Australia’s industrial market - Q&A with Gemma Muir

Australia’s industrial market - Q&A with Gemma Muir, Assistant Valuer, Valuation and Advisory, Queensland

Q1. What’s changing fastest in industrial and logistics right now?

The most significant change has been the shift in tenant priorities from rapid expansion during the tight vacancy conditions experienced throughout and following the COVID-19 period to a stronger focus on asset quality, ESG performance and proximity to key infrastructure. Occupiers are increasingly seeking facilities that enhance productivity and reduce operating costs. Concurrently, rising construction and funding costs, together with broader economic uncertainty, are continuing to influence development feasibility and the overall construction pipeline.

Q2. What’s one thing about this sector that’s widely misunderstood?

A common misconception is that industrial property is just ‘four walls’ whereas in reality it is a highly operational and infrastructure-driven asset class. Factors such as tenant covenant, power capabilities, transport connectivity and functionality can materially influence value, asset performance and leasing outcomes. Even assets within the same precinct can perform very differently depending on their adaptability and operational capability.

Q3. How is the role of an industrial advisor evolving as the sector becomes more complex?

Industrial advisors are becoming more strategic combining traditional property expertise with knowledge of supply chains, infrastructure, ESG requirements and development feasibility to provide broader business and asset performance focused advice.

Q4. What key factors are currently driving industrial valuations and how have they shifted over the past 12–24 months?

Over the past 12 to 18 months valuation drivers have shifted from yield compression toward value-add opportunities, income security and asset quality. Higher interest rates and funding costs have increased the focus on rental growth, tenant covenants, remaining lease terms and structures, as well as reletting prospects, while prime and well positioned assets continue to outperform secondary stock. Additionally, limited serviced land supply and rising construction costs are also supporting values.

Q5. Where are you seeing the biggest disconnect between pricing expectations and market reality?

The largest disconnect is generally within secondary assets with some vendors still holding pricing expectations at the peak market conditions from the last few years, while buyers are adopting a more cautious approach in the current interest rate and economic environment.

This article is from Knight Frank’s latest SPACE industrial and Logistics publication, which can be read here.