December 2025 :: Market Updates
Market Shifts & Melbourne’s Development Pipeline for 2026
Melbourne’s industrial development pipeline is tightening into 2026, with shifting land supply, stronger demand and key opportunities emerging in the West and North.
Market Shifts & Melbourne’s Development Pipeline for 2026
Melbourne’s commercial and industrial development landscape shifted meaningfully over the past year. This quarter brought slower transaction volumes and some deals settling at reduced rates, reflecting cautious decision-making in a complex economic environment.
The market came through a period marked by rising construction costs, supply constraints and cautious developer sentiment, yet the underlying drivers for industrial development remained consistently strong. As the year progressed, developers, landowners and owner occupiers began re-engaging with previously delayed plans, encouraged by improving clarity around feasibility and long-term demand.
Across the West and North, Rutherfords has seen a noticeable lift in developer enquiry. This reflects a broader market trend, where an emerging imbalance between demand and developable land has reinforced the value of well-located industrial zoned land. Melbourne’s industrial land market is experiencing diverging precinct dynamics, tightening supply and an emerging imbalance that is expected to support sustained rental growth over the long term.
The result is a development environment where timing, positioning and precinct selection matter more than ever. As we move into 2026, developers who understand these shifts will be best placed to take advantage of the next cycle.
Market conditions are settling into a more predictable pattern
The challenges of the past two years are well documented. Escalating construction costs, higher debt expenses and planning delays placed pressure on feasibility and slowed project timelines across Melbourne. This last quarter alone saw overall transaction volumes dip, some lease deals conclude below previous market expectations, and buyers and tenants frequently reconsidering their options. Some developers chose to pause or scale back plans, particularly in infill precincts where suitable land was scarce and build costs reduced the viability of new projects.
Despite this period of uncertainty and reduced activity, the Victorian Government’s release of a 10-year plan for industrial land has provided much-needed clarity, signalling an intent to unlock supply, streamline planning processes and coordinate infrastructure across the state. The plan outlines actions to address long-standing issues such as delays in planning approvals, a lack of enabling infrastructure and uncertainty around long-term land availability. This level of clarity has helped restore confidence for developers and landowners considering new projects.
Despite the easing of land values in some areas, demand for industrial land remains fundamentally strong. The Victorian Government’s demand projections anticipate annual industrial land take-up of around 330 hectares over the next decade, supported by population growth, freight demand and industry activity. Melbourne’s industrial market continues to operate with low vacancy rates, and rents have risen steadily across most precincts.
Across the West and North, rents have eased while tenant demand remains resilient. Even as rents have trended downward in the most recent quarter, projects that offer scalability, access to major transport corridors and the potential for pre-lease agreements continue to attract developer interest, reflecting long-term tenant demand.
Evolving industrial land availability across Melbourne
Industrial land supply and precinct dynamics continued to evolve throughout 2025. Analysis of Melbourne’s undeveloped industrial land shows that while the state holds one of the country’s largest long-term reserves, the land that is feasible, serviced and immediately developable remains limited. Melbourne’s five-year average land absorption rate is nearly double that of Sydney, and this pace of take-up is putting pressure on near-term availability even as the Victorian Government moves to unlock future supply through its 10-year plan.
Many occupiers are now pursuing multi-location strategies that combine inner precincts for customer access and outer precincts for consolidation and cost management. With rental differentials widening between these markets, forward-leasing in the West and North is becoming more attractive while incentives remain elevated and rental growth stays subdued over the coming year.
For developers, this environment creates opportunity in precincts with clear long-term advantages. Melbourne’s West and North continue to stand out due to connectivity, tenant demand and access to major freight and transport infrastructure. These regions benefit from population growth, evolving logistics needs and an integrated network linking the Port of Melbourne, intermodal terminals and key arterial routes, all of which underpin sustained demand for industrial space.
