Better Times Ahead for Real Asset Investment: Dexus

There are better times ahead for real asset investment, a new report says, including a retail resurgence. 

The report by Dexus Research, the Australian Real Asset Review for the first quarter of 2025, said that as the interest rate cycle changes, the start of 2025 will be critical for real assets.

Repricing has reset values for real assets with investors more likely to invest as interest rates change.

If those rates remain steady or start dropping, Dexus expects more deals in 2025.

The report also said that yields on assets would be more attractive to investors.

Dexus pointed out that A-grade office buildings in Sydney had a yield of 4.8 per cent two years ago compared to 6.3 per cent today.

Other sectors including industrial, healthcare and retail assets are also experiencing higher yields.

It said that while global events made it uncertain what would affect interest rates, any decrease in the 10-year bond yield was expected to make real estate more attractive.

▲ Dexus Research says healthcare assets will grow in popularity with investors during the year ahead.

“While there is uncertainty around the global outlook, forecasts for Australian interest rates to fall in 2025 bode well for asset values in the years ahead, creating attractive opportunities for investors,” Dexus head of research Peter Studley said.

Investors had become increasingly more interested in infrastructure and social infrastructure, the report said.

Deals were expected to increase in this sector with an undersupply of capacity in sub-sectors, including student accommodation, data centres, cold storage, healthcare, aged care and social housing.

Dexus said each alternative asset class offered opportunities for strong growth.

As well, it said, the office cycle was finally recovering with the factors needed for a recovery in office markets now in place.

That included a fall in the supply pipeline and growth in services employment.

The report said that workers and employers had adjusted to hybrid working models, creating a sense of certainty around what was needed in terms of assets.

▲ Renders of a proposed large format retail showroom at MacGregor. Dexus Research predicts an increase in spending will boost investment in the class.

The report said the retail sector recovery would ramp up on the back of a surge in investment demand as consumer spending increased.

Vacancy rates in the sector remained low as there had been little new construction.

The report also said that during the past 10 years, shopping centre category mixes had enabled cash flows to be more secure.

And, the report said, ecommerce had and would continue to drive the growth of the industrial market.

Finding the right asset would be crucial with occupiers looking at locations, efficiency and automation.

Also predicted in the report was the stabilisation of valuations across most real estate sectors, increasing urban density, and increased interstate migration to Queensland and Western Australia driving demand for housing and infrastructure.

The Dexus quarterly Australian Real Asset Review uses historical data provided by JLL Research.