Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 433

Outlook for Australia’s Industrial and Logistics property sector

The Australian Industrial and Logistics sector entered the COVID-19 pandemic with strong property fundamentals – including a low national vacancy rate (2.2%), limited speculative development activity, relatively strong occupier demand (above 2.2 million sqm p.a. average), and growing capital appetite from a number of domestic and global off-shore groups (A$50 billion looking to be deployed).

According to CBRE, these underlying fundamentals will continue to drive the resilient performance of the Industrial and Logistics sector. In particular, the global structural e-commerce tailwind is relatively immature in Australia and is expected to further fuel the trajectory of growth. The positive outlook has translated to increased demand from investors, evidenced by the growing number of investors and advisers seeking Industrial and Logistics investments from Charter Hall.

The below are highlights from the CBRE report. If you would like to read the full report, please click here.

Capital markets

Australia’s Industrial and Logistics sector has consistently delivered comparatively higher average returns than those generated overseas and has shown low volatility of returns through the current cycle relative to other commercial property sectors. The sector is primed for growth in line with increasing consumer-driven online retail demand. The asset class returns will benefit from a shortage in readily available land supply and a growing demand for logistics and last mile distribution assets.

Australia’s Industrial and Logistics investable universe continues to expand. It currently equates to A$137 billion and is forecast to reach A$186 billion by 2025. This will mainly be driven by higher asset values and demand-led new supply.

Long term market fundamentals

The grocery sector is a significant and stable long-term driver of growth, and demand for Industrial and Logistics space is increasingly driven by major food logistics operators.

Major supermarket retailers contributed to a record 241,500 sqm of Industrial and Logistics floorspace demand in 2020. The online grocery sector will be a supporting factor for floorspace expansion, given online grocery is expected to increase dramatically from A$8.7 billion (or 20% of online retail sales) in 2020-21 to A$14 billion (or 26% of online retail sales) by 2024-25.

The Pharmaceutical Life Sciences sector growth will accelerate and contribute to demand for Industrial and Logistics property.

CBRE estimates the investable universe of the Life Science sector for commercial property currently totals A$13 billion and is forecast to almost double to A$24 billion by 2031. Australia is an appealing destination for occupiers in the life sciences space, due to an adaptive and innovative health care system, a skilled workforce, intellectual property protection, world-leading research institutions, a number of established and emerging precincts, and a range of government initiatives to bolster Australia’s sovereign capability.

COVID-19 has accelerated trends that were already
transforming the Industrial and Logistics sector.

There will be a step change in demand as e-commerce growth will be transformational. Although COVID-19 has accelerated Australia’s e-commerce penetration rate from 9% in 2019 to 13% for the 2021 year to date, the current rate lags the global average rate of 22%. CBRE forecasts Australia’s e-commerce rate to reach 20% (or A$79 billion) by 2025.

E-commerce penetration rate vs. online retail total sale size and growth (2020)1

Sector growth drivers

The returns being generated from the Industrial and Logistics sector continue to be compelling for a range of investors in Australia and globally. The long lease nature of the sector with fixed rental reviews, coupled with a relatively low cost of debt continue to provide attractive yield spreads. With 10-year bonds now trading at 1.50% (as at 30 September 2021), historic relative spreads are still in a healthy state and likely to continue further capitalisation rate compression.

Occupiers holding higher levels of inventory will result in greater demand for floorspace. Spurred by supply chain disruptions from the COVID-19 Pandemic, CBRE expects companies which have moved to lean supply chains with low inventory cover will seek to increase their inventory levels to hold greater buffer stock and adequately service consumer expectations.

Floorspace net demand in Australia reached record levels in 2020 (2.9 million sqm). Over calendar 2021 to date, floorspace take-up has surpassed 2 million sqm (as at 30 June) and is forecast to reach another record year of take-up. Key industry sectors driving growth are transport, postal & warehousing, retail trade and manufacturing.

The Industrial and Logistics sector is projected to deliver real rental growth. CBRE forecasts the national Gross State Product (GSP) weighted Industrial and Logistics rent index will increase by 3.0% per annum from 2022 to 2029. In a low inflation environment, the sector has the potential to deliver real (inflation-adjusted) rental growth of between 1-1.5% over the next 10 years.

Outlook

CBRE believe the outlook for the Australian Industrial and Logistics sector remains positive and the sector will continue to remain an attractive asset class for investors in the medium to long-term. Charter Hall supports this view and will continue to grow Industrial and Logistics portfolios for the benefit of investors seeking access to the asset class.

Capital allocations will increase across the sector and continue to attract a high level of demand from domestic and offshore groups, resulting in further property yield compression across the sector.

The market fundamentals and sector growth drivers across the Industrial and Logistics sector remain increasingly strong, including:

  • Longer lease structures with fixed reviews across a resilient tenant base.
  • Increased occupier demand from a range of sectors that are forecasted for further growth (e-commerce, food logistics and manufacturing, transport and logistic operators, pharmaceutical life sciences).
  • Limited speculative development activity.
  • Higher rental growth forecasted over the next decade.
  • Favourable long-term economic variables for Australia, with GDP growth, low cost of debt and population growth forecasted above most other mature economies.

 

Steven Bennett is Direct CEO of Charter Hall Group, a sponsor of Firstlinks, and Sass J-Baleh is Head of Industrial & Logistics Research Australia and Director of NSW Research at CBRE. This article is for general information purposes only and does not consider the circumstances of any person, and investors should take professional investment advice before acting.

For more articles and papers from Charter Hall, please click here.

 

RELATED ARTICLES

Has Australian commercial property bottomed?

Unique factors drive Industrial and Logistics property demand

Real estate's star performer to continue golden run

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.