The outlook for the commercial property market the next 12 months was the focus of RWC’s first Between the Lines Live webinar for 2025.
Ray White head of research Vanessa Rader hosted the webinar, and was joined by RWC Western Sydney managing director Peter Vines and Stamford Capital executive chairman Domenic Lo Surdo.
The panel of experts started by reflecting on the year that was.
“2024 was a tough year for the commercial market, but we did see a flurry of activity towards the end of the year and a bit of confidence returning to the market,” Ms Rader said.
Mr Vines agreed that 2024 was a challenging year in commercial real estate.
“I think everyone was happy to see the back end of 2024,” he said.
“The cause of a lot of transactions at the end of the year was people sick of holding onto assets and deciding they just needed to dump it.
“There were pockets of light as there is in any market, but it was quite difficult overall.”
Mr Lo Surdo said 2024 was an interesting year for capital markets.
“We saw a number of new entrants and a lot of liquidity in the market which brought the cost of finance down,” he said.
“We were very active in a tough real estate market, and a lot of that was refinancing.
“But we’re looking forward to 2025 and seeing what this year has to offer.”
Mr Vines said there were some changes that needed to happen in order for the market to improve in 2025.
“What is required is valuations changing and resetting benchmarks,” he said
“Trying to do things below vals is very difficult. Once markets reset and values are there things become easier. That's with investment.
“Development is still pretty tricky and that space will be interesting this year.”
Mr Lo Surdo said the development market had been difficult.
“Construction cost escalation was the material impact,” he said.
“We were expecting to see land values adjust downwards last year but we didn't. We did see a little bit of an uptick in forced sales.
“With feasibility you should see land prices adjust down. Whether those adjustments come this year or not remains to be seen, but it might as some of the owners of those sites become over extended.
“But it is really hard. Finding labour is hard as well.”
Mr Vines said the liquidity in the market is really what has stopped transactions from occurring.
“You can see where land values should have come down, but they’re simply not transacting,” he said.
“The price of units hasn't really gone up. Serviceability is an issue, feasibility is an issue. Good real estate is really good and everything else is a bit more problematic.
“Where there is strength is for housing stock. Subdivision and townhouse stock are still really good and the build costs aren't the same.
“But unfortunately we need more units so we can have more rental stock. The end value of the stock must go up, I don't see any other answers.
“We need more investors in the market and government incentivisation.”
Ms Rader asked the panel whether they thought build-to-rent (BTR) had a place in the market, to which Mr Vines and Mr Lo Surdo agreed it did.
“BTR is certainly an institutional asset class. I think it has a place and has an important part in fixing the housing problem,” Mr Lo Surdo said.
“I think the government needs to mobilise the middle market. We think that is the real solution, not necessarily BTR.
“But there is a place for it and places it will work. It doesn't stack up from a middle market stand point, but it can work for those institutions.”
Mr Vines said BTR had to be part of the Australian market in the future, as people owning their own homes became less common.
“I believe owning a home is not necessarily the Australian dream any more, and it’s now about lifestyle rather than a need to own real estate,” he said.
“So there has to be a place for BTR as it’s not sustainable for renters to have to move home every 12 months.
“There's a lot of properties earmarked for it and I hope they get out of the ground.”
With allocated industrial land in short supply, Ms Rader asked if the demand for industrial property would continue in 2025, and whether this year would see more industrial development.
“There’s a real weight of institutional capital that loves to play in that field. Data centre space and warehouse space will only continue to grow,” Mr Vines said.
“However, stacking projects up when it comes to servicing land is difficult. Infill locations people will pay a higher price for because the services are there.
“The onslaught of demand we saw off the back of Covid has settled. But again good real estate is really good real estate, and the rest is a bit more difficult.”
Mr Lo Surdo said industrial was still a great market with plenty of demand.
“The industrial sector has been very well supported through the debt and equity markets over the past few years,” he said.
“There has been some concern around capital marketers moving away from industrial, but I don't share that view.
“In the industrial market 20 years ago no one wanted to do it, but there’s been a real shift and I think it’s permanent.”
