Rental growth and demand for Australian warehouse space are expected to march higher in 2024 and 2025 in key precincts as occupiers seek to leverage location to control supply chain costs, new Cushman & Wakefield research shows. 

Cushman & Wakefield’s Logistics & Industrial (L&I) Occupier Market 2024 Outlook reveals that while national  rental growth has eased from its peak in the first half of 2024, rents are expected to continue to outpace historical benchmarks, with growth of 6% forecast for 2024 and 5% for 2025. 

The report also found that the longer-term outlook varies at a sub-market level where Infill markets and other  land-constrained precincts are forecast to outperform. Four of the 25 submarkets Cushman & Wakefield tracks are projected to record prime rental growth of over 25% in the next five years. Sydney’s Central West and  Brisbane’s Trade Coast are expected to be the standout performers nationally over this period, growing 29.0%  and 27.8%, respectively. 

While demand has slowed from recent peak levels amid continued low vacancies and economic uncertainty,  gross take-up of 3.0-3.2 million sqm is anticipated in 2024 before picking up to 3.5-3.7 million sqm in 2025. The  rising absorption in 2025 will be supported by land availability to aid pre-commitment enquiries and improving  economic conditions supporting demand from discretionary-based occupiers. 

With rents already increasing nationally by almost 70% since the beginning of 2020, Cushman & Wakefield undertook extensive analysis to assess the impact of affordability for occupiers. The research found that while rents are a smaller overall cost, real estate can be leveraged to bring down other, larger costs like transport. 

As such, Cushman & Wakefield developed a new measure of assessing rents, moving from a rate on a per sqm  basis to rent on a population reach basis. This reveals how much rent an occupier will pay to service their  customer catchment. When measuring rent paid per 100,000 people within a 30-minute drive, higher rent in inner and central markets is offset by significant supply chain savings, given reduced transport costs and a larger  addressable population. 

For example, rents in South Sydney are $12.90 per 100,000 residents, representing a 40%+ discount to select  non-infill markets in Sydney. South Sydney can service a much larger population in a 30-minute drive compared  to a non-infill market despite having the highest gross rents in the country. Similar supply chain savings have  been identified in other markets, such as Rosehill and Homebush in Sydney’s Central West, Eagle Farm in  Brisbane’s Trade Coast and Tottenham in Melbourne’s West. 

Luke Crawford, Head of Logistics & Industrial Research, Australia, Cushman & Wakefield, said: “When an  occupier assesses optimal customer fulfilment locations, in most cases, access to population outweighs higher  rents given the cost savings it can provide in other parts of the supply chain.” 

“While looking at rents through this lens won't be as relevant for occupiers that don’t deliver business to  customer (B2C), we estimate upwards of 50% of the demand pool delivers B2C.”

“Occupiers recognise there isn’t a one-size-fits-all solution, and are also exploring strategies to reduce real estate  expenses through warehouse consolidation and efficiency and drive operational savings.” 

David Hall, National Director, Head of Brokerage Logistics & Industrial – ANZ – ANZ, Cushman & Wakefield, said: “While lease deals are taking longer to execute in the current environment, our current enquiry data shows  there are over two million square metres of active tenant briefs in the market. That underscoring healthy underlying demand to meet the anticipated increase in supply over the next 12 months.” 

“As elevated rents become the norm, occupiers are becoming more focused on strategies to mitigate costs, including automation and technology to streamline operations and servicing from other city and regional  facilities if feasible. For well-capitalised occupiers, asset acquisitions to stabilise long-term cost structures is  another option gaining momentum.” 

Please email or phone the contacts below for a copy of the Cushman & Wakefield’s Logistics & Industrial (L&I) Occupier Market 2024 Outlook: