Logistics & Industrial Capital Markets 2024 Outlook Report

What is the outlook for capital in 2024?

Looking into 2024, transaction volumes are expected to originate from a variety of sources. As book values reset further in 2024, AREITs are expected to again be net sellers in 2024 and most product is expected to trade from such sources as asset recycling programs are progressed further given liquidity constraints. While distress is not expected to become a widespread feature within the market, given low gearing levels, select investors will become under pressure to sell, particularly those with upcoming loan maturities. The most problematic loans will be those that originated in late 2021 with three-year terms, as assets were bought at record-high prices and record-low mortgage rates. On the buy-side, AREITs are expected to remain selective in their acquisitions and will largely only participate in assets of strategic importance, including adjoining existing assets. 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 2024. In most cases, offshore groups still prefer domestic managers to oversee acquisitions and the management of assets, albeit different structures will be adopted in 2024. As a result, acquisitions from domestic unlisted funds on behalf of offshore capital will remain major players in 2024.

In the current economic environment and given the expected further slowdown in consumer spending in 2024, corporate sale and leaseback activity is also expected to increase as pressure on business balance sheets grows. In doing so, this will provide corporates with an opportunity to release capital that would otherwise be tied up on their balance sheet and then reinvest the funds back into the business to fund future growth opportunities or to reduce debt. Increased corporate M&A activity will also support this trend as private equity groups acquire businesses and then split out the real estate components. Following on from an active 2023, superannuation funds are expected to remain dominant players in 2024. The Australian superannuation sector is valued at $3.5 trillion; however, allocations to property (listed and unlisted) are estimated to be just 8%. With super balances growing by more than $42 billion in the 2023 financial year, Australian super funds are expected to increase their participation in property further in 2024, and L&I will capture a large share of this given the superior growth prospects when compared to other sectors. Private investors will continue to be selective in bringing assets to market in 2024, particularly as most are under no pressure to sell. In this case, they are expected to become more active vendors in the second half of 2024 as they wait for pricing to recover and capital to return. Interestingly, our Capital Markets survey supports this view, as private investors/developers were the dominant investors to flag their intention to divest assets in 2024. At the same time, well capitalised private investors are likely to be opportunistic in 2024 as REITs continue with their capital recycling programs to fund redemptions.

33 | CUSHMAN & WAKEFIELD | LOGISTICS & INDUSTRIAL