Melbourne's South East's industrial and logistics sector  continues to demonstrate resilience despite broader economic challenges such as higher inflation,  rising funding costs, and slowing economic growth.  

According to new research from Colliers, 67% of the developments that are due for completion in  Q4 2024 are pre-committed. The region's robust fundamentals, particularly the high pre commitment rate and chronic undersupply, have cushioned it against the softening conditions other  major metro markets have faced nationwide. 

James Stott, National Director | Industrial & Logistics, said, "Melbourne's South East's industrial  market is characterised by tight vacancy rates of only 1.35% compared with total Melbourne vacancy  of 2.6%, driven by the limited land supply and a weak speculative pipeline, which have been  essential key factors maintaining a stable rental growth." 

As a result, the average net face rents in 2024 grew to $147/sqm, up 11.13% from $132/sqm in 2023.  Prime grade net face rents have grown at a rate double that of secondary, rising to $153/sqm or  14.59% vs secondary at $138/sqm at 7.21%. 

“This growth has occurred despite occupiers' notable lack of confidence in committing to these  elevated rents. Interestingly, it has been achieved despite annualised leasing volumes having declined, underscoring the critical role of supply-side factors in shaping outcomes for landlords and  developers in the southeast,” added Mr Stott.  

A remarkable outcome as the rate changes for outgoings has increased faster than net face rents,  almost doubling since 2021. This increase in gross occupancy costs combined with net face rent  growth has impacted overall gross face rental growth from an additional $12/sqm to $37/sqm. The  rise is predominantly driven by land tax increases, seeing more than 30% increases in some  instances, bringing the average gross face rents to $184/sqm, up from $122/sqm in 2021, a jump of  35% or $64/sqm. 

Looking into 2025, the market is forecasting 261,000 sqm across 28 tenancies. 61,000 sqm across  eight tenancies is already committed leaving 200,000 sqm over 20 tenancies or 77%. Notable commitments include We-Ef Lighting in Braeside with Urban Logistics Co, Dexion in Dandenong with  Pellicano and Laurence and Hanson in Moorabbin with Goodman. 

Luke Lowden, Associate Director | Industrial & Logistics, commented, "The upcoming supply  pipeline is expected to provide a welcomed relief for occupiers, offering more competitive tension  and choices in the marketplace. It will also provide much-needed options for occupiers, fostering a  more dynamic and competitive market environment." 

In addition, for the first time in the South East's history, institutional built form options will be  delivered in emerging markets such as Pakenham and Officer South by Brookfield and ESR, with  59,089 sqm of supply scheduled for delivery in the last quarter of 2025. 

Edward Fanning, Executive | Industrial & Logistics, added, "We expect this market to generate  increasing interest as these buildings are practically delivered, with the gross occupancy discount  compared to the core South East becoming increasingly compelling." 

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