Industrial and logistics property in Sydney is tightening as e-commerce demand drives take-up, while office vacancy remains stubbornly high.
Property & Suburbs Desk is a contributing writer covering business and public affairs for The Sydney Times.
Sydney's industrial and logistics property market is tightening as e-commerce demand drives take-up and landlords backfill vacant space, even as the broader commercial property sector continues to navigate high interest rates and restructuring.
SQM Research's latest data shows industrial vacancy in Sydney is tightening, with the market absorbing supply faster than it is being released. The take-up of industrial space in the 12 months to June 2026 exceeded new completions, pushing vacancy rates below the long-term average for the city. The trend is particularly strong in Western Sydney, where logistics hubs near Moorebank Intermodal Terminal, Badgerys Creek and the M7 corridor are commanding rents above inner-city averages for the first time.
Demand is being driven by e-commerce operators seeking last-mile fulfilment facilities close to the CBD, cold-chain logistics providers expanding to meet grocery and pharmacy delivery volumes, and national distributors consolidating their Sydney footprint into fewer, larger facilities. The combination of Amazon's expansion, Woolworths' supply chain investment and the growing complexity of Australia's retail logistics network is creating sustained demand for well-located, modern warehousing.
While industrial is tightening, the broader commercial property sector is still working through the consequences of the pandemic-era transition to hybrid work and the post-COVID restructuring of retail. SQM Research found that total value of commercial property bad debt peaked in the March quarter of 2026 at $4.5 billion, driven by office towers in the CBD and near-city corridors where vacancy rates remain stubbornly high.
The office vacancy rate in Sydney's CBD and fringe markets remains above 15 percent, with landlords in some buildings offering rent-free periods of six months or more to retain tenants. These concessions are inflating effective vacancy rates, which measure both actual vacancy and space under lease that has been returned to the market but not yet released. Effective vacancy rates in the CBD are closer to 18 percent than the reported 15 percent figure.
Retail bad debt has also remained elevated, particularly in regional shopping centres that face structural challenges from online shopping and changing consumer behaviour. The bad debt spike in the March quarter was heavily influenced by a single large office transaction, which suggests the true underlying rate may be more manageable than the headline figure implies.
SQM Research's latest data shows investors are showing renewed interest in industrial assets, with yields compressing from around 6 percent to around 4.5 percent for prime Sydney and Melbourne sites. The yield compression reflects confidence that industrial rents will continue to grow as supply remains constrained and demand stays firm. Logistics developers are accelerating construction timelines for new facilities in Western Sydney, with several speculative developments commencing in the second half of 2026.
The commercial property sector's recovery is likely to be sector-specific. Industrial property is in a structural upswing driven by e-commerce and supply chain resilience. Office property remains challenged by hybrid work, with landlords needing to pivot to amenity-rich, flexible spaces to attract tenants. Retail property faces a bifurcation: premium centres with strong food, entertainment and community offerings are performing well, while lower-tier regional malls continue to struggle.
According to the SQM Research industrial market analysis, the tightening of Sydney's industrial vacancy rate reflects the structural shift in retail logistics towards last-mile fulfilment, which is creating sustained demand for well-located warehousing across the city. For more on Sydney property and business, see Business & Markets and Property & Suburbs.
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