Industrial property development is the business of buying land, building warehouses, distribution centres or factories, and either selling them or holding them for the rent they produce. For most of the last five years it was the easiest sector in the country to make money in, because rents grew fast and yields compressed at the same time. That tailwind has largely gone. In 2026 the maths is decided by three things: the price you paid for the land, what it now costs to build, and the rent your building can command once it is finished, capitalised at an exit yield that is no longer falling. Get those three right and industrial still stacks better than most sectors. Get the land basis wrong and no amount of clear height saves the deal.
This guide is written for the developer working out whether an industrial or logistics site is worth pursuing, what it will cost to deliver, and what it will realise on the way out. It covers where yields, rents and vacancy currently sit, what makes a site stack, the physical specifications that decide a warehouse’s rent and value (clear height, hardstand, site coverage, power and fire), how industrial land is zoned across every state and territory, the last-mile logistics angle that is repricing infill land, the exit routes including sale and leaseback, and the tax that applies on the way through. New Zealand is covered at the end. Every figure is current as at July 2026 and deliberately hedged, because rents, yields and build costs move with the cycle. Treat each number as a prompt to check the latest market evidence for your city and precinct, not a fixed rule.
Why has industrial property development become harder to make stack in 2026?
Because the two forces that carried the sector from 2020 to 2022, falling yields and fast rent growth, have both stalled, while construction costs and the cost of capital have risen. New supply is contracting as a result. Cushman & Wakefield’s Cost to Build Industrial report puts the 2026 national supply pipeline at roughly 1.8 million square metres, the lowest level since 2018, with the pullback sharpest in Melbourne and Brisbane. The reason is simple: in most markets the economic rent, meaning the rent a developer needs to justify a new build, already sits 10 to 25 per cent above the rent tenants are actually paying. Until market rents close that gap, speculative projects are hard to activate.
That does not mean industrial is a bad place to be. It means the deal is now selective rather than automatic. A developer holding land bought before the 2021 spike, or holding well-located infill land, can still make strong returns because the land basis is low and prime vacancy is tight. A developer buying land today at 2026 prices and building on spec has a much narrower margin for error. The sector rewards a low land basis and a differentiated building, and punishes an average building bought on an average site at today’s land price.
What changed after COVID, and why did yields compress?
The pandemic pulled forward years of e-commerce growth and forced occupiers to hold more stock closer to customers, which drove a surge in demand for warehouse space. Between 2020 and 2022, prime industrial rents in some Australian markets grew more than 20 per cent a year while the cash rate sat near zero, and investors competed hard for any income-producing industrial asset. That pushed cap rates (capitalisation rates, the yield the market pays for income) to record lows, in some prime markets below 4 per cent. Because a lower cap rate means a higher price for the same income, values rose on two engines at once: more rent, capitalised harder.
From 2022 the Reserve Bank of Australia’s rate rises reversed the second engine. Cap rates expanded, values came off their peak, and rent growth slowed to more normal levels. What is left in 2026 is a sector with sound long-term demand drivers but without the repricing bonus, so returns now have to be earned through the build and the lease rather than handed over by the market.
What do current industrial yields, rents and vacancy actually look like?
As at the first quarter of 2026, national super prime industrial midpoint yields sat near 5.7 per cent, having expanded marginally over the prior year, on Knight Frank’s Australian Industrial Review. Sydney, the tightest market, showed super prime, prime and secondary midpoint yields of roughly 5.17, 5.50 and 5.81 per cent. Super prime yield ranges by city generally ran around 4.75 to 5.75 per cent in Western Sydney, 5.75 to 6.15 per cent in Brisbane, 5.75 to 6.25 per cent in Adelaide, and 6.25 to 6.75 per cent in Perth, so a developer moving north or west of Sydney is generally building against a softer exit yield and needs a higher yield on cost to compensate.
