Australian Logistics & Industrial Capital Markets Outlook 2025

LOGISTICS & INDUSTRIAL OUTLOOK 2025

THEME 1: RBA TO REDUCE RATES FURTHER IN 2025

CURRENT CASH RATE 4.10% DECEMBER 2026 CASH RATE FORECAST 3.35%

For much of the past two years, there has been significant uncertainty around the direction of the cash rate, causing many investors to sit on the sidelines. However, with the RBA pivoting to rate cutting cycle in February 2025, further rate cuts are expected in the year ahead, although a more conservative path is anticipated. Our base case is for the RBA to cut rates by a further 50 basis points in 2025, followed by a 25 basis point cut in 2026, taking the terminal cash rate to 3.35% by Q4 2026. Where rates settle in the long term depends on productivity growth, demographics, as well as global factors; however, 3.10-3.35% appears the neutral setting. For rates to fall more substantially, it would mean the macro environment has deteriorated more aggressively – an outcome that wouldn’t bode well for warehouse demand as consumers remain cautious. For most investors over the past six months, the exact timing of rate cuts has been less important than the overall market direction, although rate cuts were already being factored into underwriting assumptions. By cutting rates, Australia has fallen in line with other major markets where up to 175 basis points of rate cuts in the current cutting cycle. In the markets where rates have been cut, recent sales evidence indicates that minor yield compression has already begun – a trend forecast to accelerate in 2025. Overall, now that rates have been cut in Australia, both sentiment and liquidity will improve, not only for L&I but also for the broader commercial real estate sector. It will also mean core assets will look increasingly attractive as positive carry for longer WALE assets emerges.