Demand for industrial space sees vacancy rate hit 10-year low

Industrial and logistics properties across the east coast of Australia are seeing record demand with vacancy rates now at a decade low.

According to the Knight Frank Q1 2022 Industrial Market Report, vacancies in the industrial sector on the east coast are 44 per cent lower than the same time last year.

Intense competition has seen tenants quick to lock in industrial space resulting in a 15 per cent contraction of existing vacant space on the east coast taking the available space to 1.07 million sq m in April.

Ongoing demand has seen a rise in prime net face rents (blended average) of 6.6 per cent in Sydney, 5.3 per cent in Brisbane, 10.1 per cent in Melbourne, 9.4 per cent in Perth, and 3 per cent in Adelaide, with select individual precincts recording much higher growth rates according to the report.

Ben Burston, Chief Economist at Knight Frank Australia said demand is incredibly high at the moment.

“Annual take-up of space (including pre-commitments) is running at about 20 per cent above its five-year average, as businesses continue to build resilience into their supply chains,” Mr Burston said.

“However, development completions are working to support the demand, with a record high of 2.7 million sq m planned for 2022.

“Speculative completions will reach a new high across the year too, with ~956,000sq m planned for the east coast, representing the largest volume of speculative projects since the series began, with Brisbane and Melbourne comprising 88 per cent of this stock.”

Investor demand for industrial assets continues with approximately $3.7 billion in transaction volumes occurring in the first quarter after seeing $19 billion in 2021.

Investors are increasingly targeting safe-haven markets such as Australia, with the share of cross border investment rising from 46 per cent in 2021 to 67 per cent in Q1 2022 according to the report.

Sydney super prime yields compressed 25bps in Q1 and are now in line with Melbourne at 3.5 per cent, while Perth and Adelaide yields compressed a further 25bps to 4.25 per cent and Brisbane compressed 5bps to average 4.10 per cent.

The strength of demand has seen yields compress upwards at 80bps on average over the last 12 months, but the pace of compression has slowed in recent months.

“The sustained high level of investment volumes shows that investor appetite for the sector remains firmly in place, with the number of properties exchanged in Q1 around 60 per cent above the first quarter trend seen in the last two years,” Mr Burston said.

“Cross-border capital continues to be a key driver of the market and with travel returning, we expect to see pent-up demand from buyers who have been unable to visit over the past two years.”

Rising interest rates are clearly a consideration for many investors, but with rents growing rapidly buyers continue to seek opportunity in infill locations in Sydney and Melbourne and in higher yielding markets like Adelaide and Perth.”

Mr Burston said the outlook remains positive with economic conditions still supporting industrial assets.

“The long-awaited rebalancing of spending back to services instead of goods is now occurring but demand for household goods and clothing still remains very high and will continue to support demand for industrial space,” he said.

Despite robust demand, rising inflation is starting to weigh on sentiment and that could impact the sector later in the year, according to Mr Burston.

“The global experience points to the risk that this could become a more substantial headwind for households in the coming months and slow the pace of spending and hence economic growth in the second half of the year,” he said.

“Rising bond yields are being reflected in the rising funding costs for investors in industrial property and will act to slow the rapid pace of value growth, especially in markets not benefitting from strong rental growth.

“With decreasing vacancy across the board, rising land values, and increasing crossborder investment, we can expect this sector to remain a competitive one across the remainder of 2022 at least.”


In Sydney, vacancy has declined a further 20 per cent and is now at a record low – a 75 per cent decline year-on year, driving strong growth in rents in the outer west and south west quarter-on-quarter, with 2.1 per cent and 3.8 per cent respectively.

On a blended basis, prime net face rents are up 1 per cent Q/Q, with incentives averaging 12.5 per cent, resulting in net effective rental growth of 1.6 per cent.

Year-on-year, average prime net face rents have risen 6.6 per cent, well above yearly growth rates of the past decade.


Leasing volumes are sitting at around 425,000sq m after the first quarter, and follow a record 12-month period in Melbourne where more than 2 million sq m of industrial space was leased.

The volume of vacant space declined 19 per cent quarter-on-quarter to measure 632,878sq m overall.

On a blended basis, prime net face rents are up 4.7 per cent quarter-on-quarter, underpinned by a faster rate of growth in the north and east, where rents grew 7.2 per cent on average over the quarter. In year-on-year terms, average prime net face rents have risen 10.1 per cent.


In Brisbane, vacant space has fallen a further 5 per cent in Q1 to be 43 per cent lower than a year ago.

Land value growth continues to accelerate accelerated, with prices of 1-5ha sites now 35 per cent above the levels of a year ago, with all precincts recording strong growth.

With only 337,708sq m of vacant space available, options for tenants have considerably narrowed in the past 18 months. Average prime face rents increased by 5.3 per cent year-on-year to $120/sq m net, average incentives have ticked down across existing stock to 15.5 per cent.


In Adelaide, land constraints amid a sustained upswing in demand levels is driving up land value and rental growth rates in the outer south, with 1-5ha lots rising 16.1 per cent quarter-on-quarter and prime net rents rising 6.7 per cent.

In aggregate, the value of <5,000sqm lots have risen by 25.8 per cent year-on-year, and 1-5ha lots are up 54.7 per cent year-on-year.

The sub-1000sq m market has continued to receive strong inquiry to lease, with recent take-up trends, contributing to low vacancy rates in inner west and inner southern precincts.


In Perth, the blended rate for 1-5ha lots is up 8.8 per cent over the quarter and average prime net face rents are up 5.1 per cent quarter-on-quarter, as the scarcity of land for development and sustained high tenant demand increases the competition for product.

Land values started to rise in late 2021, and there are further signs of this continuing in Q1.

In year-on-year terms the blended rate for small lots has risen 9.9 per cent and 1-5ha lots are up 8.8 per cent. Further growth is expected in land values in the second half of the year, following an uptick in land sales.

Show More

News Room

If you have any news for the Real Estate industry - whether you are a professional or a supplier to the industry, please email us:

Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.