• With developers become increasingly cautious, speculative development has softened leading to new supply levels moderating in the Melbourne industrial market;
• While investment activity in the Melbourne industrial market has been solid, the impact of the state tax policies has softened investor interest;
• With tenant demand remaining below long-term levels, the vacancy rate of the Melbourne industrial market increased, impacted by the completion of several speculative developments.

Industrial Market Summary

Industrial leasing activity has picked across the Melbourne market but remains below the decade-average led by logistics and manufacturing businesses with owner-occupiers also prominent. While investment activity in the Melbourne industrial market has been solid this year, the impact of the implementation of the absentee owner surcharge and the elevated land tax rates across the state has softened investor interest leading to Melbourne industrial yields widening in comparison to the Sydney and Brisbane industrial markets. With tenant demand remaining below long-term levels, the vacancy rate of the Melbourne industrial market increased to its highest level in five years.

Sales Volume / Yields

While investment activity in the Melbourne industrial market has been solid in 2025 to date, the impact of the implementation of the absentee owner surcharge and the elevated land tax rates across the state has softened investor interest in Melbourne with volume unlikely to meet average levels. In 2025 to date, more than $1.1 billion of industrial property has been transacted, largely driven by institutional purchasers who have accounted for almost half of the sales volume. As a result of the increase in tax for foreign owners, domestic investors have acquired the bulk of properties sold in 2025. While Melbourne industrial yields have remained steady in the 12 months to September 2025, the spread to Sydney and Brisbane industrial markets are widening as a result of the government’s taxation policy. Urban Property research records average prime industrial yields at 5.85% with average secondary yields sitting at 6.75% as at September 2025.

Melbourne Industrial Sales

New Supply / Land Values

With developers having become increasingly cautious, speculative development has softened with pre-commitment activity increasing. According to Urban Property Australia research, new industrial supply in the Melbourne industrial market is forecast to total 900,000 square metres this year, close to the amount of 950,000 square metres delivered last year. The bulk of the new supply completed and projected to be complete this year is located in the South Eastern region which is forecast to account for 40% of this year’s new supply. Beyond 2025, Urban Property is forecasting supply levels to moderate further with less than 700,000 square metres projected based on speculative development tightening further and current rental levels not supportive of new development. Industrial land values in Melbourne key industrial markets declined through the 12 months to September 2025 adversely impacted by rising development costs. As developers adopt a more cautious pipeline approach, land banking activity remains selective. Urban Property predicts that values have plateaued, but unlikely to experience strong growth with owner occupiers increasingly becoming more active, capitalising on the impasse between potential tenants and developers.

Tenant Demand

While tenant demand levels remain below historical levels, leasing activity has picked up more recently, albeit cautiously. According to Urban Property research, Melbourne industrial leasing activity has surpassed 800,000 square metres in 2025 to date. Interestingly, although logistics accounted for the most 45% of volume leased, increasingly manufacturing has become more prominent with the sector accounting for 21% of leasing activity, exceeding retail trade businesses which have supported in recent years with the growth of e-commerce. Owner-occupier interest also contributed meaningfully to take-up. Activity has been led by the Western region followed by South East and North, largely reflective of new supply trends. Looking ahead, tenant demand is projected to continue to moderate with leasing activity levels forecast to be below historical averages for a third consecutive year in 2026.

Melbourne Industrial Leasing Activity

Vacancy / Rents

With tenant demand remaining below long-term levels, the vacancy rate of the Melbourne industrial market increased over the third quarter of 2025, rising to 3.7% according to Urban Property Australia research impacted by the completion of several speculative developments. Vacancy rose in all regions, with the greatest increase recorded in the West with almost half of vacant space within speculatively developed stock. Urban Property Australia research estimates that the industrial vacancy rate in the South East was 1.8% in September 2025, up from 1.4% in June, with industrial vacancy rate of the West at 3.8%, up from 2.2% and 5.0% in the North up from 4.7%.

Once again, prime Melbourne industrial rents have remained stable over the past 12 months with secondary rents easing according to Urban Property Australia research. While rental increases have moderated, prime assets in core locations will continue to perform well, albeit in regions of tight vacancy with the South East holding up the best, supported by its low vacancy rate. Incentive levels remain elevated as landlords competitively seek to secure quality occupiers and Urban Property Australia expects that incentive levels will continue to remain relatively high with the shallow tenant demand environment.

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