On rents, prime net face rents in the first quarter of 2026 generally sat around $228 per square metre in Western Sydney, $187 in Brisbane, $164 in Perth, $147 in Adelaide and roughly $144 in Melbourne, again on Knight Frank figures. Face rent alone is misleading in the current market, because incentives have risen sharply. Western Sydney incentives reached a historical high near 22 per cent, with Melbourne close behind around 20.5 per cent, well above Brisbane (about 12.4 per cent), Perth (about 9.6 per cent) and Adelaide (about 8.9 per cent). High incentives mean the effective rent, what the tenant really pays after rent-free periods and fit-out contributions, is materially below the face rent, and net effective rents fell roughly 4.6 per cent over the prior year in Western Sydney. A feasibility built on face rent when the market is only paying effective rent is one of the more common ways an industrial deal looks better on the spreadsheet than at sale.
Vacancy tells the supply story. The national industrial and logistics vacancy rate reached about 3.2 per cent in the second half of 2025, on CBRE’s vacancy reporting, with wide variation between cities. Into the first half of 2026, Perth tightened toward 1.0 per cent, Melbourne held near 4.7 per cent, and Sydney rose toward 3.5 per cent, on JLL’s industrial vacancy analysis. National net absorption exceeded 1.4 million square metres in the first half of 2026, more than double the prior half, and national take-up closed 2025 around 3.5 million square metres, above the ten-year average. The pattern underneath those numbers matters more than the headline: vacancy is concentrating in older prime and secondary stock, while modern super prime facilities continue to lease. A developer building a genuinely modern building into a market with a 4 per cent headline vacancy is not competing against most of that vacancy.
What is last-mile logistics, and why is infill land worth more?
Last-mile logistics is the final leg of the supply chain, the delivery from a local distribution point to the customer’s door, and it is the single biggest reason well-located infill industrial land has repriced upward. The economics are straightforward: transport is the largest running cost in a logistics operation, usually far larger than rent, so an operator will generally pay a significant rent premium for a site close to the population it serves if that site cuts kilometres driven and helps hit tight delivery windows. Cushman & Wakefield’s infill market analysis makes the point that higher rents in central locations can be offset for the tenant by lower transport costs and better supply chain efficiency, which is why demand keeps favouring centrally located, prime-grade facilities.
For a developer, that changes what a site is worth. Infill land close to dense residential catchments is scarce, often contaminated or fragmented, and constrained on site coverage, but it commands the strongest rents and the tightest exit yields because the demand is structural rather than cyclical. Outer-ring greenfield estates offer cheaper land and easier site coverage, but softer rents and a longer lease-up. The trade the developer is really making is land cost and buildability against rent and yield, and last-mile demand has widened the gap between the two. A brownfield infill site that can be remediated and delivered as a modern multi-unit estate is often the more valuable project even at a much higher land price per square metre, provided the numbers are run on effective rent and a realistic exit yield.
What makes an industrial development site stack financially?
An industrial development stacks when the completed value comfortably exceeds the total cost to deliver it plus your required profit, and for an income-producing asset the completed value is set by the rent, not the build cost. The completed value of a leased warehouse is its stabilised net operating income (NOI) divided by the market cap rate. Everything in the feasibility works back from that number. If the value on completion does not clear land plus construction plus fees plus finance plus your margin, the deal does not stack, and the usual culprit is a land price that assumes yesterday’s rents or yesterday’s yields.
How do you value a completed industrial asset?
You value a completed, leased industrial asset by dividing its stabilised net operating income (NOI) by a market capitalisation rate. Net operating income (NOI) is the annual rent the building produces after recoverable and non-recoverable outgoings, and the cap rate is the yield the market currently pays for that income. A warehouse producing $1.2 million of stabilised net operating income (NOI), valued at a 5.5 per cent cap rate, is worth roughly $21.8 million. At a 6.25 per cent cap rate the same income is worth about $19.2 million, a difference of more than $2.5 million on the exact same building and lease, driven only by the exit yield. That sensitivity is why the exit cap rate deserves as much attention in an industrial feasibility as the build cost, and why building in a softer-yield city means you need either a higher rent or a lower cost to hit the same value. The mechanics are covered in more depth in the guide on cap rate and yield, and the income build-up in the guide on net operating income (NOI).
