- Experts predict various economic challenges will subside mid-2024.
- Following that, interest rate cuts are also expected.
- Values are predicted to retrace higher by circa 10% between Q3 2024 to end of 2026.
The Australian real estate market is set for greener pastures in the second half of 2024, with experts forecasting the end of major economic challenges and cuts to the official cash rate.
Cushman & Wakefield’s recent Glide Path to Clearer Skies report includes new research that expects the downward trend in Australia’s property market, particularly in the commercial real estate sector, will reverse in the September quarter of 2024.
Cash rate cuts forecast for late 2024
The research suggested that interest rate cuts could materialise as expected once economic risks, including the fixed-rate mortgage cliff and inflationary pressures, subside.
Alongside economic factors, banks are due to repay their Term Funding Facilities issued at a lower cost during COVID, likely to restrict credit in the first half of 2024.
Term Funding Facility was introduced by the Reserve Bank of Australia (RBA) in 2020 to mitigate the shock of the Covid pandemic on the Australian economy. The funding facility provided low-cost funding to banks at a three year term to ensure that credit continued to flow into the real economy.
After these points in the cycle, the research predicts that values will retrace higher by approximately 10% between Q3 2024 and the end of 2026.
Cushman & Wakefield’s All-property Value Index (APVI), tracking all commercial sub-markets, climbed 115% between 2013 and its peak at the end of 2022. The APVI then declined by 6% to June 2023, with a forecast total decline of approximately 15% over the period to Q3 2024.
Although property values have declined modestly, comparing the 6% decline in the APVI to the 26% drop in the S&P A-REIT Index indicates listed property values may have overcorrected while unlisted property has further to fall, according to the report.
One factor supporting the 10% retracing between Q3 2024 to 2026 is the magnitude of global dry powder targeting the real estate sector. The report puts the figure at $400 billion.
Over four fifths (81%) of that $400 billion comprise yield-seeking investors running opportunistic, debt and value-add strategies.
“To understand the depth and duration of the current market pressures, we’ve looked closely at financial and macroeconomic indicators and their bearing on CRE fundamentals and capital markets activity,” said Cushman & Wakefield’s national economics and forecasting manager, Sean Ellison.
“Our modelling suggests an inflexion point in mid-2024, where rates and bond yields start moving lower, and credit can flow more freely. That can help restore capital markets confidence and increase transaction volumes, which, in turn, supports a rebound in values.”
Sean Ellison, Cushman & Wakefield
“There are certainly risks remaining in a highly dynamic market. However, we see that a softer landing relative to other global economies and the attraction to the Australian commercial real estate market will help the eventual recovery gain momentum.”