In Sydney, the south west (55,000 sq m) and South Sydney (7000 sq m) - earmarked as a likely first Australian location for Asian-style, multi-storey warehouses - recorded their tightest vacancy levels on record, according to the Knight Frank figures.

Knight Frank senior analyst Marco Mascitelli said the total take-up of 130,311 sq m of vacancy space in the March quarter in Sydney was the strongest result in a year and a significant increase from the previous quarter, which saw only 54,532 sq m leased.

"The strong take-up trends continue to buoy developers confidence and appetite for speculative projects," Mr Mascitelli said.

In Melbourne, the rise in vacant warehouse space may raise concerns among some local developers and landowners, given the sharp rise in land prices in the past 18 months.

Some market observers argue Melbourne rents will need to rise steeply to make future developments stack up on a return basis.

However, a higher vacancy rate could take the pressure off future rent increases.


Among the recent land deals, funds management giant ISPT paid $60 million in February for a large site in Melbourne's south west.

Industry insiders said the deal for the 30-hectare site on Horsburgh Drive in Altona North represented about a 100 per cent increase on what the property would have sold for 18 months ago.

Mr Pascuzzi though was bullish on the outlook for the Melbourne industrial market, where rents are still significantly cheaper then Sydney at an average of $87 per square metre versus $118 north of the border.

He said the 95,000 sq m of speculative development estimated to hit the market by the second half of 2019 was anticipated to be well received.

“There is also 200,000 sq m of pre-lease inquiries in the west currently in the market being heavily contested and looking likely to being completed in the second half of 2019,” he added.

Mr Pascuzzi said much of the rise in vacancy was also caused by secondary vacant space increasing by 20 per cent this quarter as tenants migrated from older warehouses to newly built, strategically located buildings. This was particularly the case in the south east and the west.