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The Australian head of a global commercial real estate powerhouse has shared his predictions for the year ahead.
Market conditions that benefitted adaptable investors will continue to make their mark felt in the coming 12 months, according to Colliers Australia CEO Malcom Tyson.
“Throughout 2023 it was apparent that higher returns favoured the agile, as opposed to those who advocated a return to normal was inevitable,” the Australian commercial expert commented.
“As investors diversified portfolios and increased allocation for alternative assets such as BTR, student accommodation and health sciences, successful landlords across traditional sectors such as office, industrial and retail embraced the flight to quality,” he noted.
And with uncertainty remaining regarding the trajectory of interest rates and economic fluctuations over 2024, Mr Tyson believes that well-informed investors will reap rewards in the form of highly prized asset acquisitions when the pricing gap between vendors and purchasers closes.
Under his management, Colliers’ Australian operation will focus on promoting the nation’s opportune position offering a diverse array of opportunities for global investors. According to the firm, investors are already starting to lay the groundwork for increased activity in the year ahead.
Colliers’ 2024 Global Investor Outlook reported an upswing in the proportion of investors planning to boost real estate allocations, with 75 per cent of APAC survey respondents planning to dedicate between 5 per cent and 20 per cent of their assets under management to real estate in the future, up from 64 per cent currently.
But with three main subsectors, Mr Tyson noted that there will be variations between how the industrial, office and retail markets behave. Here are his predictions for those categories in the year ahead.
Industrial
“We expect the strong value proposition and resilience of the industrial market to continue to be underpinned by tight incentives, low vacancy and rental growth,” Mr Tyson said.
He noted that while rents moderated slightly over the third quarter of 2023, the prime national weighted average rental growth rate came in at 4 per cent, which was still significantly higher than the previous decade’s average quarterly growth rate of 1.3 per cent.
“Rents continued to offset yields to ensure average national prime values increased by 2.1 per cent over Q3 2023,” Mr Tyson noted.
Over the year ahead, he sees this upward trend continuing on its current trajectory. With the subsector’s vacancy rate at 1 per cent – the tightest globally – he predicted that rental growth would continue to exceed the historical average rate, particularly given that 50 per cent of industrial supply for 2024 is already pre-committed.
Office
“Premium office rents and investor appetite will continue to elevate this asset class above the rest of the sector, with the yield spread between premium and A-grade assets set to expand,” Mr Tyson said.
Similarly, he predicted the spread between premium and B-grade office asset yields is likely to expand, as appropriate risk and costs are priced back into purchasing decisions.
Retail
In Mr Tyson’s view, demand will continue to outpace the market supply of Australian retail centres, as it did in the latter part of 2023.
Over the third quarter of 2023, the sector saw strong sales performance and positive rental growth across all retail assets and an average occupancy rate of 99 per cent nationally.
“Existing retail assets will reap the benefits of an undersupply of 2.2 million square metres of floorspace nationally by 2032, potentially absorbing an additional $20.5 billion in sales by today’s market metrics,” Mr Tyson predicted.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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