A further consideration is the growing demand for data centre development. Melbourne is strengthening its position as a national hub for digital infrastructure, and data centre users are directly competing with industrial occupiers for well-serviced sites. This trend is adding pressure to certain industrial precincts and creating a more competitive landscape for developers seeking strategically located land for future projects.
Construction costs, feasibility and developer sentiment
While construction costs remain elevated, the pace of cost escalation has moderated compared to the peaks of 2022 and 2023. This stabilisation has improved developer confidence and allowed more accurate feasibility modelling. However, costs continue to impact the viability of certain projects, particularly speculative builds and developments dependent on tight margin assumptions.
Owner occupier demand remained a standout in 2025, as logistics, e-commerce and manufacturing businesses sought to secure their long-term operational needs through ownership rather than leasing. This contributed to consistent demand for purpose-built facilities, especially those offering higher power capability, larger hardstand areas and efficient warehouse design. Developers who can accommodate these requirements in their future projects are likely to achieve stronger pre-lease outcomes and improve feasibility.
The Victorian Government’s accelerated rezoning initiatives and planning reforms are expected to help reduce project timelines. The release of more than 5,800 hectares of industrial land, combined with the establishment of the Industrial Land Gateway Service, indicates a more proactive approach to supporting industrial development across the state. These reforms are particularly focused on Melbourne’s North and West, alongside regional employment precincts, which positions these markets for continued activity.
What developers need to consider for 2026
Developers entering 2026 face a market that is more predictable than the past two years but still defined by supply constraints and economic pressures. The most successful projects will be those grounded in long-term demand drivers, supported by strong tenant engagement and positioned in precincts with reliable infrastructure and rental resilience.
Developers should remain attentive to shifting sub-precinct dynamics. The differences between inner-west precincts, which offer proximity advantages, and the outer-north growth corridors, which offer more affordable land and scalability, can significantly influence long-term performance. Tenant requirements are also becoming more sophisticated. Many occupiers now expect modern amenities, energy-efficient facilities and functional upgrades that improve operational efficiency.
Long-term demand remains underpinned by population growth, e-commerce expansion and an industrial network that connects the Port of Melbourne, freight terminals and arterial road networks. With data centre development competing for industrial zoned land, the importance of strategic site selection and early acquisition is increasing.
Across the West and North, developers should focus on sites that offer clear access advantages, opportunities for consolidation and potential alignment with government infrastructure planning.
Our final thoughts
Rutherfords has observed a consistent shift back toward strategic development planning. The challenging economic conditions in Victoria, combined with ongoing global uncertainty, have prompted developers to carefully assess timing, cost and risk. Developers are increasingly seeking opportunities that balance feasibility, tenant demand and long-term positioning in precincts supported by strong infrastructure. While challenges remain, the fundamentals of the market point to a stable year ahead for well-planned industrial projects.
We encourage developers to explore opportunities early, particularly in areas where rezoning or infrastructure investments are underway. Clarity around planning approvals is improving, but the benefits will flow first to those who act ahead of the market. With tenant demand remaining robust across logistics, manufacturing, retail distribution and data-driven industries, projects that align with these industries will be well positioned for long-term performance.
The development landscape in 2025 has provided valuable insights into how Melbourne’s industrial and commercial markets are adapting. Despite ongoing economic and construction pressures, the broader environment is stabilising and confidence is gradually returning. Long-term demand remains robust, and the underlying fundamentals supporting development in the West and North continue to be among the strongest in the country.
As Melbourne continues to grow and diversify, developers who understand the evolving dynamics of land supply, tenant requirements and precinct positioning will find compelling opportunities throughout 2026.
Speak with our team for a confidential conversation about identifying and shaping development opportunities across Melbourne’s West and North.
Sources
The Urban Developer
CBRE Industrial and Logistics Land Supply Report
Victorian Government: A 10-Year Plan for Industrial Land
CPM Commercial Group
Allan Labor Government Industrial Land Release Announcement
