Rate Cuts Set to Spur Activity in South Australia’s Industrial Market in 2025
12 February 2025
McGees 2025 Forecast – Industrial
A much-anticipated interest rate cut is expected to unlock more transactions of warehouses and logistics facilities across South Australia, according to McGees Property’s 2025 Industrial Forecast, with investors to continue seeking sites that can be repositioned or upgraded in a severely land-constrained market.
Yields are expected to tighten; meanwhile, major infrastructure projects, defence investment, and government planning decisions will shape the market in 2025, said McGees Partner – Andrew Wilson, and South Australia’s industrial market will continue to benefit from interstate investor interest, affordability, and long-term economic drivers, ensuring its position as one of the most resilient markets in the country.
Interest rate cuts to spur activity
“Many vendors have held off selling in recent months, anticipating more favourable market conditions once rates begin to ease, while private investors and syndicates have been waiting on the sidelines,” Wilson said.
“Both buyers and sellers will be more active in 2025.”
He said a reduction in borrowing costs is likely to unlock more transactions in the state, particularly in the $5 million to $20 million range.
“With limited land availability, investors will continue to focus on value-add opportunities – sites that are land-rich with existing improvements that can be repositioned, upgraded, or redeveloped to maximise value in the shorter-term are particularly sought-after.
“Elevated building costs are making existing industrial assets and those not requiring ground-up development more attractive.
“Investment-grade stock on the market remains limited pending those interest rate cuts.”
Most analysts and all major banks are tipping the Reserve Bank of Australia board to cut interest rates at the upcoming February meeting1, with the latest CPI data showing underlying inflation falling back to the RBA’s target range.
Institutional investors and funds are seeking long-WALE assets with secure cash flow, although activity in that space remains subdued due to limited stock.
Wilson said the investment market would see stabilisation and potentially tightening of capitalisation rates over 2025.
“While industrial yields softened in response to higher rates over the past 12 months, expected rate cuts could lead to cap rate compression, particularly for well-leased assets in prime locations,” he said.
Yields for prime-grade industrial properties in South Australia are generally observed in the low 5% range, and according to McGees stabilising economic conditions, interest rate cuts, and sustained demand for high-quality industrial assets would likely to lead to yield compression in the latter half of 2025, potentially into the high 4% range.
South Australia is also seeing a “flight from Victoria” and other eastern states, Wilson said, which is adding more buyer competition to campaigns.
“We’ve seen increased interest from investors in South Australia due to Victoria’s land tax and stamp duty changes, which are driving investors and businesses to look for more stable and predictable operating environments, as well as NSW’s competitive industrial market.
Greenfield sites and vacant possession warehousing will continue to attract owner-occupiers looking to secure long-term premises.
“Buyers are willing to pay a premium for development-ready land sites that are already equipped with water, sewerage and power infrastructure are prized given the ongoing delays in servicing new industrial estates,” Wilson said.
Wilson noted that Adelaide is experiencing the most significant industrial land shortage in Australia. According to the Property Council of Australia, of the 1,500 hectares of Adelaide’s vacant “employment lands” identified by Plan SA in 2021, more than 90% is no longer available or is not development-ready2.
He said government decisions around Greater Adelaide Regional Plan will play a critical role in shaping future industrial land availability.
“The outcome of these planning decisions will determine the extent to which new industrial land can be brought to market, impacting pricing and supply dynamics across Adelaide,” he said.
Despite rapidly rising industrial land rates over the past 24 to 36 months across South Australia, a period of stabilisation moving forward is anticipated, Wilson said.
“The significant price growth witnessed during this period was largely driven by strong demand, a constrained supply pipeline, and heightened competition for well- located industrial sites.
“However, as the market recalibrates and development feasibility becomes more challenging due to higher construction costs and financing constraints, we expect land rate growth to moderate. Premium industrial sites in core locations will continue to hold value – the flattening in land rate appreciation will particularly be seen in secondary sites where demand may soften.”
Sustained demand for quality industrial space
Wilson said that with interest rates still elevated, many businesses have been choosing to lease rather than buy, leading to sustained demand for quality industrial space.
Continued expansion in e-commerce and last-mile delivery services is driving demand for well-located logistics facilities near major transport routes.
“We’re still seeing strong leasing demand in core precincts. Established industrial hubs will continue to attract tenants, with a growing focus on well-located facilities that offer good access, modern warehousing, and flexible site layouts.”
Demand has been steady for industrial business parks with sub-300sqm warehouses, however, current supply levels are high, with some areas saturated. A slowdown in new construction of these products in certain locations is expected. Wilson said the continued development of South Road and key transport corridors will enhance accessibility and make the southern industrial regions more attractive to occupiers and investors. Improved connectivity to Lonsdale, Seaford, and beyond could lead to increased industrial activity in these areas.
“Industrial rents, which have surged in recent years due to low vacancy rates and increased tenant demand, are expected to stabilise. While quality office and warehouse facilities in strategic locations will remain highly sought after, the rapid rental growth seen in recent years is likely to level out as new supply enters the market and businesses adjust to the higher cost environment.”
South Australia’s strong defence sector and growing advanced manufacturing industry are fuelling demand for specialised industrial facilities, particularly those with high-clearance warehousing and heavy-duty power access.
“While we are still in the early stages of AUKUS-related activity, the long-term impact is expected to be significant,” Wilson said.
“The fact is, hundreds of thousands of square metres of logistics space will be required in the coming decades in and around Port Adelaide to support defence and shipbuilding operations.”
1 https://www.domain.com.au/money-markets/interest-rate-news-1296754/.
Related Articles