The number is only as good as its two inputs. The net operating income (NOI) has to be sustainable effective income, not face rent inflated by a large incentive, and the cap rate has to come from genuine like-for-like sales evidence for buildings of similar age, spec and lease profile. A modern super prime facility on a long lease to a strong tenant will trade at a tighter cap rate than an average building on a short lease, so the exit yield you assume should match the asset you are actually delivering, not the best sale in the market.
What is the residual land value on an industrial deal?
The residual land value (RLV) is the most a developer can pay for the site and still hit the target profit, and it is found by working backwards from the completed value. In outline: take the gross realisation value (GRV), meaning the sale price or capitalised value on completion, then subtract construction, professional fees, finance, holding costs, selling costs and your required profit. What is left is the residual land value (RLV), the land price the deal can justify. If the asking price for the site sits above that number, the project either needs a higher rent, a cheaper build, a tighter exit yield or a thinner margin to work, and pretending one of those will improve is how developers overpay for land.
Residual land value (RLV) is the natural place a feasibility platform earns its keep on an industrial deal. Feasly back-solves the residual land value (RLV) from your revenue and cost inputs and lets you flex the exit cap rate, the construction rate and the rent in a side-by-side sensitivity analysis, so you can see how much of your land budget evaporates if the exit yield expands 25 basis points or the build rate rises another 6 per cent. On a build-to-hold industrial project, where value is capitalised income rather than lot sales, that combination of residual land value (RLV) and sensitivity is usually more informative than any single base-case number.
What does it cost to build a warehouse per square metre?
Indicative warehouse construction costs sat around $1,150 per square metre in mid-2026, on the Cushman & Wakefield Cost to Build Industrial report, but that figure moves quickly and covers the base building only. The same report noted warehouse construction costs had risen about 6.5 per cent in a single quarter, with some building material manufacturers implementing increases of up to 40 per cent, and estimated that 30 to 40 per cent of an industrial project’s cost is energy-sensitive, led by concrete and steel and by diesel in transport and on site. A 10 per cent rise in energy-related costs alone could add roughly $35 to $45 per square metre to the build.
That base rate is only part of the total. An industrial project also carries the office and amenity fit-out (a much higher rate per square metre than the warehouse shell), external works including hardstand, pavement, drainage and landscaping, services and power, professional fees, contingency, and finance. Hardstand and civils in particular can be a large line on a site with poor ground conditions or a deep truck court. The guide on construction cost per square metre covers how to build a defensible rate rather than carrying a single blended number, and every one of these lines (shell, fit-out, civils, services, fees, contingency and finance) belongs in the total development cost the feasibility actually turns on. The practical warning for 2026 is that the cost to build has, in several core markets, outpaced the cost to buy an existing asset. Cushman’s report put replacement cost at least 15 per cent above current market values in several markets, which both limits speculative development and tells a developer that an existing, well-located asset can sometimes be the cheaper way into the sector than building.
What physical specifications decide an industrial building’s rent and value?
The specification decides who can lease the building and at what rent, which flows straight through to value. The specifications that generally matter most are clear internal height, floor loading, hardstand and truck court depth, achievable site coverage, power supply, and fire protection. An average building on a good site will underperform a well-specified building on the same site, because modern logistics operators run automation, racking and vehicle movements that an older or cheaper design cannot accommodate. Getting the spec right is where a developer adds value that the cap rate then multiplies.
Why does clear height matter so much?
