Australian Logistics & Industrial Capital Markets Outlook 2025

LOGISTICS & INDUSTRIAL OUTLOOK 2025

THEME 3: CAPITAL SOURCES TO BECOME MORE DIVERSE

While traditional players are expected to remain active in 2025, new capital sources are expected to emerge from offshore markets. While this will include traditional dominant markets such as Singapore, Hong Kong and the US, capital inflows are expected to become more pronounced from Japanese and European-based capital. Global investors are seeing the impact that rate cuts are having on pricing in overseas markets, and with Australia lagging in this respect, many view Australia as opportune in the cycle. This has more recently included enquiry from US based pension funds. Globally, of the top 10 most active buyers of L&I assets over the past two years, four are currently not present in the Australian L&I market, including Prologis and Pontegadea out of Spain (seven of the top 15 are not present). However, a selection of these investors have more recently flagged their intention to expand into Australia, with several more recently undertaking market and sector due diligence. Offshore capital is increasingly seeking more direct control over their investments, and a further shift in pooled wholesale funds to mandates and co-owner joint ventures is expected in 2025. In most cases, offshore groups still prefer domestic managers to oversee acquisitions and the management of assets, albeit different structures will be adopted in 2025. The current environment provides the opportunity for quality managers to showcase their capital management skills, which will assist in unlocking capital partnerships in 2025. After acquiring almost $2.3 billion over the past two years, Australian superannuation funds are expected to remain dominant players in 2025. While REST, Aware Super and Unisuper have been the most active players, we expect greater direct participation from other major funds, particularly as many now have internal real estate teams. At the same time, super funds are expected to remain active via managers, including Australian Retirement Trust with Mirvac and Cbus with Dexus. Others, including IFM, will remain focused on development. A key theme that played out in 2024 was private investors/family offices participating in price brackets historically dominated by institutional groups. Almost $500 million was traded to privates in deals above $50 million for the year. Well-capitalised private investors are likely to remain opportunistic in 2025, where unlike most institutions who are focused on yield, private investors pay greater attention to the underlying real estate fundamentals, including rate per sqm and replacement costs. In several major acquisitions to privates/family offices in 2024, the yield paid was much lower than what institutions could have paid, given the inability to access the rental upside in the short term, yet the assets were bought well below replacement cost.