Land values have generally held firm or continued to grow across the major Australian markets. This is due to a continued lack of land ready to be developed and available for purchase, continued land banking by major developers and more recently, a surge in owner occupiers.

What does the future hold?

One of the catalysts for the return of a stronger industrial market will be improving economic conditions and in turn, consumer and business confidence. Lower inflation and interest rates, which we expect to see come to fruition next year, will have a flow on effect to the logistics sector through a return to greater spending. Population growth will also contribute to a pick up in the industrial sector.

The latest edition of Knight Frank’s flagship industrial publication, SPACE, will be released this Friday, featuring insights into the latest trends in the industrial market, as well as a range of industrial opportunities available right now across Australia and New Zealand.