Clear height, the unobstructed internal height from floor to the underside of the lowest structural or service element, matters because it decides how high a tenant can rack and therefore how much they can store per square metre of floor. Storage is sold by the pallet position, not the floor area, so a taller building lets a tenant pay for volume rather than footprint, and generally supports a higher rent per square metre and a keener tenant. Older Australian industrial stock often offers around 8 to 10 metres of clear height, while modern prime logistics facilities generally target roughly 13.7 metres or more, and highly automated or high-bay operations can go considerably higher again. Each additional metre of clear height adds rackable pallet positions, so on an income-producing build the height decision is really a rent and value decision, subject to what the planning controls, the structure and the fire engineering will allow.
Clear height is not free. Taller buildings cost more per square metre to build, carry more onerous fire protection requirements, and may run into height limits in the planning scheme. The developer’s task is to match the height to the demand in the precinct rather than over-building height that the local tenant base will not pay for, or under-building height that shuts out the operators driving rent growth.
How deep does the hardstand and truck court need to be?
The hardstand and truck court have to be deep enough for the largest vehicle the building is designed to serve to manoeuvre, dock and turn, and in Australia that generally means designing for articulated vehicles and often B-doubles. As a rule of thumb, a rigid truck may need a much shallower apron than an articulated semi-trailer, and a B-double needs more again, so a modern distribution centre generally allows a deep truck court to let heavy vehicles turn and reverse to the dock without conflicting with other movements. Getting this wrong is expensive, because a building a B-double cannot service comfortably is a building a large logistics tenant will discount or reject.
The knock-on effect is on land. Deep truck courts, wide manoeuvring aprons and generous dock provision all consume site area that cannot then be built on, which pulls down achievable site coverage and therefore the gross floor area (GFA) you can wring from the land. On tight infill sites this trade is acute, which is one reason infill buildings are often smaller-format or multi-unit rather than large single-tenant sheds.
What site coverage can you realistically achieve?
Site coverage, the proportion of the site occupied by building, generally runs somewhere around 45 to 55 per cent on a typical Australian industrial estate once hardstand, truck courts, car parking, landscaping, setbacks and stormwater are accounted for, though it varies widely with the format and the planning controls. Site coverage matters because gross floor area (GFA) drives rent and rent drives value, so a site that can only support 40 per cent coverage produces materially less lettable area, and less income, than one that can support 55 per cent on the same land area. When a developer runs a residual land value (RLV) on an industrial site, the achievable coverage is one of the most sensitive inputs, because it scales the whole revenue side.
A building’s efficiency of layout also feeds coverage. Rectangular footprints and sensible depth-to-width ratios generally use land more efficiently than awkward shapes, and a well-planned estate minimises the hardstand needed for vehicle movements. The point for feasibility is to test coverage early against the real planning and vehicle constraints, rather than assuming a generous ratio that the truck movements and setbacks will not allow.
Power, fire and floor: the specifications that quietly decide deals
Three less visible specifications, power supply, fire protection and floor loading, increasingly decide whether a modern industrial building works. Power is the one changing fastest: automated distribution centres, cold storage, electric vehicle charging for fleets, and any data-adjacent use need far more electrical capacity than a traditional shed, and securing an adequate supply from the network can carry long lead times and significant cost. A developer who has not confirmed available power and its connection timeline can find it becomes the critical path for the whole project.
Fire protection is the second. Warehouses storing goods at height generally require sprinkler systems designed for the storage arrangement, commonly early suppression fast response (ESFR) systems, and the fire engineering interacts with clear height, racking layout and the building classification under the National Construction Code (NCC). Warehouses and factories are generally Class 7b (storage) or Class 8 (factory) buildings under the National Construction Code (NCC), administered by the Australian Building Codes Board (ABCB), and the fire and access provisions for large-floor-area buildings are a material cost that scales with height and area. Floor loading is the third: the slab has to carry the racking loads and the wheel loads of forklifts and reach trucks, and an under-specified slab is expensive to remediate later. None of these are glamorous, but each can quietly turn a viable feasibility into a loss if it is discovered after the land is bought.
How is industrial land zoned and planned across the states?
