For retailers approaching a warehouse lease renewal or considering a move, the current market presents a challenge: There is more choice than there was a few years ago, but the cost and complexity of making the wrong decision have increased.
Peter Jones, MD and founder of retail consultancy Prological Consulting, says uncertainty is causing some businesses to delay major property decisions, but that hesitation could create challenges as market conditions continue to shift.
“The market has changed significantly in a short period of time. Availability concerns have eased: Prological’s Supply Chain Pulse Check Survey 2026, which interviewed more than 200 supply chain leaders, found that concerns about lack of available industrial property have halved since 2024, from around 12 per cent to just 6 per cent,” explains Jones.
“So retailers are no longer scrambling for any space they can find, which was very much the story two or three years ago.”
But just as tenants have started to exhale, a new layer of complexity has arrived. Rising energy and transport costs tied to the Middle East conflict, renewed interest rate pressure and construction cost escalation are all feeding into the equation.
“The market has handed leverage back to tenants in some respects, but the economics of facility decisions have become harder at the same time.”
Jones says the uncertainty is influencing how some larger retailers approach major commitments.
“The RBA cut rates three times in 2025 and then reversed course, hiking three times in early 2026 and bringing the cash rate to 4.35 per cent. That has three direct implications for retailers making facility decisions.
“First, the cost of debt on capital projects – including automation fit-outs and infrastructure – has increased. Second, property yields are under upward pressure, which affects what landlords can offer. Third, the broader economy is expected to slow, with GDP growth of just 1.3 per cent forecast for this year. That’s a real constraint on retailers who are already dealing with contracting margins.
“The Iran conflict has added another layer of uncertainty on top of that. It’s not just the direct effect on energy and freight costs – it’s the broader hesitation it creates around committing to long-term property decisions. We’re seeing larger occupiers defer major relocations as a result.”
According to Jones, the caution is understandable, but delaying decisions indefinitely brings its own risks.
“The data bears that out: Prological’s H1 Property report shows transactions above 20,000sqm accounted for just 25 per cent of leasing activity in Q1 2026, down from 30 to 40 per cent in recent years.
The window for proactive planning is narrowing
While some retailers may be waiting for greater certainty, Jones believes businesses with upcoming lease events should already be reviewing their options.
“Now is one of the better moments of the last decade to be doing so, but the window is narrowing. National vacancy fell to 3.7 per cent in Q1 2026, the first decline in over two years.
“The speculative development cycle that defined the eastern seaboard through 2024 and much of 2025 is ending,” he says.
“For retailers with lease events in the next 12 to 24 months, the time to be mapping options is now, not when conditions deteriorate further.
“The supply pipeline is contracting. Construction costs remain elevated. Developers are increasingly unwilling to build without a tenant commitment in place.”
Jones says retailers need to rethink the assumption that suitable facilities will always be available when required.
“The assumption that you can find purpose-built space when you need it no longer holds. Businesses that need a facility should engage the development market 18 to 24 months ahead of the requirement, not at the point of need.”
Jones says the incentives remain elevated: Melbourne super-prime is averaging around 28 per cent, and Sydney 18.4 per cent. Smart operators are using those packages to fund automation and fit-out rather than simply offsetting rent.
“But with effective rents returning to positive growth and several research houses expecting incentives to moderate from late 2026, the period of maximum tenant leverage may be approaching its end.”
The building itself is a supply chain decision
Jones argues that warehouse decisions should not be viewed purely through a property lens, because the facility a retailer selects can shape its operational capability for years.
“The building itself is a supply chain decision. Roof height, floor loading, column spacing, dock door ratios, fire compliance, and power capacity are some of the factors that determine what you can and can’t do operationally for the life of the lease.
“If you sign a 10-year lease on a facility with low ceiling height today, you may not be able to deploy the automation technology your business needs in three or four years’ time,” he explains.
“You’re locking in operational constraints that will cost you significantly more to work around or simply won’t be workable at all. The supply chain and logistics costs over a 10-year horizon on a poorly specified building can dwarf whatever rent saving you thought you were capturing.”
As automation becomes more accessible, Jones says the importance of selecting an automation-ready facility is increasing.
“Further to this, automation is becoming more accessible. A fashion brand with 40 stores, a quarter of its sales online, and revenue well under $50 million can now make automation work commercially, something that wasn’t the case not long ago.
“An automation-ready facility – the right ceiling height, the right power capacity, the right floor specification – doesn’t necessarily cost more to lease. But it requires knowing what you’re looking for and specifying it correctly in the market.”
Prological’s Pulse Check survey found that 52 per cent of businesses now favour long term operational efficiency over lease ($/m2) cost savings when making facility decisions.
“The property question and the automation question have to be answered together.”
Moving is not always the answer
Despite the focus on property availability, Jones says some retailers may find the best solution by improving the performance of their current footprint.
“We worked with two Australian businesses recently – a major homeware retailer and white goods and appliance distributor – both of whom had been advised to secure additional warehouse space. In both cases, we found significant hidden capacity within their existing facilities.
“The distributor’s CEO told us that when we first suggested all three of their warehouses could be consolidated into one, he didn’t think it would be possible. They not only made it work, they still have spare capacity.”
Jones says between 15 per cent and 25 per cent of warehouse space in most businesses is occupied by slow-moving and obsolete stock.
“Before committing to a new lease, it’s worth understanding whether you actually need to move at all. Property expansion locks in costs regardless of business performance. Efficiency investment carries execution challenges, but the risk profile is very different.”
Precision beats panic
For retailers with a lease event approaching, Jones says preparation will determine negotiating power.
“Act with precision, not panic,” he counsels. “Businesses that develop precise facility requirements – knowing what automation readiness looks like, ideal roof height, slab design, fire regulations, workflows based on inventory profile and velocity, which in turn impacts ideal width-to-depth ratio, what their distribution footprint should be, and so much more. Then, engaging the market with those clear specifications will secure the best outcomes.”
Jones says longer lease terms continue to deliver advantages: Higher incentive percentages, lower base rents locked in before any recovery, and annual increases starting from a reduced baseline.
“Businesses that can commit to seven to 10 years or more are in the strongest negotiating position.
“The window to do this well is not permanent. If your lease expires in the next two to three years, the conversation should be happening now,” he concludes.
