Australian industrial vacancy falls for first time in two years.

National industrial property vacancy has fallen for the first time since March 2024, as developers significantly reduce new warehouse supply amid rising construction costs and higher interest rates.

According to Prological's latest market intelligence report, national vacancy compressed to 3.7 per cent in the first quarter of 2026, with every major market except Adelaide recording tightening conditions. The shift comes as new supply fell sharply to approximately 337,000 square metres nationally in Q1, the lowest quarterly total since early 2023.

The report found developers are increasingly unwilling to build without a tenant secured first, as construction costs remain elevated and the cost of debt has increased following the RBA's reversal from rate cuts in 2025 to three hikes in early 2026. The national pre-commitment rate rose to 65 per cent as a result.

A number of projects with development approval are now contingent on tenant commitments before construction begins, a shift likely to push delivery timelines into 2028 and beyond.

While the data points to tenant leverage narrowing, the report notes the shift is gradual rather than a full reversal of conditions. National prime incentives remain elevated at 16.6 per cent, and Melbourne's super prime incentives are still around 28 per cent, though several research houses expect incentives to stabilise and begin moderating from late 2026 as supply is absorbed.

Peter Jones, Managing Director at Prological, said the industry has reached a turning point in how businesses approach warehouse selection.

"The challenge has shifted from making that case to solving the transition: how do you get from where you are today to where you need to be, without disrupting the operation along the way," Mr Jones said.

The report shows that rising fuel prices have shifted the calculus on facility location, with warehouses positioned closer to customers or with better multimodal access becoming more valuable relative to cheaper sites further out.

Perth remains Australia's tightest industrial market, with vacancy compressing further to 1.7 per cent and the North precinct recording just 0.3 per cent availability. Only one development, an owner-occupied facility, was completed during the quarter.

Melbourne recorded the highest take-up nationally in Q1, driven by two large transactions in the North precinct. Vacancy compressed to 3.8 per cent, making it the tightest East Coast market.

Brisbane saw take-up run more than 60 per cent ahead of the same period last year, with vacancy tightening to 4.0 per cent. Prime rents grew 11 per cent annually, the strongest result of any major market since 2024.