More than 150 people tuned in to watch RWC’s final Between the Lines Live webinar for 2024, with our panel of experts reflecting on the past 12 months and sharing their outlook for 2025.
Ray White head of research Vanessa Rader was joined by RWC Capital Transactions director Ian Hetherington to discuss the market for office, industrial and retail assets.
Ms Rader described the 2024 commercial property market as “rocky” with transaction volumes down across all states and asset classes.
Mr Hetherington said he felt like the market was in a transitional phase post-covid.
“We’ve seen a natural extension of what came out of the covid era when we saw record low interest rates,” he said.
“Now we’re dealing with the consequences of that, with higher inflation and interest rates.
“During covid borrowing costs were about 1.75 per cent, and those borrowing costs are now probably more like 5.5-6 per cent. That has an impact on yields and what people are willing to pay for property.
“It looks like now we won’t get a rate cut until mid-2025.
“However, this is a chance to buy assets you can't normally buy. This repricing of the market that we’re going through creates opportunities.”
With the office market the hardest hit asset class over the last few years, and very few transactions being made, Ms Rader and Mr Hetherington said the outlook for the office market was location and asset dependent.
“The lowest yields we had during the pandemic were 4.5 per cent, so the 6.25- 6.5 per cent yields we’re seeing now are a big hit,” Mr Hetherington said.
“We have a lot of treading water in the market at the moment which is caused by uncertainty.
“It’s clear you can't throw a blanket over the whole market, with different assets performing differently.
“Premium is very strong with high occupancy, most buildings in Sydney are trading at 98 per cent.
“In Sydney, north of King Street in the core is performing well, but those south of King Street are a lot harder.
“We're definitely seeing a pivot to premium.”
With the Melbourne office market performing the worst Ms Rader asked Mr Hetherington what his outlook was for Melbourne.
“In Sydney, the transactions that are happening are from offshore investors, but in Melbourne they tax offshore transactions hard. So I think we will see a bigger focus on Sydney and Brisbane,” Mr Hetherington said.
“In Melbourne the push to get back to work doesn’t seem as strong. I think overall Melbourne will lag behind the other markets.”
With industrial being a favoured asset class over the past few years, Ms Rader asked Mr Hetherington how the industrial market was faring.
“The industrial market has been pretty resilient, but demand is probably going to slow,” Mr Hetherington said.
“Demand for industrial is usually inline with GDP which is slowing so demand is slowing.
“The number one driver for the industrial is a scarcity of land, with no new stock coming to market.
“I believe industrial is going to outperform. Yields are still outperforming the rest of the commercial markets.”
Ms Rader said retail was one of her top picks for 2025, with an increase in transaction volumes over the past few months. Mr Hetherington agreed it was performing well.
“Retail went through the pain earlier than everybody else, so they’ve made the adjustments they needed to make,” Mr Hetherington said.
“Retail has an attractive cash-on-cash return, as opposed to an office that is affected by incentives and things like that.
“There has been a lot of investment from those mum and dad investors because you can't live on capital gains but you can live on income.
“We will probably see retail keep attracting serious amounts of capital in 2025.”
