Knight Frank update: 2024 shaping up to be a better year for commercial property investors

According to the latest research from Knight Frank, 2024 is on track to be a more favourable year for commercial property investors. The real estate consultancy’s Horizon 2024 report update, titled “Window opening as twin gaps close,” has found that the predictions made in their November 2023 report are coming to fruition due to three key developments in the market.

Chief Economist Ben Burston highlighted the first development, stating, “Since October, inflation in the major global economies has fallen substantially, and as each month passes we are getting closer to a turn in the interest rate cycle, with Europe leading the way in shifting to rate cuts.” He added that forward rates in Australia currently suggest a 50 basis point drop in the cash rate by the end of 2025, with many forecasters anticipating larger reductions.

The second development is the narrowing of the gap between buyer and seller pricing expectations, with valuations falling further in Q4. Burston noted, “Substantial progress has been made to narrow the first of two wide gaps that have prevailed since early 2022 – that between buyer and seller expectations.”

The third development is the shift in the outlook for relative returns across asset classes. “The shift to a more dovish posture on the outlook for base rates has generated a strong rally in bond and equity markets globally, with Australian REITs mounting a strong comeback,” Burston explained. “This has effectively closed the second gap that has impacted sentiment over the past two years – the gap between pricing in public markets and slower moving private markets.”

Burston believes these developments will start to entice investors back to the market, stating, “After an extended period of inactivity, major domestic institutions and cross border investors will be reappraising the outlook and some will choose to flick the switch back to acquisition mode.”

However, he cautioned that the adjustment of formal valuations has not entirely played out and will continue to impact activity in the short term. Additionally, while the macro outlook is more favourable than a year ago, it remains uncertain, and the fight against inflation may prove stubborn, affecting the Reserve Bank of Australia’s willingness to change course.

Despite these challenges, Burston emphasized that property markets can move quickly, and the best buying opportunities often arise shortly after a downturn. “History suggests that property markets can move quickly, and the best buying often comes hot on the heels of a downturn, as evidenced by the returns generated by the early movers who shifted into acquisition mode in late 2009,” he concluded.