Industrial development is only possible where the planning scheme allows it, and every state runs its own zoning system with its own impact tiers, buffer rules and definitions, so a use that is permissible in one state’s general industrial zone may be prohibited in another’s. Across the country the consistent policy theme in 2026 is the protection of industrial land: governments are increasingly guarding employment and industrial precincts from encroachment by housing and other sensitive uses, which supports land values inside protected precincts but constrains where new industrial land can come from. The framing that matters for a developer is always the same: what can I build here, at what scale, and what will the buffers, access and servicing rules cost me.
New South Wales
New South Wales has replaced its old business and industrial zones with a new employment zones framework, and a developer working from an out-of-date zoning label will get the permissibility wrong. Under the employment zones reform, the former IN1 General Industrial and IN2 Light Industrial zones were folded into the new E4 General Industrial zone, the former IN3 Heavy Industrial zone became E5 Heavy Industrial, and lighter urban-services uses sit in E3 Productivity Support. The new zones were introduced into 135 local environmental plans (LEPs) from 26 April 2023, and the two-year transitional period that preserved the old permissibility ended on 26 April 2025, so the new controls now apply in full. The reform is not a straight one-for-one conversion of the old uses, so a developer should always check the current local environmental plan (LEP) and the land use table for the specific site rather than assume the old permissibility carried across.
New South Wales is also where the largest industrial and logistics infrastructure is concentrated, which shapes where the strongest precincts sit. The Moorebank Intermodal Precinct in south-west Sydney, a site of roughly 240 hectares with capacity for up to about 850,000 square metres of warehousing and a dedicated rail freight link to Port Botany, on National Intermodal, is Australia’s largest logistics hub and anchors surrounding industrial land values. The Western Sydney Aerotropolis around the new airport, and precincts such as Mamre Road, are rezoning large areas of employment land, and proximity to that infrastructure is a genuine driver of rent and demand rather than a marketing line.
Victoria
Victoria runs three industrial zones under its planning provisions: the Industrial 1 Zone (IN1Z) for general industry and allied commercial uses, the Industrial 2 Zone (IN2Z) for heavier industry needing separation from sensitive uses, and the Industrial 3 Zone (IN3Z) as a transitional buffer allowing cleaner industry and limited ancillary uses. Which zone applies sets what you can build and what buffers you carry, so it is the first thing to confirm on a Victorian site. Melbourne’s industrial market is large and, on the current numbers, carries the highest vacancy of the major cities, so a developer here is generally building into a more competitive leasing market and should be conservative on lease-up and incentives.
Supply policy is active in Victoria. The state’s 10-year plan for industrial land, released in late 2025, projects Melbourne’s industrial land take-up at around 330 hectares a year over the decade and aims to open up more than 5,800 hectares of new industrial land while coordinating the infrastructure to service it. For a developer, that plan is worth reading as a map of where and when new competing supply is intended to come online, and where the government is prioritising servicing, because both affect the rent and absorption assumptions in a feasibility.
Queensland
Queensland classifies industrial land by impact under its standard planning scheme provisions, generally into low impact industry, medium impact industry and high impact industry zones, with the permissible uses and the separation from sensitive land increasing up the tiers. Minimum lot sizes generally step up with impact, commonly around 1,000 square metres in the low impact zone, 2,000 square metres in the medium impact zone, and 5,000 square metres in the high impact and special purpose zones, on Queensland planning zoning information, so the impact tier shapes both what you can do and the minimum development footprint. A developer should confirm the specific local government planning scheme, because the standard framework is applied with local variation.
At the regional level, ShapingSEQ 2023, the South East Queensland Regional Plan, protects designated major enterprise and industrial areas from encroachment by incompatible uses, which supports the long-term security of industrial land inside those areas. Brisbane has seen strong institutional interest and meaningful rent growth in recent years, so a developer here is generally building into a firmer demand story than the southern capitals, albeit against a slightly softer exit yield than Sydney.
