Logistics lift-off and Melbourne’s moment: the real estate cycles investors can’t ignore

Ross Lees, CEO of Growthpoint Properties Australia, took the stage at The Inside Network’s Equities and Growth Symposium with a clear-eyed view of two key themes: the evolving opportunity in Australian logistics and the moment of deep value emerging in Victorian commercial real estate.

At the recent Equities and Growth Symposium, Lees, who leads the ASX-listed business Growthpoint, which has $5.4 billion of assets under management across industrial, office and retail property, delivered a presentation that cut through the noise of crisis narratives and zeroed-in on what he believes is a rare, cyclical opportunity for investors willing to embrace long-term thinking.

Lees began with logistics, a sector that has thrived on the back of structural tailwinds over the last decade. The growth in both e-commerce and population, which outpaced development, has fuelled tenant demand. But with online sales penetration currently sitting at less than 15 per cent in Australia — compared to 25 per cent in more mature economies like Canada — Lees argued that the runway for further logistics expansion is long. “The next wave of logistics demand is coming,” he said, pointing to population forecasts and headcount-driven requirements for industrial space. With four million additional Australians expected over the next decade, Growthpoint estimates a need for more than 16 million square metres of new logistics facilities.

Despite concerns about the pace of rent growth normalising, the numbers still impress. Prime logistics rents have climbed from $116 per square metre to $172 in just three years. While that rate is easing from its COVID-era peak, Lees noted that 10 per cent annual rental growth is “slowing” only in relative terms. Compared to other asset classes, it’s still robust.

Adding to the long-term appeal is the scarcity of inner-ring industrial land and the rise of multi-storey warehousing. These complex, capital-intensive builds — already common in Asia — are becoming necessary in Australia’s most densely populated areas. But they come at a cost. “You’re looking at $350 per square metre rents to justify building one of these in some areas, when in-place rents are still in the low $200s,” Lees said. The implication is clear: future supply will be expensive, which will continue to support rental growth and push up capital values in strategic locations.

Lees then pivoted to Melbourne — a market he argues is unfairly stigmatised as “uninvestible.” He acknowledged that Victorian investment has been made more challenging for foreign capital as land taxes hit income and leverage. This, he said, has dissuaded foreign investors — but therein lies the opportunity: domestic investors have a window to acquire assets at significant discounts and with a relative cost-of-capital advantage.

Melbourne office assets, in particular, have seen capital values fall by almost 24 per cent since 2020 — more than in Sydney. According to Lees, those figures understate the depth of repricing happening off-market. He cited a recent transaction on the prime Collins Street thouroughfare at around $6,000 per square metre. For long-term investors, he said, this kind of deep value is rare. Combined with strong population growth — Melbourne led the nation in 2024 at 2.7 per cent — and a falling interest-rate environment, the city is now offering compelling total return potential.

What’s common in both themes — logistics and Melbourne commercial — is the asymmetry of perception and fundamentals. Much of the negativity in office markets stems from misunderstood data, Lees argued. Despite headlines about rising vacancy, actual office occupation across Australia is only 50,000 square metres below 2019 levels. “That’s nothing,” he said, especially given the growth in white-collar population during that time. Office, like logistics before it, could be entering a period where constrained supply meets growing demand, setting the stage for double-digit rental growth.

Lees also addressed transaction activity, which has been muted over the past 18 months but is beginning to rebound. He believes falling interest rates and stabilising cap rates will lure capital back to the market. “We’ve already seen an  increase in investment volumes,” he said, reinforcing the view that investor confidence is returning. The lag in Melbourne-specific activity, he suggested, presents an opportunity before the broader recovery takes hold.

He concluded that the tailwinds in logistics haven’t exhausted themselves — e-commerce penetration is still rising, and vacancy rates remain critically low at just 2–3 per cent in most markets. Meanwhile, the disruption in Melbourne has created a once-per-cycle moment to buy premium assets below replacement cost. “The sector headlines might belong to residential, but the opportunity is in industrial and commercial,” he said.

In the face of crisis fatigue — be it health, rates, housing or cost of living — Lees reminded investors that markets often move before sentiment catches up. In both cases, the smart money is already getting into position.