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Knight Frank Australia
Industrial and Logistics
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Thought Leadership
Tariffs, Tensions and the Shed Boom: How Geopolitics is Rewiring Supply Chains and Industrial Real Estate By Angus Klem Partner, Head of Industrial Investments and Head of North Sydney After decades of trade liberalisation, tariffs have re-emerged as a central tool of industrial strategy. In 2024, the United States quadrupled its tariff on Chinese electric vehicles to 100%, and 50% on semiconductors and solar cells. These measures have far-reaching effects across manufacturing supply chains, increasing costs and encouraging production to shift toward trusted partners and stable jurisdictions such as Australia. China has also been recalibrating its trade relationships. The removal of tariffs on Australian wine and barley has reopened key export channels, prompting producers to re-engage with China while maintaining the diversified markets they developed across Southeast Asia and the Middle East. This renewed stability mirrors the broader reorientation of global supply chains toward greater resilience and risk dispersion. Despite persistent global uncertainty, Australia’s industrial market continues to demonstrate remarkable resilience. The East Coast vacancy rate stabilised at 3.2% during the second quarter of 2025, equating to approximately 2.35 million square metres of vacant space. While speculative developments account for around 905,000 square metres, the balance of demand and supply has steadied after the sharp increase seen through 2024. Industrial leasing activity remains robust, with 1.5 million square metres of take-up recorded across the East Coast in the first half of 2025. This pace suggests annual absorption will likely meet or surpass 2024 levels. Tenant demand is more measured this year, with large occupiers remaining selective while smaller and mid-sized tenants continue to drive steady activity.
As global trade becomes increasingly politicised, tariff policies and geopolitical tensions are reshaping the way goods move, the structure of supply chains, and the demand for industrial real estate. Australia, with its geopolitical stability, energy resources, and proximity to Asia, is emerging as a key beneficiary of this evolving landscape.
Total new supply for 2025 is forecast at just over two million square metres across the East Coast, representing a 22% reduction from the previous year. Developers have slowed speculative pipelines in response to elevated vacancy and capital cost pressures. Melbourne is expected to see a 40% decline in completions as feasibility constraints temper new project starts. Rents remain elevated, supported by structural drivers such as reshoring, e-commerce and supply chain diversification. Adelaide continues to lead the country with annual prime face rent growth of 10.1%, the only market to sustain double-digit gains. Perth followed with 6.7%, Brisbane 5.2%, Melbourne 4.3% and Sydney 2.6%. This variation reflects the balance between supply and demand across key markets, with limited-supply corridors recording the strongest growth. Incentives have also become more mainstream, reflecting heightened competition for tenants. Sydney ranges between 11% and 22% (17-25% in fringe locations), Brisbane 10-14%, and Melbourne 17-25%. Adelaide averages around 9%. Despite this, rental growth remains positive, particularly in land-constrained and logistics-heavy markets. Investor confidence is also strengthening. Investment volumes reached four billion dollars in the first half of 2025, continuing momentum from a record eleven billion transacted in 2024. Strong appetite for prime industrial assets has driven modest yield compression, particularly in Sydney and Brisbane, where prime yields tightened by seven basis points in the second quarter to average 5.38% and 6.03% respectively. Melbourne, Adelaide and Perth held
steady at 5.85%, 6.28% and 6.50%. Secondary yields in Sydney and Brisbane also firmed, compressing by up to twelve basis points to sit between 6.3% and 6.5%. Behind these numbers lies a deeper structural story. Ongoing trade realignment, tariff measures and the drive for sovereign capability are transforming occupier strategies. Defence, clean energy and advanced manufacturing sectors are expanding their footprints, while retail sales growth of 4.2% to June 2025 underscores the continued evolution of e-commerce logistics. Tariff walls are no longer limited to consumer goods; they now extend across energy and technology supply chains. The United States has applied a 25% tariff on battery components and 50% duties on solar cells and certain semiconductors, reinforcing the global shift towards friend-shoring manufacturing within trusted trade blocs. For Australia, this shift is driving investment into power-dense facilities, renewable processing infrastructure, and logistics hubs connected to critical mineral corridors. The industrial market is stabilising after an intense expansion phase. Vacancy has steadied, rental growth remains positive, and investor confidence continues to build as yields begin to tighten once again. At the same time, tariff measures and industrial policy interventions are accelerating the regionalisation of global supply chains. Australia’s industrial sector, backed by geopolitical stability and policy alignment with the United States and Europe, stands as a clear beneficiary, offering both resilience and opportunity in an uncertain world.
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