Vacancy in Australia’s industrial market is likely to rise further in 2025 but rental growth is expected to continue albeit with a deepening divergence in performance depending on location, according to Knight Frank’s outlook report, Australian Horizon 2025, released today.

The research found industrial prime net rental growth continued through 2024 led by the smaller markets of Adelaide, which saw 12% growth over the 12 months to the end of Q3, Perth (7%) and Brisbane (7%).

Knight Frank National Head of Industrial James Templeton said within Australia’s larger industrial markets there were still precincts that are seeing strong rental growth but there was greater variation emerging between the precincts depending on the available supply and the level of competition for tenants. 

The report found there was expected to be more divergence in rental performance between the markets more impacted by higher supply levels, such as Sydney’s Outer West and West Melbourne, and less impacted markets such as South Sydney and East Melbourne

“In Melbourne growth is strongest in the established East and South East precincts where there is less supply able to be delivered, while in Sydney the growth continues to be led by the tightly-held South Sydney market,” he said.

“This localisation of rental performance is expected to continue into 2025 and potentially deepen for precincts with similar product becoming available at similar timeframes. 

“Market disruption from sublease and contraction space will also have an impact on rents and occupancy, diverting demand into shorter term spaces, but this will not be universal across the cities or sub-markets.”

Vacancy will rise further in 2025 driven by rising supply

Knight Frank’s Australian Horizon 2025 report found vacancy was likely to rise further into 2025, driven more by rising supply than weaker demand.

Leasing activity has gradually moderated as tenant urgency has returned to more normal levels and across the East Coast, rolling annual leasing take-up is sitting at 2.75 million square metres to the end of Q3 2024, almost 20% below the peak of 3.42 million square metres recorded through mid-2021. Take up remains higher than 2020 levels and 13% above the 10-year average. 

Demand is still robust for smaller units of space, particularly in infill locations, but the strength of demand for large units of space, particularly 10,000+ square metres, has moderated with tenants taking a more measured approach.

“As we move into 2025, improving import volumes arising from a pick up in economic growth and retail spending point to tenant demand stabilising in 2025,” said Knight Frank Partner, Research and Consulting Jennelle Wilson.

The report found 2024 had been a record year for East Coast industrial completions, with just under 3 million square metres (of 5,000sq m-plus projects) expected to be delivered by the end of year.

Looking ahead total new supply for 2025 is expected to be 8% lower at 2.7 million square metres.

“With construction of 800,000 square metres already underway for 2025 completion, the year will again start strongly, however the release of capital for speculative developments is expected to moderate as capital constraints take a toll on development activity,” said Ms Wilson.

“We are already seeing this with planned schemes for being pushed out to 2026 in response to shifting market conditions.”

Click here to access Knight Frank’s outlook report, Australian Horizon 2025.

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