Logistics & Industrial Capital Markets 2024 Outlook Report

Figure 29. Prime L&I Yields by City

9.0%

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20

Jun-21

Jun-22

Jun-23

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

Dec-20

Dec-21

Dec-22

Dec-23

Sydney

Melbourne

Brisbane

Perth

Adelaide

Source: Cushman & Wakefield

Will yields rise further in 2024? The outlook for yields remains dependent on where interest rates head in 2024. The RBA is expected to pivot in 2024, and rates are forecast to remain stable in the first half of the year before rate cuts later in 2024. As a result, the market is expected to reach an inflexion point by Q3 2024, where rates and bond yields start moving lower, and credit can flow more freely. Based on the outlook for interest rates, our view is that the yield expansion cycle has run its course, albeit book values through valuations will still need to be adjusted to reflect current pricing.

Greater participation in the market is now expected given that capital has returned, and in tandem with an expected falling interest rate and bond yield environment, there is scope for modest levels of yield compression in early 2025. For secondary assets, it is likely that the yield spread to prime assets widens in 2024 as groups become more selective in light of moderating rental growth. Similar to what is occurring in the office market, a flight to quality is expected to play out in all markets. The outlier to this will be precincts with high underlying land values where secondary assets are bought for redevelopment, as has been the case in markets like the Inner South West of Sydney.

CAPITAL MARKETS 2024 OUTLOOK | 32