The smaller states and territories
Western Australia and South Australia are the two smaller-capital markets where industrial development is most active, and both currently run tight. Perth’s vacancy tightened toward 1.0 per cent into the first half of 2026, and Western Australian industrial land is delivered in part through the state land agency DevelopmentWA, which releases serviced industrial estates alongside privately developed land, with zoning set through local planning schemes and state planning policy. South Australia recorded the strongest prime rental growth of the capitals in 2024 and sits on tight vacancy, with industrial and employment land governed through the state’s Planning and Design Code. In both states the developer’s task is the same as in the east: confirm the zone, the buffers and the servicing, then run the deal on effective rent and a realistic local exit yield.
Tasmania and the Northern Territory are smaller, thinner markets where industrial demand is more localised and exit liquidity is lower, which generally warrants a more conservative exit yield and a longer lease-up assumption. The Australian Capital Territory is the structural outlier, because land there is held under a Crown leasehold system rather than freehold, and changing or intensifying the permitted use of a lease can trigger a lease variation charge payable to the territory. A developer working in the territory should price that charge and the leasehold structure into the feasibility from the outset, because it has no direct equivalent in the freehold states.
What planning and approval issues catch industrial developers out?
The issues that most often derail an industrial project are the ones tied to the land itself and its interfaces: contamination, buffers to sensitive uses, heavy-vehicle access, flooding and stormwater, and servicing lead times. Much industrial land has a history of industrial use, so soil and groundwater contamination is common, and remediating a brownfield site to a standard fit for its intended use can be a large and uncertain cost that has to be investigated before the land is committed, not after. A contaminated site can still be an excellent project, but only if the remediation is scoped and priced into the residual land value (RLV).
Buffers and interface are the second recurring problem. Industrial uses generate noise, traffic, dust and sometimes emissions, and planning schemes require separation from residential and other sensitive uses, so a site next to housing may be constrained on hours, acoustic treatment or the intensity of use it can support. Heavy-vehicle access and truck routes need to be resolved with the road authority, because a site the network cannot safely feed with B-doubles is worth less to a logistics tenant. Flooding, overland flow and the stormwater treatment of large hardstand areas can impose significant civil costs and, on some sites, cap the developable area. And servicing, particularly electrical supply as discussed above, can sit on the critical path. Working these through early, ideally before the land is unconditional, is what separates a feasibility that holds from one that unravels during the development application (DA). Confirming the highest and best use of the site, given all these constraints, is the analysis that should sit underneath the land price a developer is willing to pay.
How do you exit an industrial development?
There are three main exit routes for an industrial development, and the one you choose is largely set before you build, by whether you have a tenant. You can sell the building vacant and let the buyer find a tenant, sell it with a lease already in place, or arrange for an investor to fund the build and take it on completion. Selling vacant realises the least, because the buyer prices in leasing risk and a letting-up period. Selling with a strong lease in place generally realises the most, because the buyer is purchasing secured income rather than the possibility of it, and secured income is what the cap rate capitalises.
Speculative versus pre-committed development
A speculative (or “spec”) development is built without a tenant signed, on the expectation of leasing it during or after construction, while a pre-committed or build-to-suit development has a tenant locked in before construction starts. Pre-committing a tenant generally lowers risk across the board: it de-risks the exit value, and it helps on the funding side, because a lender assessing a construction facility would rather see a signed lease and a serviceability story than a leasing forecast. The trade is that spec development can capture more upside in a rising market and gives the developer control over the building’s spec and timing, while a pre-commit locks in a return but often on a tenant-specific design. In the current market, with the cost of capital up and incentives high, developers have broadly shifted toward pre-leased builds and away from spec, which is one reason the supply pipeline has thinned.
Where does sale and leaseback fit?
