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Following record rental growth, the industrial and logistics investment sector is now worth close to $300 billion, equalling the office sector for the first time.
And with rents in the sector continuing to grow, it’s predicted industrial and logistics will be the biggest commercial real estate segment in Australia for many years to come.
According to CBRE’s Australian head of industrial and logistics research, Sass Jalili, the firm has projected that Australia’s industrial and logistics investable universe will reach $410 billion in the next decade and remain the dominant asset class for the foreseeable future.
Additional space in the sector is expected to be met with strong demand, as it has over the past year.
“Despite industrial and logistics yields expanding by an average of 122 bps across the country over the past 12 months, rents grew by 18 per cent year-over-year. Three million square metres of new floorspace was also added to the market over this time,” Jalili commented.
Rental growth is expected to slow, but not stall, according to the firm, with vacancy rates set to remain below 4 per cent in 2024, indicating a healthy level of competition in the sector.
“Occupiers will have more choice this year as more space is anticipated to come to the market. Despite this, the 2024 supply pipeline is already 50 per cent pre-committed and therefore vacancies won’t reach the equilibrium rate of 4 per cent in the next 12 months. We forecast rental growth for the year ahead will be in high single digits, particularly for markets where vacancy rates currently remain below 1 per cent,” Jalili added.
Though there are a number of factors at play, the strong growth of the industrial and logistics sector has e-commerce to thank for much of its recent success.
According to CBRE, e-commerce needs have accounted for roughly 25 per cent of Australia’s industrial and logistics space on the east coast over the past three years. Last year, Australia’s online share of retail sales hit 13 per cent and is expected to reach 15 per cent by the end of 2026. Currently, the sector is four years ahead of the pre-pandemic trend rate.
Given these growth prospects, it’s no wonder that investors are lining up to get a piece of the asset pie.
According to Chris O’Brien, CBRE capital markets executive director for industrial and logistics, there is “around $20 billion of capital that is currently seeking to be deployed into industrial and logistics assets”.
He foresees a growth in strategic partnerships between prospective investors as a way to find alternative paths into the Australian market.
CBRE noted that this interest extends to offshore investors, with Australia recently identified by the firm as the second most preferred market for cross-border investment in the APAC region, with the industrial and logistics sector the preferred property asset class for core investors.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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