Australian Logistics & Industrial Capital Markets Outlook 2025

LOGISTICS & INDUSTRIAL OUTLOOK 2025

THEME 5: INVESTOR MANDATES EXPECTED TO SHIFT BACK TO CORE

For core strategies, the narrative is changing, with the market currently at an inflection point in the cycle. After two years of market pricing dislocation and further rate cuts on the horizon, 2025 represents an opportunity to deploy capital in a period before a yield compression cycle begins. Similarly, core ‘trophy’ assets rarely trade, supported by the underlying capital structures that typically invest with a long-term investment horizon. However, asset recycling he narrative is changing, with the market currently at an inflection point in the cycle. arket pricing dislocation and rate cuts on the horizon, 2025 represents an y capital in a period before a yield compression cycle begins. Similarly, core ‘trophy’ de, supported by the underlying capital structures that typically invest with a long zon. However, asset recycling programs in 2025 will create opportunities for rarely assets have incurred a negative carry, whereby market yields have been below that par). This has been the catalyst behind significant capital appetite for shorter WALE e the ability to reset rents at market rates, while providing an income yield above ome has not been possible for longer WALE assets, particularly those without as a result, demand has waned. However, with debt costs forecast to decline in or core longer WALE assets will again provide a positive carry, even without yield will support an expanded core buyer pool as debt becomes accretive to income ook value cap rates will also support greater capital appetite for core, as vendors willing to trade at discounts to book value. This gap has now been bridged and rd will be able to meet the market more appropriately. here value was created through record levels of yield compression, value growth in ected to be more balanced between income returns, as yields are higher, and e yield compression is expected to be less pronounced than the previous cycle as ach the same low point. As a result, greater attention is expected to be paid to als, income security and cash flow. reap the benefits in the first half of the year before competition intensifies in the E 5: INVESTOR MANDATES CTED TO SHIFT BACK TO CORE

National Prime L&I Yield vs Debt Costs Portfolio vs Single Asset Market Yields

6.0%

5.5%

National Prime Market Yield

5.0%

Positive carry - Debt costs are below yields

4.5%

Negative carry - Debt costs are above yields

4.0%

4.0%

4.5%

5.0%

5.5%

6.0%

Indicative Debt Cost

programs in 2025 will create opportunities for rarely traded assets. Since mid 2022, core assets have incurred a negative carry, whereby market yields have been below that of debt costs (or on par). This has been the catalyst behind significant capital appetite for shorter WALE assets, which provide the ability to reset rents at market rates, while providing an income yield above debt costs. This outcome has not been possible for longer WALE assets, particularly those without market reviews, and as a result, demand has waned. However, with debt costs forecast to decline in 2025, market yields for longer WALE assets will again provide a positive carry, even without yield compression, which will support an expanded core buyer pool as debt becomes accretive to income returns. 2022 2023 2024 2025 2026 Source: Cushman & Wakefield Research

AUSTRALIA L&I OUTLOOK 2025 29

d

Source: Cushman & Wakefield Research