Vacancy rates remain tight in Melbourne’s resilient southeast industrial market

The industrial real estate market in Melbourne’s southeast has shown promising signs of continued growth and resilience in the first quarter of 2025, with vacancy rates sitting near 1%.

CBRE’s Senior Director of Industrial & Logistics David Aiello noted after a strong finish to 2024, there was an increased level of optimism in the market which pointed to improved leasing activity and rental growth throughout the year.

“The sustained demand and rental growth in Melbourne’s southeast are clear indicators of this market’s resilience and strong fundamentals,” Mr Aiello said.

“Despite a substantial drop in total take-up for transactions over 5,000 sqm last year, which fell to approximately 350,000 sqm, a rush of deals concluded in late December, including the year’s largest existing building lease of over 26,000 sqm, has set a positive tone for 2025.

“We are seeing an underlying appetite for quality accommodation and this trend is expected to continue as businesses seek to secure their long-term tenure in this constrained region. Encouragingly, there are multiple buildings under offer and numerous pre-leases close to being agreed as well as six live briefs in the market for spaces exceeding 10,000 sqm each,” Mr Aiello added.

Mr Aiello noted the latest super prime leasing transaction in Dandenong South recorded at $175 per sqm was evidence of the continued positive momentum from late 2024.

“Super prime face rents in the southeast increased by approximately 17% during 2024, finishing in excess of $170 per sqm,” he said.

“While effective rental growth was more moderate at around 8%, the market remains solid. The number of tenants renewing their leases, as opposed to relocating, increased to almost 50% in response to economic headwinds and higher building rents.”

Mr Aiello said the percentage of pre-lease transactions continued its slow but steady upward trend in 2024, accounting for accounting for 26% of deals, as existing building supply remained at historic lows.

“Adding pressure to total occupancy costs is the continuing surge in outgoings, which have well and truly surpassed the $30 per sqm barrier for new speculative developments in Dandenong South reaching as high as the mid-$50 per sqm range for more established facilities in some instances,” he added.