Australia's industrial property sector encompasses assets ranging from manufacturing plants to logistics hubs and warehouses.
According to Knight Frank's Australian Horizon 2025 report (opens a new window), Australia's industrial property sector is poised for substantial growth in 2025
This anticipated growth is reinforcing investor confidence, leading many property developers and investors to expand their portfolios in the industrial space.
For developers and investors, understanding the key factors that influence project feasibility is essential.
Here are the critical considerations for developers and investors in the Australian industrial property market:
Key risks facing industrial properties
Fire and explosion
Industrial sites, especially those involving heavy machinery or combustible materials, are at high risk of fire and explosion. Electrical faults, chemical reactions, and equipment failure are common triggers.
Faulty machinery or breakdown
Mechanical or electrical breakdown of essential equipment can disrupt operations, leading to production delays and financial losses.
Pollution and Environmental Liability
Industrial activities may lead to accidental pollution, attracting significant cleanup costs, regulatory penalties, and reputational damage.
Theft and vandalism
Warehouses and storage facilities are often targets for theft. Remote locations and limited security heighten this risk.
Business Interruption
Any physical damage or operational disruption can halt production and cause significant revenue loss, underscoring the importance of business interruption (BI) coverage.
Occupancy and Associated Risks
Tenants with high-risk exposures drive property owners' insurance premiums. To mitigate this, it is crucial to demonstrate to insurers the risk management procedures in place by providing evidence of the following: thermographic scans, sprinkler block plans and sprinkler flow tests, sprinkler impairments procedures, hot works procedures, contractor induction programs, swiftly actioning risk recommendations, amongst others.
Providing cover for chemicals/batteries/machinery activities undertaken by tenants, specifically handling/manufacturing/storing highly flammable/combustible items, including chemicals and lithium batteries, can be a challenge for insurers.
EPS/Cool rooms used to store food are often constructed with EPS, which can be flammable and combustible. Property owners and their insurance brokers need to be able to articulate this to insurers by advising what product is used (different products have different flammable ratings), what % of the floor space the cool rooms take up and whether the site is sprinkled with the applicable sprinkler specifications.
Older buildings constructed before the 1990s can have a large percentage of the building constructed with asbestos materials, specifically the roofs. If asbestos has been located, the insured should put in place an asbestos management plan. An Asbestos Management Plan and asbestos Register are used to identify and document asbestos risks and the safety procedures that must be followed to minimise exposure. Disclosure to insurers is critical, so brokers need to know as much information as possible.
Insurers generally dislike insuring vacant sites and are applying onerous terms, including significant rate increases and inflated deductibles. The best defence against the majority of losses is having people physically on site, so whilst vacant, the likelihood of losses significantly increases, specifically from third parties breaking in and causing damage.
Industrial Special Risk (ISR) Insurance: Essential for protecting assets
Given the unique risks associated with industrial properties, securing comprehensive insurance coverage is a cornerstone of effective risk management.
Industrial Special Risk (ISR) insurance policies are specifically designed to protect against a range of potential risks, including property damage, natural disasters, and business interruptions.
For developers and investors, maintaining adequate insurance coverage is not just about mitigating potential losses; it's about helping to ensure the long-term profitability of their assets.
ISR policies can offer tailored protection, reduce administrative burdens, and help ensure that assets are adequately covered in the event of unexpected events.
This can be particularly important in the industrial sector, where the impact of damage or disruption can be costly and potentially long-lasting.
Final thoughts
The Australian industrial property sector is on the rise, as reported in Knight Frank’s Horizon 2025 (opens a new window) report, which quotes their Head of Industrial Logistics, James Templeton, who said:
“The industrial sector remains one of the strongest sectors of the Australian commercial property market.”
[PC1] However, despite its growth, success within this space often depends on thoughtful planning, careful risk management, and ensuring assets are adequately protected.
Particularly in an environment where risks can fluctuate rapidly, maintaining appropriate cover for assets and integrating effective risk management strategies are vital to ensure sustained success in the sector.
A proactive, customised approach - combining appropriate insurance products with robust risk management is essential to help protect assets, maintain operations, and comply with evolving regulatory requirements.
For more information on managing risks within the industrial property sector or to determine whether an ISR policy or other insurance solutions are suitable for your property portfolio, please contact Lockton's Real Estate and Construction team.
The contents of this publication are provided for general information only. Lockton arranges the insurance and is not the insurer. While the content contributors have taken reasonable care in compiling the information presented, we do not warrant that the information is correct. The contents of this publication are not intended as a legal commentary or advice and should not be relied on in that way. It is not intended to be interpreted as advice on which you should rely and may not necessarily be suitable for you. You must obtain professional or specialist advice before taking, or refraining from, any action based on the content in this publication. © 2025 Lockton Companies Australia Pty Ltd.
