This article is from the Australian Property Journal archive
REAL asset sector demand in 2024 is set to be boosted by ongoing population growth and the expected peaking of the interest rate cycle.
According to the latest Dexus Australian Real Asset Review for Q1 2024, a forecast fall in interest rates for FY25 is anticipated to be major positive factor impacting real asset valuation, with investors factoring in the expected lower cost of capital.
With the RBA hiking the cash rate to 4.35% in December 2023 and the 10-year bond yield dropping 50 basis points to 4.0% in the last quarter of the year, the cash rate is being seen as nearing a peak, with falls possibly beginning as soon as late 2024.
“Of the real asset sectors, office, retail and industrial are likely to be more sensitive to economic conditions than some other real asset sectors such as healthcare, student accommodation and infrastructure,” said Peter Studley, head of research at Dexus.
“The longer-term demand outlook for all real asset sectors will be buoyed by population growth and stabilising interest rates.”
Australia’s population grew by 624,100 people or 2.4% in the financial year to Q2 2023, thanks to a surge in net migration, this when combined with the expected peaking of should provide investors with a greater confidence in the outlook for real assets.
Q4 saw Australian shares returning 8.4% and 12.4% for the year, with AREITS returning 16.6% for the quarter and 17.6% for the year.
In 2024, transaction markets for real assets are expected to be more active, with the robust performance of the listed real estate market in the last quarter of 2024 indicating shifting sentiments as investor confidence rebounds.
On the other hand, unlisted property returns recorded negative movement over Q4 2023, with the wholesale fund benchmark return down 6.7% in the year to December 2023.
Industrial property returns saw strongest performance of the real estate sectors at -1.7%, followed by retail at -2.3%.
While office returns were the weakest at -10.1%, as major declines in valuations of office buildings were recorded over the year.
“Real estate transaction volumes were significantly lower in 2023 than in the previous two years,” added Studley.
“Office transactions were the lowest seen in a decade, due in part to significant declines in asset valuations and hesitancy among investors given high levels of vacancy.”
