Australian industrial vacancy falls for the first time in two years

Prological data shows national industrial vacancy tightening to 3.7% in Q1 2026 as developers stop building without tenants. Perth, Melbourne and Brisbane lead the shift.

National industrial vacancy fell for the first time since March 2024, compressing to 3.7% in the first quarter of 2026, according to Prological. Developers cut new warehouse supply to about 337,000 square metres, the lowest quarterly total since early 2023, because construction and debt costs have risen. Every major market except Adelaide tightened.

Developers have reduced new warehouse supply significantly amid rising construction costs and higher interest rates.

According to Prological’s latest market intelligence report, every major market except Adelaide recorded tightening conditions in Q1 2026.

Why developers are pulling back on new supply

The report found developers are increasingly unwilling to build without a tenant secured first, as construction costs remain elevated and the cost of debt has increased following the RBA’s reversal from rate cuts in 2025 to three hikes in early 2026. The national pre-commitment rate rose to 65% as a result.

A pre-commitment is a lease signed before a building is finished. With lenders and developers both wanting income secured before construction starts, speculative building, where the developer builds first and finds a tenant later, has slowed.

A number of projects with development approval are now contingent on tenant commitments before construction begins, a shift likely to push delivery timelines into 2028 and beyond.

Tenant leverage is narrowing, slowly

While the data points to tenant leverage narrowing, the report notes the shift is gradual rather than a full reversal of conditions. National prime incentives remain elevated at 16.6%, and Melbourne’s super prime incentives are still around 28%, though several research houses expect incentives to stabilise and begin moderating from late 2026 as supply is absorbed.

Incentives are the rent-free periods, fit-out contributions and other concessions landlords offer to secure a tenant. High incentives mean tenants still hold bargaining power, even as vacancy falls.

Peter Jones, Managing Director at Prological, said the industry has reached a turning point in how businesses approach warehouse selection.

“The challenge has shifted from making that case to solving the transition: how do you get from where you are today to where you need to be, without disrupting the operation along the way,” Mr Jones said.

Fuel prices are changing where businesses want to be

The report shows that rising fuel prices have shifted the calculus on facility location, with warehouses positioned closer to customers or with better multimodal access becoming more valuable relative to cheaper sites further out.

For businesses in Melbourne’s west, that puts a premium on sites with good access to the port, rail freight and the main arterial roads. A cheaper warehouse on the fringe can cost more to run once transport is counted.

Perth, Melbourne and Brisbane

Perth remains Australia’s tightest industrial market, with vacancy compressing further to 1.7% and the North precinct recording just 0.3% availability. Only one development, an owner-occupied facility, was completed during the quarter.

Melbourne recorded the highest take-up nationally in Q1, driven by two large transactions in the North precinct. Vacancy compressed to 3.8%, making it the tightest East Coast market.

Brisbane saw take-up run more than 60% ahead of the same period last year, with vacancy tightening to 4.0%. Prime rents grew 11% annually, the strongest result of any major market since 2024.

Research houses measure vacancy in different ways, so their figures don’t always line up. JLL’s figures, covered in our report on national industrial vacancy falling to 4.8%, use a different set of buildings but point in the same direction.

What it means for occupiers and investors

For businesses leasing warehouse space, a tighter market and less new supply mean fewer options from 2027 onward. If your lease expires in the next two years, start looking early, particularly if you need a modern facility or a specific location.

For owner-occupiers, falling vacancy and rising rents in some markets can make buying more attractive than leasing, provided the business can fund the deposit and repayments without straining working capital. Lenders assess both the property and the trading business.

For investors, lower vacancy supports rental income, but high incentives and higher debt costs still weigh on returns. Our articles on the industrial market’s shift from expansion to consolidation and the online retail slowdown and industrial outlook give more background.

A broker can compare commercial property loans for warehouses and industrial sites across a range of lenders, and business equipment loans for the forklifts, racking and machinery that go inside. Attain Loans is a finance broker in Melbourne’s west working with business owners and investors in the western industrial suburbs, subject to each lender’s assessment.

This article is general information only and doesn’t take into account your objectives, financial situation or needs. Consider whether it’s appropriate for you and speak with a licensed professional before making a decision.

Further questions

This is general information only and is subject to change at any given time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.