Australia's Industrial & Logistics vacancy rate increases but remains the lowest globally

The national average vacancy rate in Australia’s Industrial & Logistics market continues to be the lowest globally at 1.9%, with Perth holding the lowest vacancy rate in the country at 1.2%.

CBRE’s H1 2024 Australia’s Industrial and Logistics Vacancy Report showed a lift in vacancy rates for most markets across Australia, particularly Sydney, Brisbane and Melbourne, however overall vacancy remains at sub-2%.

Sass Jalili, CBRE Head of Industrial & Logistics Research said, “We are witnessing a rise in the vacancy rate across most cities, as demand normalises, and greater sub-lease space is being added to the market. Despite the rise in space availability, we still do not expect to see the national average vacancy rate surpass 4% in 2024.”

The report notes national net absorption has fallen to the lowest level on record with notable decreases across all Eastern Seaboard cities. Gross take-up of floorspace for 1H24 reached 0.9 million sqm as occupier demand begins to normalise, and only 50% of take-up was the result of tenant expansion.

“Sub-lease activity has multiplied across the market but has not significantly affected the vacancy rate. Over the past six months sub-lease activity has been most prominent in the Sydney market, accounting for 50% of vacant floorspace,” Ms Jalili added.

The report shows rental growth has slowed over the past 12 months and incentives began to rise in 1H24. The current year-on-year growth rate for national super prime grade face rents (supply-weighted average) is 12% (as at 2Q24 preliminary data). Rent growth is expected to further reduce over 2024 and incentive levels will continue to rise across all markets.

CBRE Industrial & Logistics Regional Director Michael O’Neill said, “Over Q1 2024 transaction activity was slow, but that is not surprising given the incredible rental growth of previous years owing to low vacancy. High prevailing rents, softening consumer demand, higher outgoings, and reduced sense of urgency all contributed to a slower start for all markets. This has resulted in vacancy approaching or exceeding 2% in nearly all markets. Overall, we’re seeing the market begin to normalise to pre pandemic conditions.”

Sydney

Vacancy levels have risen in Sydney from 0.5% in 2H23 to 2%, this was largely a result of vacancy rises in the Outer Western markets.

Sub-lease space represents around 50% of the total vacant area in the Sydney market (for space >5,000 sqm). Greater sub-lease activity has been seen in the past 12 months in the Sydney market. 

CBRE National Director Cameron Greir noted, “Vacancy in infill areas in Sydney remain extremely tight, and these sub-markets are still among some of the tightest vacancy rates globally. We are however seeing a softening on the outer ring markets such as the Outer North West and Outer South West due to increased speculative activity and sub-lease space hitting the market. Whilst this is a significant increase from H1 2024 in the Outer Ring markets, these figures are still well below the historical averages for Western Sydney.

“Leasing volumes for H1 were down overall due to weaker occupier demand, but CBRE has seen a surge in leasing activity in the last eight weeks with many HOA signed, this should see vacancy stabilise in H2 2024 in the Outer Ring markets.”

Melbourne

The Melbourne vacancy rate has increased to 2%. Increases were seen across most precincts except the Western precinct, which showed a marginal decline, but still holds the highest vacancy rate in the Melbourne market.

Net absorption levels have also decreased in 1H24 but remain the strongest in the country. Vacancy levels in the East/South East are the lowest in Melbourne and expected to remain at sub-2% over the remainder of the year. 

CBRE State Director Thomas Murphy noted, “Occupier demand throughout Melbourne has been subdued throughout the first half of 2024, with leasing absorption down on our previous five-year average. With limited occupier activity and leasing uptake we have started to see vacancy rates trend up, albeit we are still in a low supply environment. Face rents have held; however, effective rents have reduced slightly owing to incentives trending upwards.  

“Sub-leasing has remained steady with minimal options available in the North and South East, and circa 140,000 sqm of sub-lease space available in the West. With uncertain global politics and speculation around interest rates we expect to see continued subdued occupier demand throughout the remainder of 2024.”

Brisbane

Brisbane has the highest vacancy rate in Australia at an average of 2.7%.

The greatest upward movement in the vacancy rate over the past six months was recorded within the Western Corridor (+300 bps) and the North precinct (+200 bps). Despite greater sub-lease activity, sub-lease space on the market represents only around 16% of total vacant area in Brisbane.

Net absorption in Brisbane dropped by more than 50% when compared to 2H23. 

CBRE State Director Matthew Frazer-Ryan said, “Reflecting on the first half of the calendar year we have seen a two-speed occupier market evolve within Greater Brisbane. Demand for existing buildings has been particularly weak with limited transaction volumes above 3,000 sqm, and the bulk of transactions that did complete were primarily for prime or speculative developed assets - again reinforcing the flight to quality theme. Comparatively we saw very strong demand for new purpose-built facilities with over 350,000 sqm of occupier briefs looking for design and construct solutions to support growth and improved business operations in South East QLD. We expect a large portion of these occupiers seeking new greenfield solutions to finalise transactions in the coming six months.”

Perth

Perth vacancy increased and is not the lowest in Australia at 1.2%.

The upward movement was the result of a significant increase in the East precinct, increasing by 160 bps. Vacancy in the North and the South precincts fell over the past six months.  

Sub-lease space represents only 13% of the total space vacant and is only prevalent in the East and South precincts.

Net absorption increased slightly in 1H24, compared to 2H23. Gross take-up continues to be concentrated in the East and South precincts – each making up 44% of lease transactions in 1H24.

CBRE Senior Director Jarrad Grierson said, “The strongest population growth rate in Australia and a strong resources sector buoyed by strong commodity prices continues to drive resilient occupier demand in Perth’s industrial and logistics market, despite the headwinds occupiers have faced from rising interest rates over the past 24 months. This has resulted in WA’s industrial vacancy rate being the lowest in the country at just 1.2%. The WA Government’s recent 2024-25 budget forecasts solid economic growth to continue in the year ahead which will continue to drive industrial demand. A high pre-commitment rate is likely to mean that Perth’s industrial vacancy will continue to remain low.”

Adelaide

Adelaide’s vacancy rate fell to 1.3% and was the only market to record a fall.

Net absorption lifted in 1H24, compared to 2H23, with new floorspace added to the market readily absorbed.

It’s expected the Adelaide market will follow a similar trend to other markets around the country, with vacancy levels rising. However, given the tight supply pipeline, the vacancy rate is expected to remain at sub-4% over the next 6-12 months.

CBRE State Director Jordan Kies noted, “The buyer pool for the >$30M price point in South Australia has somewhat thinned out with a concerted focus on the Eastern Seaboard, particularly Sydney and Brisbane, where they’re seeing value relative to South Australia’s current pricing. The sub $20M market, however, continues to defy the odds with more local private investors, syndicators, developers and/or owner-occupiers all still very actively seeking value-add opportunities.

“There are several speculative developments in the North West that are all nearing completion at the same time and beginning to show signs of saturation in this geography.

“The demand from occupiers relocating from the ‘South Road’ compulsory acquisitions is nearing the end, noting most companies will require premises by the end of 2024, most of which have already sourced alternate premises.