Introduction
In 2023, approximately $5.1 billion in Logistics & Industrial (L&I) assets traded hands, maintaining levels consistent with pre-COVID averages. This level of resiliency was driven by offshore capital, primarily managed locally, subscribing to the sector’s growth outlook.
The Australian L&I sector continues to attract significant interest, with $45 billion in capital seeking investment opportunities. This interest is underpinned by the sector’s strong fundamentals, including a near-record low vacancy rate, limited uncommitted supply, and record levels of population growth supporting warehouse demand.
CAPITAL HAS RETURNED
As we head into 2024, capital that sat on the sidelines for much of 2023 has flagged their intention to re-enter the market, with the possibility of rate cuts in the second half of 2024 offering a substantial upside. A survey conducted by Cushman & Wakefield in late 2023 highlighted that nine in ten investors plan to invest in Australian L&I assets in 2024, the majority of which flagged to do so in the first half of the year.
2024 Outlook Timeline
2024 Outlook Key Takeaways
The Reserve Bank of Australia (RBA) is expected to pivot in H2 2024, with rate cuts likely as inflation moderates. The cash rate is widely viewed to be at its peak, and the anticipated rate cuts will provide relief to household balance sheets.
Economic growth is expected to slow to 1.2% in 2024. While the economy proved resilient in 2023, the 2024 outlook is contingent on consumer spending due to mounting cost of living pressures.
Population growth continues to underpin the economy and is expected to remain a key driver in 2024. The Federal Government’s Migration Strategy, released in late 2023, announced shifts in the migration system from students towards workers. Despite this, population growth in 2024 is forecast to total 1.8%, continuing to support warehouse demand.
Consumers have shifted towards non-discretionary retail items, leading to the outperformance of food retail. This trend is expected to continue in 2024, generating strong demand for cold storage warehouse space, as approximately 40% of goods stocked at supermarkets require cold storage provisions.
Australia remains an attractive and transparent market for global capital, particularly from Asia. Favorable tailwinds within the L&I sector and a weaker Australian dollar make Australia an appealing entry point for offshore groups.
With interest rates likely to remain flat over the first half of 2024 and cuts expected thereafter, the current yield expansion cycle has run its course. Greater clarity on the outlook for pricing will trigger a pick-up in transactional activity as capital returns in scale.
Rental growth in 2024 is forecast to ease from the 20%+ levels recorded over the past years, yet it is expected to outpace historical benchmarks. Infill locations are projected to outperform. At a national level, rents are forecast to grow by ~6.0% in 2024, while select infill markets are forecast to record growth closer to 8.5% - 10.0%.
In 2023, pricing premiums for scale were not evident. However, as capital re-enters the market in 2024, premiums for portfolio opportunities are expected to re-emerge. New offshore capital sources looking to enter the Australian market have flagged their intention to build scale quickly and both on-market and off-market portfolio opportunities will be highly pursued in 2024.
Contacts
Vivian Nguyen
Marketing & Strategy Manager, National Capital Markets, Logistics & Industrial
Melbourne, Australia