Australian Logistics & Industrial Capital Markets Outlook 2025

LOGISTICS & INDUSTRIAL OUTLOOK 2025

THEME 6: YIELD COMPRESSION CYCLE TO BEGIN

CURRENT NATIONAL WEIGHTED PRIME YIELD 5.85% FORECAST PRIME NATIONAL WEIGHTED YIELD BY DECEMBER 2026 5.35%

The movement of yields over the next two years will be heavily influenced by the outlook for rates – both interest rates and the risk-free rate, as well as the weight of capital seeking to be deployed, where in the absence of high stock levels will result in heightened competition for limited assets. This environment highlights the potential for favourable repricing dynamics for investors. As highlighted earlier, our base case is for the cash rate to reach 3.35% by Q4 2026. Similarly, the real risk free rate (10-year inflation adjusted Government bond yield) is forecast to settle closer to 1.5% by 2026, down from its current 1.7%. In doing so, this will provide a spread to the current national weighted L&I yield of approximately 380 basis points, and while this is below the 20-year average of 580 basis points, historical benchmarks are no longer as relevant for the sector given the structural changes that have occurred in recent years which has effectively repriced L&I assets for the long term. Our modelling highlights the potential for 10 to 25 basis points of compression in late 2025 before a further 25 to 30 basis point reduction in 2026. Unlike the last cycle, the movement in yields will not be consistent across markets and grades. Sydney is forecast to enter a yield compression cycle first, reflecting the weight of capital seeking to be deployed in the city. Alternatively, Melbourne is forecast to lag due to recent tax implications, while the rate of compression in the next cycle for Brisbane is forecast to outperform because, in our view, yield expansion in recent years for Brisbane has overshot the mark. In the medium to long term, it is unlikely the Victorian Absentee Owner Surcharge will remain in its current form which will create an opportunity for active capital