The commercial real estate (CRE) market is showing signs of recovery as investors anticipate global interest rate cuts, according to new research from Cushman & Wakefield.
The firm’s Australian CRE Glidepath study indicates that investment volumes are already gaining positive momentum, with Q2 transactions totalling $10.1 billion, more than double the $4.9 billion seen in Q1.
While the Commercial Property Price Index (CPPI) is forecast to decline 8 per cent peak-to-trough before bottoming out in Q1 2025, investor sentiment is improving.
The proportion of CRE professionals viewing the market as being in a downturn has dropped from nearly 75 per cent in Q4 2022 to 45 per cent in Q2 2024.
This figure now roughly equals those who see the market as having reached bottom or entering the early stages of an upturn (43 per cent).
Sean Ellison, Cushman & Wakefield’s National Economics and Forecasting Manager, stated: “As we pass through the cyclical bottom and the direction of rates becomes clearer, the subsequent recovery in volume is allowing for prices to adjust across the commercial property market.”
The research predicts that aggregate investment volumes will continue to rebound through 2025, reaching $47 billion for the year as clarity on interest rates helps narrow bid-ask spreads between buyers and sellers.
This is expected to stabilise capitalisation rates throughout 2025, with compression beginning in 2026.
Among property sectors, retail is positioned to lead the recovery in values, with the CPPI forecasting a 16 per cent upward repricing from Q4 2024 to 2030.
Logistics and industrial assets are expected to see a 19 per cent price increase between Q1 2025 and 2030, buoyed by strong rents and low vacancies.
The office market, which has been most affected by cap rate expansion, is predicted to experience the most significant rebound of 28 per cent from Q1 2025 to 2030.
However, values are not expected to reach the peak levels seen in Q2 2022.
Alternative assets are projected to play a larger role in overall CRE investment volumes, rising from $9.3 billion in 2024 to $11.5 billion in 2025.
These assets are forecast to comprise about 25 per cent of overall CRE transaction volumes over the next 5 years, up from 15 per cent in the 2015-2019 period.
Dr Dominic Brown, Cushman & Wakefield’s Head of International Research, noted that approximately $70 billion in capital across Asia Pacific is waiting for the right moment to re-enter the commercial property market.
“Almost two-thirds of that forms part of opportunistic, value-added or debt strategies and is searching for higher yields, and Australia remains a preferred destination for capital across the region,” he said.
As the CRE market navigates this transitional period, investors and industry professionals will be closely watching for further signs of recovery and opportunities in the evolving landscape.