Sale and leaseback is a structure where an owner-occupier sells their property and simultaneously signs a lease to stay in it as a tenant, and it sits on both sides of the industrial market: as an origination for developers and funds acquiring income, and as an exit for a developer who has secured such a tenant. For the occupier, it releases capital tied up in the building while keeping operational control. For the buyer, it delivers an immediately income-producing asset with a known tenant and lease. A developer can originate stock this way, or can build to a sale-and-leaseback buyer’s requirements, and either way the value on completion is set by the lease that results, capitalised at a market yield.
What lifts the exit value: weighted average lease expiry, covenant, net lease and reviews
The lease terms that most lift an industrial asset’s exit value are a long weighted average lease expiry (WALE), a strong tenant covenant, a net lease that recovers outgoings, and rent reviews that grow the income. The weighted average lease expiry (WALE), the average unexpired lease term across the tenancies weighted by income, matters because a buyer pays more for income secured for longer, so a longer weighted average lease expiry (WALE) generally supports a tighter cap rate and a higher price. A strong covenant, meaning a financially sound tenant, does the same, because the income is more certain. Under a net lease the tenant reimburses outgoings such as council rates, land tax, insurance and maintenance, which protects the net operating income (NOI) from cost inflation across the hold, and fixed annual reviews (commonly a set percentage) or reviews linked to the Consumer Price Index (CPI) grow the income and therefore the value over time.
The multiplier effect is large. Because value is net operating income (NOI) divided by the cap rate, a durable extra dollar of annual net income at a 5.5 per cent cap rate is worth roughly eighteen dollars of end value, and a dollar leaked through an unrecoverable outgoing or a backward rent review costs about the same. That is why the lease is a feasibility input on an income-producing industrial project, not a legal afterthought, and it is covered in detail in the guide on commercial lease structures. Modelling the lease-up properly, building the net operating income (NOI) from base rent, recoverable outgoings and lease incentives rather than guessing a single net figure, is the difference between a feasibility that predicts the sale price and one that flatters it.
Fund-through and forward-fund structures
A fund-through (or forward-fund) structure is where an investor commits to buy the completed asset and funds the development as it is built, rather than paying only on completion. For the developer, it removes the need to arrange separate construction finance and locks in the exit at the outset, which de-risks the project, usually in exchange for a share of the development profit passing to the funder. These structures are common on larger pre-leased industrial and logistics assets, where an institutional buyer wants the completed income and is willing to carry construction-phase exposure to secure it. The economics still come back to the same equation: the price is the capitalised net operating income (NOI), and the developer’s return is what is left after the funder takes its cut.
What tax applies to an industrial development and its sale?
Industrial development carries the same core taxes as any development, but the leased-asset exit brings the Goods and Services Tax (GST) going-concern rules into play, which is where industrial differs from a straight sell-down. The main taxes to model are Goods and Services Tax (GST) on the sale, income tax or capital gains tax on the profit, capital works deductions if you hold, land tax while you hold, transfer (stamp) duty on acquisition, and foreign investment approval if a foreign person is involved. None of this is advice, and the treatment turns on the structure and facts of the specific deal, so it should be confirmed with your accountant and the primary sources before you rely on it.
Goods and Services Tax (GST): margin scheme on the land, going concern on a leased sale
The Goods and Services Tax (GST) outcome on an industrial project depends on how you sell. On a sale of vacant land or a completed building sold without a tenant, the margin scheme may be available to calculate Goods and Services Tax (GST) on the margin rather than the full price, which is modelled properly rather than as a flat assumption in a good feasibility. But where you sell the building with a tenant and lease in place, the sale may instead qualify as a supply of a going concern that is free of Goods and Services Tax (GST) under the Australian Taxation Office (ATO) ruling GSTR 2002/5. The Australian Taxation Office (ATO) accepts that a leasing enterprise can be sold as a going concern, generally where the sale is for payment, the buyer is registered for Goods and Services Tax (GST), both parties agree in writing that the sale is of a going concern, and the seller supplies everything necessary for the enterprise to continue and carries on that enterprise until the day of sale. Getting this right can remove a Goods and Services Tax (GST) cost from the transaction, so it is worth structuring the exit with it in mind rather than discovering it late.
