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A number of commercial sectors appear in need of a new year reset, with competition already ramping up in several asset classes.
Savills Australia has an “optimistic outlook for the coming year”, according to its Spotlight on 2025 report, with the major firm predicting a new cycle for commercial real estate characterised by increased risk appetite, heightened competition among investors, and a surge in transactional activity.
Chris Naughtin, Savills Australia’s national director of capital markets, said given the strengthening fundamentals across the sector, the firm was anticipating “increased risk-on activity in 2025” that will bring a welcome level of turnover into the market.
“Investors are now in the process of recalibrating risk-return expectations, a strategic move that is being carried out with a heightened focus on deploying capital to drive returns through targeted income growth strategies,” he said.
“The drive will be on unlocking value, so we expect greater competition in particular subsectors of the market, with greater resilience in beds and sheds as well as data centres, retail and centrally located prime offices,” he added.
Among the biggest trends expected in 2025, here are the sectors expected to experience a high level of activity, according to Savills.
Data centres
Based on investor activity, Savills believes this AI-driven market is being turbocharged by a level of “data centre FOMO” that’s causing heightened activity among investors looking to enter the sphere.
“AI growth is set to accelerate through 2025, intensifying demand for power and grid infrastructure. This shift will put the spotlight on how the market navigates land and power constraints amid surging data centre demand,” Savills explained.
In the year ahead the firm expects to see increased investment in the data centre pipeline, which will see investors looking for traditional industrial sites compete with those interested in developing sites to service data needs.
“This demand will heighten pressure on renewable energy goals due to their substantial power requirements, and present significant opportunity for growth,” Savills predicted.
Premium office assets
In the office market, the so-called “flight to quality” is set to continue in the high end, contracting vacancy rates in the subsector even as mid-range assets fail to gain steam.
This could see some investors look to upscale investments to leverage them into the premium market.
Location will prove to be key here, too, as more companies seek out central locations to entice workers back to the office. Offices with higher amenities and quick access to transit will be the targets in 2025.
Land
In the 12 months ahead, Savills expects to see more investors locking down land as part of a “long play” to get ready for forthcoming development.
The land that’s expected to be targeted will be appropriate for sectors with the most robust development pipelines, such as industrial – including logistics, last mile and data centres – residential, childcare and life sciences.
Industrial
Not so much a shift here – rather a continuation of the firm favourite of the past few years – industrial is expected to continue to attract attention, even as the sector fails to achieve the level of growth witnessed during the immediate post-COVID-19 years.
Savills sees that “a strategic recalibration is underway” in the logistics sector, with investors deploying capital to “develop or reposition properties in high-demand, growth-oriented markets, aiming to expand sector exposure and enhance returns”.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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