The Australian commercial property market is experiencing a significant shift, with owner-occupiers becoming key drivers of activity. Rising construction costs and a scarcity of land are propelling businesses to purchase existing vacant or short-WALE properties, particularly in the industrial and warehouse sectors.
The Strength of the Owner-Occupier Market
In the current economic climate, high building costs and limited land availability are reducing the feasibility of new developments. This is pushing owner-occupiers, particularly in the industrial and warehouse spaces, to snap up existing assets. The industrial sector, in particular, has seen a surge in demand, with vacancy rates at historic lows—below 1% in key areas like Sydney, Melbourne, Brisbane, and Perth.
Owner-occupiers are willing to pay above traditional capitalisation (cap) rates for tenanted assets, fuelling competition in the market. As a result, prices for existing industrial properties continue to climb, even exceeding pre-pandemic levels in some regions. For instance, Colliers reported that the average prime industrial asset in Melbourne and Sydney is now trading at sub-4% cap rates, while Brisbane and Perth are experiencing low-5% cap rates. In major regional markets, cap rates are also tightening, falling within the 6–7% range.
The Impact on Tenants and Investors
This aggressive purchasing behaviour by owner-occupiers is creating a twofold effect. Firstly, it reduces the availability of properties for lease, as these assets are being removed from the rental pool. This lack of supply is driving rents higher, with industrial rents increasing by over 12% year-on-year across key markets, including Sydney, Brisbane, and Perth.
Secondly, this competition is making it harder for investors to find quality investment stock. Despite higher interest rates, prime investment assets with long-term leases remain highly sought after, and yields have remained surprisingly tight, staying in the sub-4% range for industrial properties in Sydney and Melbourne, and low-5% in Brisbane and Perth.
Looking Ahead
As construction costs show no sign of easing and land supply remains limited, the trend of owner-occupiers paying above-market rates for industrial and warehouse assets is expected to continue. For investors, this dynamic presents both challenges and opportunities. High-quality investment stock will remain scarce, and cap rates are likely to stay compressed. However, for those able to secure assets, rental growth is expected to offset tighter yields, making these properties an attractive long-term investment.
In summary, the Australian commercial property market continues to evolve, with owner-occupiers driving up sale prices and reducing supply for tenants. For investors, navigating this environment requires adaptability and a clear understanding of the market’s changing dynamics.
At MCommercial, we specialise in sourcing high-quality investment opportunities across Australia. If you're looking for prime commercial assets that can deliver strong rental returns and long-term capital growth, we are here to help you find the right property to meet your investment goals.
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