As we approach 2024, the commercial real estate market is poised for continued growth and transformation. With advancements in technology, a shifting workforce landscape, and evolving consumer preferences, the industry is adapting at a rapid pace.

The future of work is becoming increasingly flexible, with a rising demand for hybrid work models.

As a result, office spaces are likely to be redesigned to accommodate collaborative areas, tech-enabled meeting rooms, and coworking spaces. Expect a focus on wellness amenities and sustainable features to attract tenants.

The demand for industrial spaces, driven by e-commerce and logistics, will remain robust.

Last-mile delivery

Warehousing and distribution centres will adapt to accommodate last-mile delivery services, emphasising efficiency and proximity to urban centres. Sustainability initiatives, such as green warehouses and eco-friendly packaging, will gain prominence.

Overall, it appears that investors from all sectors will focus on sustainable and socially responsible projects, reflecting the growing importance of environmental and social governance (ESG) factors.

Additionally, rising interest in data centres and BTR properties will see these sectors continue to move toward the mainstream.

Traditionally the best time to buy property has been when the central bank begins cutting rates.

Pockets of strength

However, challenges remain, particularly for the office sector. 2023 will likely be the first year of negative office net absorption since the onset of the covid in 2020.

Even here though, there are pockets of strength, as demand for premium, centrally located offices has remained robust. Brisbane in particular is a market to watch thanks to an uptick in intrastate migration coming into Qld combined with a relative dearth of short-term supply relative to other state capitals.

Although rapidly rising interest rates have led to a degree of caution amongst investors, we expect that a pivot by the Reserve Bank (RBA) in the second half of 2024 will ease credit conditions and support a recovery in the investment market.

Traditionally the best time to buy property has been when the central bank begins cutting rates.

Despite the positive outlook, challenges such as rising construction costs, supply chain disruptions, and regulatory changes may impact the commercial real estate industry in 2024. Navigating these challenges will require adaptability and strategic planning from industry stakeholders.

In conclusion, the commercial real estate market in 2024 will be defined by flexibility, sustainability, and innovation.

Those who embrace change and invest in cutting-edge solutions are likely to thrive in this dynamic environment.

Brisbane commercial sales

Cushman & Wakefield’s directors of Brisbane commercial sales Andrew Gard and Michael Gard comment:

The market landscape in 2023 remained challenging as seen by significantly reduction transaction volumes.

The ongoing scarcity of builders, exacerbated by numerous construction corporate collapses and an unprecedented government infrastructure pipeline absorbing the attention of the construction sector continues to pose challenges for developers to deliver large-scale projects.

Simultaneously, construction costs have remained elevated and efficiencies have reduced causing construction timeframes to increase. Interest rates have continued to rise as a measure to combat inflation, and the wide economic expectation is that they will remain elevated for longer than what was previously anticipated in order to eliminate embedded inflation.

Despite these challenges, buyer sentiment remains robust for well-located commercial assets that require limited building works to achieve occupancy or leasing outcomes.

Commercial assets with quality fundamentals are still seeing strong demand, highlighted by our unconditional transaction at 96 Warren Street, Fortitude Valley where generous car parking, large floor plates and the land-rich nature of the property equated to strong buyer competition.

While there are some issues plaguing the development site space, the market has seen substantial rent and price growth for apartments, with sites in high-demand lifestyle locations experiencing unprecedented growth and are proving to be significantly rewarding for those developers who have the ability to build in the current environment.

These factors are translating to demand for quality sites with scope to being able to achieve generous revenues.

96 Warren St, Fortitude Valley: Commercial Real Estate

Brisbane middle markets

Cushman & Wakefield’s director and joint head of middle markets, QLD Mike Walsh comments:

2023 can be characterised as a year of swift recalibration as the market felt the impact of multiple & consistent cash rate rises, compounded by further geopolitical and global macro headwinds.

On the buy side in Qld, private investors truly stamped their mark across all price points from $5m right up to $300m as the listed market generally focussed on reweighting their portfolios to either fund redemptions, reduce gearing or exposure to certain asset classes.

We anticipate much of the same in the early part of 2024 until we get comfort around where the cash rate may land and inflation tempers. Undoubtedly this volatility will continue to provide opportunities for those with capital that can move quickly to secure assets below replacement cost and historical benchmark pricing indicators.

Queensland industrial

Cushman & Wakefield’s director of industrial brokerage, Qld, Morgan Ruig comments:

The Qld market has continued to experience extremely strong rental growth.

The Qld industrial brokerage market has continued to hold strong with recording breaking leasing and occupier sales results despite the drop off on the pure investment front.

We expect this to continue in the New Year given the strength in the occupier markets and limited supply of both land and vacant buildings in the core industrial areas.

Brisbane office leasing

Cushman & Wakefield’s head of Brisbane office leasing Billy Miller comments:

Brisbane is in a favourable position in contrast to its southern counterparts on the east coast. While Sydney and Melbourne recorded negative net absorption in excess of 40,000 sqm between January and July, Brisbane saw positive net absorption of 30,000 sqm.

Brisbane also has no new supply coming to the CBD in 2023 and only one new building in the fringe at 895 Ann, which is already fully committed. 205 North Quay should finish in Q4 of next year, but again it is already pre-committed.

Image: 895 Ann St, Fortitude Valley

These tight supply conditions are driving vacancy down, which is supporting strong rental growth.

This growth was 19.7% in the 12 months to Q3 2023 on a prime net effective basis, which is very high. This is also supported by the continued flight to quality trend, specifically in the premium grade where net effective rental growth is even higher.

With only six standing premium assets in Brisbane, high demand and limited supply is seeing rents in these buildings jump at rapid rates.

Outgoings are creeping up slightly, but incentive levels are beginning to compress, especially in prime CBD assets. This is helping push the already strong rental growth we are seeing across Brisbane.

Looking to next year, we expect that much of this rental growth will continue. There is just no space anywhere at the moment, especially contiguous floors and with much of the limited future supply already committed it’s hard to see rental growth slowing down too much.

Hero image: Qld’s state capital by night.