Division 43 capital works for build-to-hold developers
A developer who builds and holds an industrial asset can generally claim a capital works deduction on the construction cost, commonly at 2.5 per cent a year over 40 years, under Division 43 of the income tax law. For a build-to-hold industrial building, where the whole point is long-run income, that deduction shelters a meaningful part of the rent from tax across the hold and is a real contributor to the after-tax return, so it belongs in the hold model rather than being ignored. The detail, including what qualifies and how it interacts with the cost base, is covered in the guide on Division 43 depreciation for build-to-hold developers and in the Australian Taxation Office (ATO) material on capital works deductions.
Land tax, transfer duty and foreign investment
Three more items round out the picture. Land tax is payable while you hold the land, is levied by each state and territory on its own thresholds and rates, and can be a significant carry on a large industrial holding through the development period, so it belongs in the holding-cost line of the feasibility and should be modelled across the full development period. Transfer duty, still commonly called stamp duty, is payable on the land acquisition under each state’s own rules and is generally a large upfront cost that should be carried as its own line in the feasibility. Foreign investment adds a further layer: under the Foreign Investment Review Board (FIRB) framework, vacant commercial land carries a nil threshold, meaning a foreign person generally needs approval to acquire any interest in it regardless of value, while developed commercial land is subject to monetary thresholds that are indexed each January, on the Foreign Investment Review Board (FIRB) monetary thresholds. A foreign-backed developer should factor the approval, its cost and its timeline into the acquisition programme.
Is industrial development different in New Zealand?
The fundamentals are the same in New Zealand, income capitalised at a yield, but the planning system and the market scale differ, and Auckland dominates. Auckland industrial has been the most active commercial property sector by transaction volume, and it runs tight: reported vacancy has generally sat low, with prime-grade space tighter still, and prime average net rents around NZD 221 per square metre a year, on JLL’s Auckland industrial market reporting. Supply has been running at only around 1.2 per cent of total stock a year, so the structural shortage that drives Australian infill demand is, if anything, sharper in Auckland. Yields have been broadly flat into 2026 as the market found a floor after the interest rate cycle.
The planning framework is where a New Zealand developer’s homework differs. Industrial land in Auckland sits within the business zones of the Auckland Unitary Plan, principally the light industry and heavy industry business zones, and development generally requires resource consent under the Resource Management Act (RMA), the process covered in the guide on resource consent in New Zealand. The Resource Management Act (RMA) is being replaced, so a developer should track that transition, because the consenting rules an industrial project is designed around are changing. As in Australia, the New Zealand exit is priced on the lease and the covenant, so the same discipline on effective rent, weighted average lease expiry (WALE) and a realistic exit yield applies.
What is the bottom line for an industrial developer in 2026?
Industrial property development in Australia still offers strong fundamentals, tight prime vacancy, structural last-mile demand and a supply pipeline that is contracting, but the returns now have to be built and leased rather than handed over by falling yields. The deal is decided by three numbers: a land basis low enough to work at today’s rents, a build cost that is rising and needs to be priced current rather than historic, and a completed value set by the rent your building can command, capitalised at an exit yield that is no longer compressing. A well-specified building (right clear height, workable hardstand, achievable coverage, adequate power) leased to a sound tenant on a long net lease is what the market pays the tightest yield for, and that yield does most of the work in the value.
The practical path is to confirm the zoning and the site constraints first, price the remediation, servicing and buffers honestly, model the exit on effective rent and a realistic local cap rate, and back-solve the residual land value (RLV) before committing to a land price rather than after. Run the exit yield and the construction rate through a sensitivity analysis, because on an income-producing asset those two inputs move the answer more than almost anything else. Everything above is general information, current as at July 2026 and hedged because the market moves, so treat it as a framework to pressure-test your own deal and confirm the current figures, primary sources and tax treatment for your specific site before you rely on them.