Logistics & Industrial Capital Markets 2024 Outlook Report

When will capital reactivate and what strategies will investors use to acquire assets in 2024?

As more certainty emerges around the outlook for interest rates, both in Australia and globally, capital that is sitting on the sidelines will be encouraged to participate again. While institutional capital was very selective in 2023, the amount of dry powder on the sidelines is significant, and groups will be under pressure to deploy this capital now that debt markets have likely stabilised. Despite recent headwinds, history shows that the strongest returns follow periods of dislocation and financial stress, and this is why capital tends to become more active once an interest rate expansion cycle ends. Despite capital returning, the biggest challenge will remain a modest disconnect in pricing between select vendors and buyers. Alongside this, banks are due to repay their Term Funding Facilities issued at a lower cost during COVID, which will likely restrict credit in the first half of 2024. The unwinding of book values has further to run in 2024; however, we anticipate this will largely occur in the lead-up to the June valuation cycle period. Despite this, both domestic and offshore capital have reactivated and have begun to participate in recent campaigns.

Once the bid-ask spread reaches its inflection point towards the end of Q2 2024, a further pick-up in transaction activity is expected as both vendors and buyers meet more easily on pricing. The lower volatility of the sector, given underlying tailwinds, will mean that the market stabilises prior to other sectors, and investment decisions can be made with confidence. We are currently tracking $45 billion in capital that is seeking to be placed in the Australian L&I sector, most of which has been inactive over the past 12 months. However, with this capital now returning, it will create greater competition for assets, and given that just $6.5 billion has traded on average per annum over the past decade (majority of which has been for sub $50 million assets), investors will need to be creative to build scale. This may include strategic partnerships and joint ventures, sale and leaseback opportunities, asset swaps, alternative use site acquisitions and land development. The current environment provides the opportunity for quality managers to showcase their capital management skills, which will assist in unlocking capital partnerships in 2024.

CAPITAL MARKETS 2024 OUTLOOK | 36