Australian industrial vacancy rates to hit 3-4%

Vacancy rates in Outer West Sydney, West Melbourne, and South Brisbane are rising.

According to a report from Dexus Research, the Australian industrial sector has boomed in the past two years, seeing unprecedented rent growth and incredibly low vacancies.

This growth has been slowly easing over the past few quarters as demand for space tapers in line with economic indicators.

Here’s more from Dexus Research:

Face rents lifted in most markets in Q3 2024, although at a reduced rate compared to the levels of the past two years. Outer West Sydney and South West Sydney saw 0.6% and 1.7% growth respectively. Much of this growth was accompanied by rising incentives, so in many markets, rent growth has been weak on an effective basis.

Take-up remains fairly solid. National take-up picked up slightly over the quarter, largely driven by demand in Perth and Melbourne. A significant amount of sublease space is being offered onto the market, particularly from third party logistics tenants. However demand for calendar 2024 is expected to be slightly above last year with pockets of strength among nondiscretionary retailers, fresh foods, engineering and pharmaceuticals.

Vacancy rates for most markets are estimated to sit between 3% and 4%. Rates continue to rise at a slow pace but are still largely below their pre-COVID averages. Vacancy rates in outer markets such as Outer West Sydney, West Melbourne and South Brisbane, where the bulk of new construction is occurring, are rising while vacancy rates in the inner markets remain tighter due to supply constraints.

A significant amount of supply was completed over the quarter, around 825,000 sqm nationally, with nearly half of it located in Outer West Sydney.

Prime yields have not seen much movement over the quarter, holding stable across most markets. Perth yields expanded by 25 bps in both East and South. Increasing replacement costs are anticipated to bolster rents in the medium to long term. Although speculative supply has been successful in recent years due to rising rents, developers are likely to prioritise precommitted projects moving forward.