Industrial property markets show mixed outlook as interest rate shifts influence investor confidence

The industrial property sector across Australia is showing early signs of stabilisation in 2025, although outcomes vary between states as interest rate trends and supply constraints reshape buyer sentiment.

In its latest Month in Review report, valuation and advisory firm Herron Todd White noted that while industrial assets remain the most resilient segment in the commercial property market, capital growth appears to have reached its peak in several regions.

“Activity is cooling,” the report stated, with investors now becoming “more circumspect about what they choose to purchase”.

In Sydney, the industrial market maintained its position as the strongest-performing commercial asset class through 2024, although growth in capital values and rents has slowed. “This year, a continued market deceleration is expected, with fewer transactions,” said Angeline Mann, Commercial Director. She added that yields were starting to rise, potentially attracting some investors back to the market, though soft economic conditions may hinder further confidence.

Melbourne’s industrial sector also showed signs of stabilisation. Smaller lot values have held steady, though larger site transactions have slowed. “Whilst the industrial market in Melbourne is ranked one of the best in the world, it’s important to note that there are certainly some assets that investors should look to avoid,” said Nick Michael, Director.

Brisbane remains underpinned by limited land supply and sustained activity from owner-occupiers. “Vacancy rates are forecast to edge upwards during the year as we see increased levels of supply coming to the market,” said Mackenzie Osborne, Valuer. Despite this, major sales such as the $80.55 million transaction in Darra and strong land values in Rochedale reflect ongoing demand.

On the Gold Coast, land and building shortages are continuing to put upward pressure on values, though yields are stabilising. Notably, a $200 million deal in Arundel highlighted renewed interest in large-scale assets.

Darwin’s industrial market is beginning to recover, with improving rental growth for higher quality spaces. “Yields for good-quality industrial property assets in Darwin are typically between 7.00% and 8.00%,” the report said, with oversupply and construction costs still dampening land values.

In South Australia, Adelaide’s industrial precincts are experiencing strong land value growth, particularly in areas like Wingfield and Regency Park. The sale of 1 Johansson Road for $4.008 million in September 2024 at $954 per square metre set a benchmark for the city.

Western Australia started 2025 at the peak of its industrial cycle, with rental rates in select locations reaching unprecedented highs. “We expect demand for securely leased, newly constructed, built-form industrial property to remain strong during 2025,” said Greg Lamborn, Director, citing limited supply and eastern states-based investor interest.

Overall, while prime yields remain competitive in eastern cities, ranging from 5.25% to 6.50%, secondary and regional markets continue to attract attention from owner-occupiers and value-seeking investors. However, rental incentives and construction costs may limit upside potential in certain segments of the market.