- Rising inflation and interest rates have been impacting capital values, globally, for commercial properties.
- A return to stronger economic growth is expected next year, combined with declining interest rates.
- There is a strong demand for Australian assets from major institutional and private investors.
Next year looks to be a turning point for commercial property markets in developed countries around the globe, including Australia, according to Knight Frank Senior Partner and Group Chair Will Beardmore-Gray.
“We have been seeing rising inflation and interest rates, which has been impacting capital values globally for commercial property,” he said.
“With rates likely to rise a little further in Australia, pressures on real estate capital values are likely to remain this year, but a return to stronger economic growth from 2024, combined with declining interest rate, is expected to lead to a notable improvement.”
Beardmore-Gray added that these themes will be reflected in Australia, and there’s plenty of cause for optimism in commercial property markets next year and beyond.
Although there is strong underlying demand for Australian assets from major institutional and private investors, many are waiting for greater clarity on the outlook, he said.
According to Knight Frank’s research, while formal valuations are only now starting to shift, it is estimated that prime and industrial yields have moved out by around 75 to 100 basis points.
“We expect deal momentum to gradually pick up once the Federal Reserve in the United States and RBA signal that they have reached the peak of the rate hike cycle as this will help instil greater confidence in the outlook and shift the focus to potential rate cuts in 2024 to 2025.”
Furthermore, Beardmore-Gray says he believes there are substantial opportunities for well-capitalised commercial real estate developers to secure the best sites for the delivery of new and upgraded space over the year ahead.
“There is a lack of high quality best-in-class office and commercial space and a need for greener and more environmentally friendly buildings in most major markets to meet more exacting occupier requirements and tighter environmental regulation,” he said
“We also believe there will be strong opportunities in the best located logistics properties, living sector accommodation and some specialist sectors, including healthcare and data centres, which are likely to receive a boost from AI data requirements.”
