The industrial vacancy rate in Sydney and Melbourne has continued to rise over Q3 as the market continues to normalise, according to the latest research from Knight Frank.

In Sydney vacancy doubled over Q3 to reach 514,791sq m, while in Melbourne the vacancy rate rose to 3%, with 244,965sq m now available.

Sydney’s industrial market

Despite the rise in vacancy and higher incentives across all precincts, net face rents in Sydney’s industrial market have held flat since late 2023, with the exception being South Sydney, which has seen positive rental growth of 11% over the past 12 months. This is also the precinct with the lowest vacancy, at 30,000sq m, making up just 6% of the total vacancy in the market.

Sydney’s Inner West has the second lowest vacancy of the industrial precincts, with 44,000sq m of vacant space, which is still below its historical average. This is followed by the South West with 135,000sq m and the Outer West with 305,000sq m.

The Outer West has seen 487,374sq m of new space delivered in 2024 to date, with a further 134,869sq m under construction, which will bring new development for 2024 to a historical high of 622,243sq m. Given the availability of space, this precinct had the greatest take up in Q3 at 151,000sq m.

Industrial take up over Q3 was the second highest in Sydney’s South at 26,000sq m, followed by the South West (24,000sq m) and the Inner West (7,000sq m).

Transport and wholesale occupiers led tenant demand in Q3, accounting for 74% of deal volumes.

Overall new supply in Sydney’s industrial market is anticipated to reach 866,709sq m this year, with 77% delivered so far.

Melbourne’s industrial market

In Melbourne’s industrial market leasing activity fell over Q3, with a 31.5% fall in take up to 224,406sq m.

Prime net face rents are still up $2 to $143/sq m across all Melbourne ($133/sqm excl. Fringe), with 6% growth over the past year as the flight to quality continues. However, incentives have risen over the quarter as the market has slowed, up 250 basis points to 19.5% in the West and up 167 basis points to 16.3% in the North.

The North precinct has seen the greatest rise in prime rents over Q3, rising by 3.4% over the quarter to $138/sq m, followed by the Southeast precinct, with prime rental growth of 2.8% and the East with growth of 1.6%. The West saw no change in rents over Q3.

Outside of the Fringe ($180/sqm), the Southeast remains the most expensive precinct with prime net rents sitting at $139/sq m.

The highest amount of new supply in 2024 will be delivered in the West with 701,144sq m to be completed by the end of the year.

However, the North will become the fastest-growing industrial precinct next year, with 407,728sq m of new supply forecasted for 2025.

The overall development pipeline for Melbourne’s industrial market remains robust with 1,279,296sq m of new supply coming online in 2024, with a further 928,908sq m expected to land in 2025.

The market has stabilised 

Knight Frank National Head of Industrial Logistics James Templeton said the industrial market had stabilised over 2024.

“Vacancy has risen again in Q3, largely due to ongoing supply additions,” he said.

“Tenants are taking longer to make decisions, which is impacting take up figures, but it’s evident tenant demand is stronger for newer, high-quality buildings.

“While the market has tilted more in favour of tenants this year, we are still seeing rents remaining either stable or growing.

“For the remainder of this year we expect the market to maintain its status quo.”