Industrial sector adapts to supply constraints and new market demands
According to Knight Frank’s latest SPACE report, a slow development pipeline, growing demand from new industries, and increasingly specialised occupier requirements are reshaping industrial markets across the country.
Despite vacancy edging up to 3.9 per cent across the east coast, the sector continues to attract strong investor interest, with industrial transaction volumes reaching $14.4 billion in 2025, the highest level in three years. Meanwhile, 602,000 square metres of leasing activity was recorded across the east coast during the first quarter of 2026, highlighting continued occupier demand, cementing industrial property as one of Australia’s strongest-performing commercial asset classes.
However, supply is struggling to keep up with demand. Total industrial supply across the east coast fell 19 per cent in 2025, and Knight Frank experts expect volumes to decline by a further 20 per cent this year as developers pull back from speculative projects.
Jennelle Wilson, partner of research and consulting for Queensland, said this was leading to a new stage in the cycle, where constrained supply and sustained occupier demand were expected to drive performance.
“This structural reset will shift new construction away from speculative development to pre-committed space, curtailing supply volume in the short term but underpinning renewed rental growth across key east coast markets,” Wilson said.
“Occupier demand remains supported by solid fundamentals due to structural drivers, including e-commerce growth, supply chain reconfiguration and infrastructure investment maintaining demand for quality industrial space.”
From the demand to secure data centre sites in NSW to the diversification of new occupiers in Victoria, each state shows varying market conditions.
Western Australia
Western Australia’s industrial market continues to be anchored by mining and energy, but major investments in naval shipbuilding and defence infrastructure, alongside growing involvement from international contractors, are intensifying competition for industrial land and facilities across the state’s southern industrial corridor.
The result is a market characterised by rising land values, limited availability and demand that continues to outpace supply. The strength of occupier demand is reflected in rental performance, with Perth recording annual rental growth of 8.3 per cent.
South Australia
In South Australia, the challenge is no longer simply delivering industrial developments, but ensuring the infrastructure exists to support them.
Adelaide’s established industrial precincts were approaching capacity, while access to power, water and serviced land was becoming a significant constraint on future supply.
The trend reflects a broader issue emerging across Australia as governments, developers and occupiers compete for access to industrial land capable of supporting future supply chains and economic growth.
Victoria
Victorian businesses are placing greater emphasis on operational efficiency, automation and consolidation as rising transport costs and operating expenses place pressure on margins.
Warehouse cubic capacity is becoming a more important consideration, with businesses investing in higher-clearance facilities and smarter storage systems designed to maximise productivity within smaller footprints.
Melbourne accounted for 60 per cent of east coast leasing take-up in the first quarter of 2026, highlighting the scale of occupier activity despite a more cautious economic backdrop. Knight Frank also noted a fresh demand from modular builders reflects the role industrial property is playing in supporting Victoria’s housing pipeline, with prefabricated construction requiring large facilities for manufacturing and assembly.
NSW
Few trends are reshaping industrial property as rapidly as the growth of AI and digital infrastructure.
Data centres have become one of the fastest-growing sources of industrial demand, creating new competition for land with access to power and connectivity.
Fuelled by AI adoption and the uptake of businesses digitising, industrial markets are supporting these digital systems.
Within Sydney, there’s no shortage of demand from occupiers, with the city recording the lowest vacancy rate among east coast capitals at 2.9 per cent.
Queensland
Queensland appears poised for its next phase of industrial growth, supported by population growth, tightening vacancy rates, and Olympic-related infrastructure investment.
Demand is shifting towards specialised industrial facilities, including manufacturing and production-focused assets requiring larger sites, lower site coverage and infrastructure such as gantry cranes.
The state continues to lead the nation in rental growth. Brisbane recorded annual prime effective rental growth of 9.2 per cent, the highest of any Australian capital city, while annual prime face rental growth reached 10.1 per cent.
For developers and landowners, the shift is creating opportunities to broaden industrial offerings beyond traditional warehousing and respond to increasingly specialised occupier requirements.
