The industrial property market in Australia continues to display resilience, buoyed by strong demand in the warehousing, logistics and distribution sectors. This demand is primarily driven by the persistent growth of e-commerce and supply chain complexities, which require large-scale, specialised facilities. 

According to the Colliers Industrial and Logistics Snapshot for the third quarter of 2024, the national occupancy rate for industrial properties was 89 per cent, with vacancy rates for prime industrial properties in some regions dipping as low as 2 per cent.

E-commerce has revolutionised the industrial property landscape. For every $1billion growth in online retail sales, an extra 300,000 to 350,000 square metres of specialised third-party logistics or fulfillment facilities are needed. In Sydney, property uptake in this sector is up 41 per cent on the last financial year, exceeding the 10-year average demand.

However, the sector is not without its challenges. Evolving tenant preferences, shaped by advancements in technology, shifting consumer expectations, a growing focus on sustainability and the pursuit of operational efficiency, coupled with economic pressures from high local interest rates and global geopolitical tensions, are reshaping demand dynamics. These factors are prompting both landlords and tenants to reassess their strategies.

Nevertheless, the transport, postal, and warehousing segment remains the standout performer within industrial property.

Modern industrial tenants seek properties with layouts that optimise workflow and minimise operational costs. Higher ceilings, open spaces, and well-designed loading docks are becoming must-haves.

With a growing focus on environmental responsibility, properties with energy-efficient systems, solar panels, and sustainable materials are highly attractive. These features not only reduce utility costs but also align with corporate environmental, social and governance (ESG) goals.

Proximity to major transport routes and urban hubs remains critical. Facilities that offer seamless connectivity to highways, ports, and airports are in high demand, as they directly impact delivery efficiency.

Industrial employers vie to retain skilled labour, driving demand for properties located near amenities like public transport, dining options, and childcare services. Additionally, modern facilities designed to boost employee comfort and productivity are becoming increasingly sought after.

Despite the appeal of modern facilities, cost considerations weigh heavily on tenant decisions. Moving costs, fit-out expenses, and operational disruptions often deter tenants from relocating. For many, renewing their lease is the preferred option.

From the landlord’s perspective, retaining an existing tenant is often more advantageous than courting new ones. New tenants typically expect better terms, including incentives like rent-free periods or costly fit-outs, which can strain effective rents and returns. Additionally, the ‘flight to quality’ means that outdated properties are increasingly difficult to lease without substantial upgrades.

This creates opportunities for negotiation, with tenants leveraging their position to secure more favourable lease terms. Landlords, in turn, are incentivised to enhance their offerings to retain tenants, fostering a more tenant-focused market.

While this trend impacts short-term returns, it also signals a recalibration of risk and reward expectations in the industrial market. Landlords willing to invest in upgrades or offer tenant incentives are likely to maintain strong occupancy rates, while those who fail to adapt, risk higher vacancies.

As the market evolves, certain features have become non-negotiable for tenants, influencing whether they choose to stay or move.

• Facilities must meet contemporary standards for efficiency, sustainability, and safety. Tenants are often reluctant to compromise on these cost saving modifications, even if relocation costs are high.
• Properties that can adapt to changing business needs, like expansion or reconfiguration, are highly desirable. 
• While tenants value quality, affordability remains a critical factor. Properties offering operational savings through energy efficiency or lower maintenance costs are often preferred.
• Location is critical. Tenants prioritise facilities that enable fast delivery times and reduce transportation costs, ensuring they remain competitive in their industries.

As e-commerce and population growth continue to fuel demand, industrial assets are set to remain a cornerstone of the property investment landscape. For investors, the combination of steady fundamentals and evolving market dynamics offers opportunities to achieve both stability and growth in the years ahead.

While tenant preferences and cost pressures are reshaping the industrial property landscape, landlords who adapt to these changes can maintain strong occupancy rates and attract quality tenants.

For investors, shifting market dynamics present opportunities to differentiate their offerings by investing in sustainability upgrades to attract quality tenants and justify premium rents. Offering modest incentives to existing tenants can be more cost-effective than securing new ones while aligning their facilities with industry standards.

For industrial property investors, claiming tax depreciation is a key strategy to enhance cash flow. Depreciation allows investors to claim tax deductions for the wear and tear on their buildings and assets over time.

Engaging a qualified quantity surveyor to prepare a detailed tax depreciation schedule can help investors unlock significant tax savings, ensuring their properties remain both financially and operationally competitive in this evolving market.

For more information regarding the depreciation deductions available on your industrial property, contact BMT Tax Depreciation on 1300 728 726 or request a quote