Industrial Property Cap Rate Trends in Australia

Of every commercial property sector, Australian industrial property has run the most pronounced cap rate compression-and-correction cycle of the past decade. Wide post-GFC levels tightened to historic lows in 2021-2022, then widened again through 2022-2024. The result has reset industrial valuations more than once, and it has handed investors substantial wins and substantial markdowns on nothing more than the timing of when they bought and when they sold.

Reading that cycle correctly turns on four things: the structural drivers behind the industrial cap rate move, where current levels sit against the historical bands, the submarket and asset-class variation hiding under the headline number, and the buyer-side discipline for pricing industrial in this part of the cycle.

Industrial stopped being the cheap corner of commercial property a decade ago. The structural demand is still real. What changed is the price you now pay for it.

The Structural Story

The demand shift since 2015 came from a handful of reinforcing forces. Online retail's share of total retail has roughly doubled, and online sales soak up more warehouse space per dollar of revenue than a shopfront does. Supply chains moved away from just-in-time toward held-inventory models, which lifted total warehousing demand again. Same-day and next-day delivery forced retailers to build distributed metro warehouse networks for the last mile. Online grocery, restaurant aggregators and pharmaceutical cold chain all expanded refrigerated logistics demand. And inner-city industrial land kept getting redeveloped to higher-value uses, which quietly took supply out of the metro market even as demand climbed.

1 The Cap Rate Cycle

Pre-2015 era

Industrial traded 200 to 400 basis points above CBD office, priced for weaker asset quality and thinner tenant covenant. Buyers bid wide.

2015 to 2019

Compression set in as the structural demand story became clear. Cap rates narrowed by 100 to 200 basis points across most submarkets.

2020 to mid-2022

Sharp compression. Industrial cap rates hit historic lows globally on record-low cash rates and heavy capital allocation into the sector. Some prime Sydney west industrial changed hands at sub-4% cap rates.

Mid-2022 to 2024

Sharp correction. Rising cash rates and 10-year bond yields pushed cap rates 100 to 250 basis points wider across submarkets. In transaction terms the move was fast, but it landed unevenly across submarkets and asset types.

2024 to current

Most submarkets have stabilised, though some still face upward pressure. Cap rates have settled well above the 2022 tights while remaining below the 2015-2019 averages.

2 Current Cap Rate Bands

The exact bands shift with each reporting cycle. The framework holds.

Prime metro industrial

Sydney west (Eastern Creek, Erskine Park, Wetherill Park), Melbourne south-east and west (Truganina, Laverton North, Dandenong South), Brisbane south (Yatala, Crestmead). Long-WALE single-tenant assets on national covenants sit at the tightest end of the industrial spectrum.

Secondary metro industrial

Mid-distance metro corridors on shorter WALE and mid-tier covenant. Price 50 to 150 basis points wider than prime.

Regional industrial

Newcastle Hunter, Geelong, Toowoomba. Wider cap rates, driven by smaller buyer pools.

Older or functionally constrained industrial

Pre-2000 stock with limited clear height, restrictive access or a compromised location. Materially wider than prime.

3 What Drives the Variation

Inside the sector, five factors do most of the work in setting the cap rate spread.

Building specification

Modern logistics specification (10+ metre clear height, hardstand, ESFR sprinklers, multiple loading docks) against older lower-spec buildings.

Tenant covenant

A national listed logistics tenant versus a single private operator. The covenant premium is substantial.

Lease structure

Long-WALE with CPI-plus-minimum reviews against short-WALE with fixed reviews. Inflation protection is worth paying for.

Location

Last-mile metro against greenfield outer-ring against regional. Land value alone opens up meaningful spread.

Land value coverage

The share of asset value in the land rather than the improvements. Land-rich industrial rides land price appreciation; building-heavy industrial does not.

4 The Pre-Lease vs Existing Lease Differential

Pre-lease (forward-leased) industrial usually trades tighter than an equivalent existing-leased property, for three reasons:

• Pre-leases run longer WALE (10+ years) than existing leases at the point of acquisition.
• Pre-lease tenants are screened harder, and institutional tenants dominate pre-lease activity.
• The building is new at acquisition, with no near-term capex.

Pre-lease industrial captures the lowest cap rates on offer. The trade-off is no rent growth between acquisition and occupation, plus the development risk you carry until practical completion.

5 Buyer-Side Framework in the Current Cycle

Underwrite conservative cap rate exit

Hold your exit cap rate at least at par with entry. A tighter exit needs an explicit thesis behind it: continued structural compression, or a submarket rerating.

Test inflation pass-through

CPI-plus-minimum reviews pass inflation through. Fixed reviews below the inflation rate hand you real income decline. Test the lease structure before you rely on the income line.

Watch the supply pipeline

Where the pipeline is large relative to existing stock, temper the market rent growth assumptions. Every submarket runs its own supply trajectory.

Differentiate prime vs secondary

The performance gap between prime modern logistics and secondary older industrial has widened. Buying prime at a tighter cap rate often beats buying secondary at a wider one.

6 Sub-Class Variation

Last-mile logistics

Smaller-format urban infill warehousing, 3,000 to 8,000 sqm. The tightest cap rates in industrial, on strong e-commerce-led demand and limited metro supply.

Bulk logistics

Large-format outer-ring warehousing, 15,000+ sqm. Wider than last-mile, with a deeper supply pipeline.

Cold storage

Specialist industrial, covered in its own guide.

Trade and small-format industrial

Sub-1,000 sqm trade-zoned industrial. A smaller tenant base, wider cap rates, and more room for private investors to get in.

Frequently Asked Questions

Where are cap rates likely to head?

Direction depends on bond yields, capital allocation to industrial, and supply-demand fundamentals. Any forecast needs a view on each. The consensus has leaned toward stabilisation or slight further widening from here.

Is industrial still the place to be?

The structural story holds. Whether today's pricing gives you an attractive risk-adjusted return comes down to the specific asset. A sector-wide view is worth far less than asset-specific underwriting.

What's the right hold period for industrial?

Most institutional industrial holds run 5 to 12 years. Shorter holds risk getting caught in a cycle trough; longer holds give you more inflation pass-through but commit you to ongoing capex.

How do I track current cap rates?

Knight Frank Industrial Insight, JLL Industrial Logistics, Colliers Industrial Research and Savills Industrial Series all publish updated cap rate data periodically. Recent transactions give you the freshest evidence.