Commercial Property Outlook for 2024

The commercial property sector has navigated its share of challenges over the past year. Yet, as buyers and sellers recalibrate their expectations and financial strategies in response to the current economic climate, attractive opportunities are emerging.

The cash rate is currently at its highest since 2011, sitting at 4.35%. This specific economic condition has led to a nuanced performance across the commercial real estate landscape. Despite this, 2024 is poised to offer excellent opportunities to secure valuable assets at appealing prices, particularly in certain sectors that continue to thrive.

To fully appreciate the commercial market’s potential, it’s useful to examine its sectors individually, to forecast their performance in the coming year.

The medical sector, in particular, deserves special attention due to its unique dynamics and promising growth prospects. The demand for healthcare services is on an upward trajectory, fuelled by an ageing population and a greater focus on health and wellness among the general public. This trend has increased the need for medical properties, including clinics, specialist centres, and hospitals. Given the critical nature of healthcare, medical real estate has demonstrated resilience in the face of economic fluctuations, often offering stable and long-term returns for investors. This sector’s strength lies in its essential service offering, rendering it less sensitive to market volatility compared to other commercial properties. Consequently, medical properties are increasingly attractive to investors seeking reliable income streams and low vacancy rates. With the healthcare sector’s continued expansion and adaptability to technological advancements, medical real estate is set to provide compelling investment opportunities in 2024 and beyond.

In the retail sector, neighbourhood centres and fast-food outlets have emerged as areas of interest. Shifts in consumer behaviour, propelled by the rise of online shopping and the pressures of the cost of living, have led to varied impacts across the retail landscape. Properties centred around essential services and convenience have sustained high consumer demand despite economic headwinds. This trend is expected to carry on into 2024, favouring retail assets that focus on essential goods and services. Fast-food real estate, especially premises leased to major national and global tenants, offers particularly appealing opportunities for investment. These assets are characterised by long-term leases, CPI-linked rent reviews, and high underlying land values, which are especially attractive in today’s inflationary environment. However, such properties tend to be scarce, further heightening their appeal in the market.

The office sector is poised for a resurgence. Australia’s office market is gradually recovering from the impacts of the pandemic, with significant incentives still being offered to attract tenants. Nonetheless, this situation is expected to evolve, with the office sector becoming more attractive due to its potential yields, especially as the need for incentives decreases. Perth’s office market, for example, is showing signs of promise with increasing occupancy rates and declining vacancies, indicating a positive shift for 2024. Moreover, there is a growing preference for high-quality spaces that not only draw employees back to the office but also boost productivity. Fringe markets, such as West Perth, are offering near-term investment opportunities due to a shortage of new developments, presenting investors with a chance to capitalise on rising demand for prime/A-grade stock.

Looking ahead to 2024, the commercial property market is set to present exceptional opportunities, despite the challenges posed by the current high-interest rate environment. With rates at their highest point in over a decade, the market dynamics are shaping distinct opportunities. Those who position themselves strategically before interest rates adjust further may capture the most advantageous deals, highlighting the potential for significant investments in the coming year.