RENTS, LAND VALUES AND DEVELOPMENT IN FOCUS AS INDUSTRIAL MARKET STABILISES

Australia’s industrial property market is shifting gears after five years of record-breaking growth in demand, rents and construction.

Vacancy levels have climbed from historic lows, bringing the sector back into more balanced territory, according to Knight Frank’s latest research, From Surge to Stabilisation.

Vacancy rates normalise

Blended vacancy across the East Coast now sits at 3.2 per cent. While still considered tight, that represents a significant change from the 0.6 per cent recorded in the first quarter of 2023. The post-COVID surge in tenant demand had driven unprecedented leasing take-up and fuelled a wave of new construction, but that momentum has since cooled.

The report suggests that effective rental growth will remain subdued in the short term, although the picture is far from uniform. Vacancy is expected to concentrate in emerging precincts with a large pipeline of new projects, while more established markets are likely to prove resilient.

Diverging rental outlook

Sydney’s South West and Outer South, Melbourne’s North and Brisbane’s South and South West are flagged as more exposed, with lower prospects for rental growth. By contrast, Sydney’s Inner South, Melbourne’s South East and East, and Brisbane’s Trade Coast are expected to deliver stronger outcomes thanks to lower construction and tighter vacancy.

Knight Frank Partner, Research and Consulting, Queensland, Jennelle Wilson, said tenants in some markets will still face higher costs even as more space becomes available.

“It is expected that face rents will be defended with a corresponding increase in incentives to impact effective rents,” she said. “Tenants on leases negotiated prior to 2021 will still face significant rental reversion on renegotiation or relocation, despite having greater choice in the market, to bring them into line with current market rents resulting from significant growth over the boom.”

According to Wilson, prime industrial rents rose by between 30 and 60 per cent on the East Coast over the past three years, underscoring just how intense the recent surge was.

Supply pipeline rebalances

The report found that the supply side will correct relatively quickly, with speculative development slowing and more reliance on pre-commitments. Lower levels of speculative projects and a greater focus on pre-leased space are expected to ease new supply through the second half of 2025 and into 2026.

Wilson said occupiers will continue to look for operational efficiency and upgrades. “Over time, there will be a lift in pre-commitment activity as upgrading and unlocking operational efficiency remains key for large occupiers,” she said. “A more conservative development environment will limit speculative supply in 2026, diverting demand back to pre-commitments to tenants seeking a technology and building fabric upgrade.”

She added that the market would increasingly split between businesses willing to pay for high-efficiency, tech-enabled facilities and those seeking to minimise rental costs, even if it means compromising on optimisation.

Land values remain firm

One of the strongest findings from the research is that serviced industrial land values are expected to hold firm, even as demand eases. Over the past five years, land values across the East Coast have climbed sharply — by 46 to 118 per cent for smaller blocks and 46 to 131 per cent for lots of one to five hectares.

While prices have plateaued recently in Sydney and Melbourne, Wilson said the most significant bottleneck has been the time taken to service land.

“In contrast to building construction timeframes, recent years have proven that the timeline for industrial land servicing and development is the most critical step in the development process,” she said. Lessons from markets such as Western Sydney, and to a lesser extent Brisbane and Melbourne, around the delivery of power and water are expected to continue supporting values.

Looking ahead

The industrial market is settling into a new rhythm. Rental growth will be patchy, depending on location and level of development.

Pre-commitments are expected to dominate new supply, while speculative activity is expected to recede. And despite a cooling in overall tenant demand, the value of well-serviced land is likely to remain robust.

For investors, developers and occupiers alike, the message is clear: the frenzy of the boom years is over, but fundamentals remain strong for quality assets in the right locations.

Leading Australian development manager Fortis has secured a landmark off-the-plan sale at Richmond Square, with high-profile hospitality entrepreneurs Bruce and Chyka Keebaugh purchasing a 550sqm penthouse residence in Carmine House, establishing a new price benchmark for apartment living in Richmond.

The purchase underscores the continued demand for premium, amenity-rich residences in Melbourne’s inner east.

The transaction marks a significant milestone for the $330 million mixed-use precinct, reinforcing buyer appetite for integrated, lifestyle-led developments.

Richmond Square comprises two residential offerings – Carmine House and Wiltshire House – alongside a 57-room boutique hotel, strata office space and a curated mix of retail and lifestyle operators.

As part of Carmine House, residents have access to hotel-style amenities and services, including concierge, housekeeping, dry cleaning and in-residence food and beverage delivery.

Best known for building The Big Group into one of Australia’s leading luxury hospitality and events businesses, the Keebaughs were drawn to the precinct’s integrated lifestyle offering and its proximity to Melbourne’s hospitality, cultural and sporting precincts, while remaining well connected to the Mornington Peninsula, where they spend much of their time.

As well, Chyka is well known to Australian audiences as one of the original stars of The Real Housewives of Melbourne, appearing across three seasons of the hit reality series.

Alongside her business ventures with Bruce, she has built a public profile as a lifestyle authority, authoring two books on home and entertaining, Chyka Home and Chyka Celebrate.

“We weren’t simply looking for a luxury apartment,: the couple said. “We were looking for a home that delivers an exceptional lifestyle every day. The combination of design, walkability, security and the broader precinct vision for the broader precinct immediately stood out.”

Jordan Winada, Head of Acquisitions (Commercial) Victoria at Fortis, said the result highlights evolving priorities at the top end of the market.

“This sale reinforces that premium buyers are prioritising the complete lifestyle experience,” says Winada.

“They’re increasingly looking beyond the apartment itself and assessing the quality of the surrounding neighbourhood as well.”

Sean Cussell, Director at Christie’s International Real Estate Victoria, who negotiated the transaction, said the result reflects the lack of comparable product at this level of the market.

“There’s simply no direct comparison for this in Richmond. It’s not just an apartment; it’s part of a fully integrated precinct combining residential, hotel, workplace and lifestyle amenity,” Cussell said.

“Buyers are increasingly assessing the broader offering, from amenity and walkability to service and convenience. Projects that deliver a complete lifestyle experience continue to outperform.”

The sale contributes to Fortis’ strong national performance, with the business recording more than $124 million in sales since March, the last three all record-breaking penthouse sales across the country, reflecting sustained momentum across its portfolio and continued appetite for premium, design-driven developments.

This follows Fortis’ recent record-breaking Ruby House penthouse sale in Sydney’s Double Bay, which set a new benchmark for apartment living in the suburb and underscores the strength of demand at the ultra-premium end of the market.

Richmond Square will announce its hospitality and lifestyle operators in the coming weeks as the project progresses towards completion this year.