New data released by JLL shows Melbourne and Sydney's industrial property markets have turned a corner, with vacancy rates falling for the first time in over two years as a sharp decline in new completions collides with surging demand for modern warehouse facilities.
According to the JLL research, vacancy in Melbourne's industrial market dropped to 5.2 per cent in the first quarter of 2026, down from a peak of 5.3 per cent in the final quarter of 2025.
According to JLL’s Head of Strategic Research, Annabel MacFarlane, the shift marks a significant inflection point for the sector, driven by a steep decline in super prime vacancy from 10.5 per cent to 7.4 per cent, while prime grade vacancy fell moderately from 4.8 per cent to 4.6 per cent.
“Sydney’s vacancy rate has edged lower to 5.8% which was led by declines in super prime and prime grade vacancy. Vacancy in super prime assets declined to 6.8%, down from 8.7% over the quarter and from a peak of 11.27% in 3Q25. Prime grade vacancy also declined slightly, and this offset the impact of increasing secondary vacancy,” said Annabel.
The tightening supply has been most pronounced in the market for large-format warehouses, where options for tenants have virtually evaporated. Nationally, only five assets greater than 30,000 square metres remain vacant, totalling 224,140 square metres - down from 445,078 square metres in the fourth quarter of 2025.
"There are no super-prime warehouse options above 30,000 square metres available in Melbourne and also very limited in Sydney," said Nathan Bingham, Head of Occupier Services, Industrial and Logistics – Australia, JLL.
While the spike in demand may be an early indicator of businesses planning for supply chain resilience in the current volatile environment, there isn’t clear evidence yet of COVID-like onshoring activity. Rather, the research suggests absorption of super prime and prime options has been driven predominantly by logistics companies expanding their operations.
The tightening market conditions have contributed to incentives stabilising across some precincts, with a handful of estates beginning to see incentives decline.
Secondary market softens
Not all segments of the industrial market are experiencing the same dynamics. Vacancy in secondary assets has increased from 4.3 per cent to 4.6 per cent in Melbourne, and 4,8% to 5.4% in Sydney highlighting a clear flight to quality among tenants.
Of the three remaining large-format vacant options in Melbourne, all are secondary grade properties.
The divergence between prime and secondary assets reflects broader trends in commercial real estate, where tenants prioritise modern facilities with superior specifications over older stock, even if it means paying premium rents.
The sharp decline in available large-format space could pose challenges for major logistics operators and manufacturers seeking to expand or relocate operations in Australia's two largest cities, potentially driving demand toward secondary markets or purpose-built developments in outer precincts.
This is likely to be most amplified in Melbourne, with completions at new lows and vacancy rates beginning to contract, the industrial property sector appears poised for a period of tightening supply conditions that could support effective rental growth across prime assets throughout 2026.
