Sydney’s industrial property market is back on the move, recording its first yield compression since 2021.
New data from Knight Frank shows that both prime and secondary yields tightened by 7.5 basis points in the second quarter of 2025, signalling a turning point for the sector.
Knight Frank Partner and Head of Industrial Investments Angus Klem said several factors were fuelling the rebound, including falling interest rates, Sydney’s world-class tenant quality, and strong covenant strength.
“This tells us that buyers are confident in Sydney’s industrial property market,” Mr Klem said.
“Buyer appetite for Sydney industrial property is insatiable right now; our phones are continually ringing with people looking for opportunities.
Institutional Heavyweights Double Down
Major institutional investors are stepping up their exposure to Sydney’s industrial sector, driving transaction activity despite a slower start to the year.
Transaction volumes hit $876 million for the June quarter.
While that’s slightly below the $936 million recorded in the March quarter, Knight Frank expects the slowdown to be temporary, with activity set to strengthen through the second half of the year.
One of the largest confirmed deals was the $201 million joint acquisition of three Western Sydney warehouses by Centuria and investment manager BGO, adding around 45,000 sqm of prime industrial space.
“The deals are evidence that investors are still very much active in Sydney’s industrial property market,” Mr Klem said.
Mega Deals Ignite Landmark Projects
Momentum is also being driven by a series of major announcements outside the official second-quarter results.
These include the $3.5 billion Stockland-Boyd joint venture to develop a logistics hub next to Sydney Airport, Hong Kong-based Link Real Estate’s $121 million investment, and Manulife’s $50 million-plus acquisition in Western Sydney.
He said the Stockland-Boyd project would likely be a landmark for Sydney’s industrial market.
“This project will be trailblazing in this location, which is on a once-in-a-generation piece of land on the doorstep of the airport, eastern suburbs and city,” he said.
“Multi-level developments are likely to become more common in Sydney’s industrial market as land becomes more constrained, and projects turn to infill locations.”
Industrial Sector Eyes Fresh Gains
Macroeconomic shifts are also shaping the market’s recovery.
The expected easing of monetary policy is playing a central role in this change of direction.
Lower interest rates are likely to improve liquidity and reduce the cost of capital.
At the same time, investors are betting on future revaluations.
As competition intensifies and yields compress, the potential for capital growth becomes increasingly attractive, especially in tightly held precincts like Western Sydney, where supply is constrained and tenant demand is strong.
Mr Klem said falling rates would have a knock-on effect on leasing demand.
“Interest rates are expected to keep falling, which we expect will lead to more tenant activity as it will foster confidence, which means tenants are likely to take more space,” he said.
“When tenants are more active, property investors in turn start to become more active. The investment market is amazingly strong right now, and when leasing picks up, it will only strengthen.”
