What asset classes are in – and out – for 2024

In a significant shift, lenders are favouring investments in alternative Australian property assets over office and retail properties.

In another uncertain year of work from home versus the office, investors are heading towards a more stable asset class, a new survey shows.

Cloudy future: The barometer is falling for office tower values.
Cloudy future: The barometer is falling for office tower values.Credit: Steven Siewert

CBRE Research tapped a mix of 40 local and international banks and non-bank lenders for its first-half Lenders Sentiment Survey.

The results highlight a flattish appetite for new Australian property loans over the next three months, with 37 per cent of respondents wanting to grow their loan book and 10 per cent wanting to reduce it.

However, the most noticeable shift has been in the appetite for investing in alternative assets such as data centres, healthcare, life sciences, childcare and self storage, which has more than doubled since CBRE’s first-half 2023 survey.

CBRE’s managing director of debt and structured finance Andrew McCasker said the industrial and logistics sector had retained its mantle as the most sought-after asset class for debt investment, given the sector’s low vacancy rate and rental growth.

‘Those who embrace change and invest in cutting-edge solutions are likely to thrive in this dynamic environment.’

Guy Bennett, Cushman & Wakefield

“However, we have seen a significant uptick in the appetite to lend on alternative assets following a marked increase in sales volumes and equity side investment appetite to build exposure to these emerging asset classes,” McCasker said.

For the overall survey, CBRE associate director, debt and structured finance, Will Edwards, said the results provided a level of reassurance around the availability of debt capital for refinances.

Advertisement

“The survey responses indicate that more than half of lenders have less than 25 per cent of their loan book maturing in any given year from 2024 to 2026, with no indications of a significant debt-maturity cliff in Australia,” Edwards said.

Guy Bennett, Cushman & Wakefield’s managing director for Australia and New Zealand, believes the 2024 commercial real estate market is poised for “continued growth and transformation”.

“With advancements in technology, a shifting workforce landscape, and evolving consumer preferences, the industry is adapting at a rapid pace,” Bennett said.

“As a result, office spaces are likely to be redesigned to accommodate collaborative areas, tech-enabled meeting rooms, and co-working spaces. Expect a focus on wellness amenities and sustainable features to attract tenants.”

He said the demand for industrial spaces, driven by e-commerce and logistics, would remain robust.

“Warehousing and distribution centres will adapt to accommodate last-mile delivery services, emphasising efficiency and proximity to urban centres. Sustainability initiatives, such as green warehouses and eco-friendly packaging, will gain prominence,” Edwards said.

But he said challenges remained, particularly for the office sector.

Edwards said that although rapidly rising interest rates had led to a degree of caution among investors, “we expect that a pivot by the Reserve Bank in the second half of 2024 will ease credit conditions and support a recovery in the investment market”.

“Despite the positive outlook, challenges such as rising construction costs, supply chain disruptions, and regulatory changes may impact the commercial real estate industry in 2024. Navigating these challenges will require adaptability and strategic planning from industry stakeholders.

“Those who embrace change and invest in cutting-edge solutions are likely to thrive in this dynamic environment,” he said.

The CBRE survey said, on the construction front, commercial construction lending “pre-lease requirements” had separated between industrial and office assets, “with the largest cohort of respondents indicating no pre-lease requirement for industrial construction lending but a more than 60 per cent pre-lease requirement for office construction”.

“We anticipate this will start to play a role in office asset construction and redevelopment being pushed back or postponed indefinitely, except for well-capitalised landlords,” Edwards said.

“For residential, nearly 60 per cent of lenders expect over two-thirds of the debt component of construction finance to be covered through pre-sales, which will continue to weigh on future supply.”

Financiers have maintained their appetite for well-located, high-quality build-to-rent assets across Australia, with build-to-rent ranking second behind industrial on the list of preferred asset classes for new investment.

The survey also highlights that more offshore banks and non-bank lenders have grown their appetite for this asset class since CBRE’s last survey, with Edwards noting that transactional evidence around cap rates and rents was expected to propel sentiment towards the sector moving forward.

According to Savills Australia’s Spotlight on 2024 Report, industrial, hotels, and alternatives will be among the most popular asset classes in 2024, as greater clarity around the interest rate outlook and further pricing adjustment drives a recovery in investment activity.

Savills expects that ongoing strong population growth and a recovery in tourism will continue to boost consumer demand, supporting demand for space in the industrial, retail and hotels sectors.

Residential investment, including the build-to-rent sector, will become increasingly attractive as population growth, coupled with limited supply of housing, drive an acute shortage of housing. Strong investor interest in student accommodation is also expected in 2024, says Savills, driven by the rebound in international student flows.

“The sectors that are benefitting the most from tailwinds are industrial and logistics, hotels, multifamily residential and student accommodation, and these sectors remain attractive to investors due to robust population growth, and the rebound in tourism and international education,” said Chris Naughton, national director, capital markets – research at Savills Australia and New Zealand.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.

Most Viewed in Business

Source: Thanks smh.com