Hottest Assets for Property Investors in 2025

Here we go, again. Another year, another 12 months of wrangling the twists and turns of a still-recovering and rapidly changing post-Covid world with all its geopolitical turmoil, economic uncertainty and market volatility. The bad news first. The Year of the Snake—as 2025 is declared under the Chinese lunisolar calendar—won’t be the last of it. So says MSCI head of real assets research for the Pacific region Ben Martin-Henry. “It’s not like the GFC when the [property] market crashed, then came back and everything kind of recovered all at a similar pace,” he says. “This recovery is going to be very asset-specific and very sector-specific. So, it ’ s a bit different this time around.” But there is some good news. And, uncannily, in this regard the planets seem to have aligned between Martin-Henry ’ s property investment analysis and the ancient realm of Chinese astrology, in which the snake—a reptile that must shed its skin to grow—represents, among other things, transformation. According to both, the outlook for 2025 is for a year full of emerging opportunities. Significantly, many major institutional investors are now in the throes of changing their investment mandates. If they haven ’ t already, that is. “You just need to go back to your fundamentals … driven by population growth, it all comes back to the basic necessities,” Martin-Henry says. “Obviously, you need housing for accommodation but also healthcare, as well as retail for somewhere to buy things, offices for work and IT infrastructure, because these days everybody also needs data.” Office Has the office market bottomed out? And if it has, does that mean offices represent good value for money? Martin-Henry says in 2024 they were the two big lingering questions for the sector. “I think with some of the transactions we ’ ve seen in the last six months, particularly in Sydney, they ’ re going at discounts of 25 and 30 per cent, so that obviously appears to represent pretty good value for money. “The overarching question is, what ’ s going to happen with interest rates? ... but I think for the office sector in particular, values have adjusted enough to make these investments just look a lot more attractive than they did 18 months ago. “So I think you ’ ll see a continuation of that and probably a ramp up as well, as investors look to get some of their offices off their books in order to fund their future development pipelines. “Because if you can get prime Sydney CBD offices at 25 to 30 per cent discounts, there ’ ll be a fair few buyers in the market for them.” On the flipside, the secondary grade office market is “a much harder” call in terms of what its recovery is going to look like. “Secondary grade offices have been really struggling in this downturn,” he says. “Given the issues around the office and employers struggling to get workers back into the office, it ’ s much harder to get them back into poorer quality offices. “I mean, even after the GFC, it took secondary grade offices almost 10 years to recoup their losses. This time around that could be even longer, given the new ESG regulations and working-from-home. “So while they do represent pretty substantial discounts, the question is if you buy something at a 40 per cent discount what are you trying to get out of it and are you going to be able to recoup that? “I think there ’ s still more questions over those secondary assets than anything else in the office sector.” Interestingly, however, pointing to his previous comments about it being a very asset-specific recovery, Martin-Henry adds that while demand for the top-end-of-town offices was still strong and vacancies low, the best-performing Sydney premium CBD office still had lost 10 per cent of its value and the worst-performing asset 27 per cent. “It’s all well and good saying the best offices will attract the most demand, but which of the best? Because the gap between the top five and the next is pretty wide at the moment.” Retail “Retail has been killing it for the last couple of years,” Martin-Henry says. “There ’ s been a lot of appetite for retail investments with values correcting quite significantly after Covid or as a result of Covid.” He says there was a significant increase in retail transactions in 2024, in particular larger shopping centres. “For the last few years, it ’ s been neighborhood shopping centres—those smaller retail assets with a supermarket as an anchor tenant—that have been in high demand. But over the last 12 months we’ve seen much larger shopping centres transact. I think volumes are up sort of 55 per cent compared to the previous year. “A big reason for that is, obviously, the values adjusted significantly and yields shot up. But the other reason, of course, is we have very strong fundamentals in Australia with very strong population growth. “And most people are expecting an interest rate cut at some point next year—who knows when?—and what that ’ ll do is obviously increase people ’ s disposable income, and they ’ re likely to spend more. “So I think investors have really tapped into that. You know, the discounts on offer and the growth prospects. It ’ ll continue for a little bit … there’s still a heck of a lot of appetite for retail. It ’ s just slightly harder to put your hands on it really.” According to Martin-Henry, some of the larger players also are looking at the residential development upside of their shopping centre footprints with a view to building apartments next to or on top of the assets. “It’s something we’re hearing a lot more about,” he says. “It ’ s happening overseas, so I see no reason why it won ’ t happen here. It ’ s just getting the fundamentals to stack up, which is getting harder and harder these days because of the cost of construction.” Industrial “Industrial is still running hot,” Martin-Henry says. “It ’ s been going great guns for the last few years, so it will slow down. But again, it’s still tight, vacancy is still very low, there’s a need for more distribution warehouses and there’s still a lot of investment appetite within the sector.” He adds: “Rents are still going up, just not by the 10 to 15 per cent we’ve seen the last few years. “And because demand has been so high, we haven ’ t seen much of a value correction in our industrial index. So I think values will continue to grow. Any value, any kind of cap rate expansion, for example, we ’ ve seen has been offset by rental growth. So it ’ s still doing pretty well.” Martin-Henry says the “most interesting” asset class within the industrial sector is data centres. “There’s so much appetite for more megawatts and more racks to accommodate the increasing AI processing demands put on the system, and I really can’t see that changing anytime soon.” In September, Sydney-based Asia-Pacific data centre operator AirTrunk—with facilities in Japan, Malaysia, Singapore and Hong Kong—inked a $24-billion deal for its sale to a consortium of investors led by asset manager Blackstone. It was followed by one of Australia’s largest public company listings in recent years by David Di Pilla’s HMC Capital. Its data centre real estate investment trust DigiCo started trading on the ASX in December with an initial market capitalisation of $2.74 billion, driven by strong investor interest. “It ’ s become its own fast-growing category and we’re going to see a continuation of that,” Martin-Henry says. “The value of those sheds is in the tech embedded in them. So if and when they transact, what you’re really buying is the underlying technology.” Alternative assets Martin-Henry says other alternative/social infrastructure assets also are continuing to draw a rising level of investor demand—namely healthcare, childcare, purpose-built student accommodation, build-to-rent and land-lease communities. “Those are the kind of more alternative sectors that investors are looking at,” he says. “It ’ s obviously predicated on supply and demand, and as you bring more people into the country, or as kids move out of home, there ’ s an ever-increasing need.” “I ’ ve never seen a headline saying we have too much healthcare,” he quips. “And there’ll be a continued need for that, particularly as Australia’s population grows. “For investors, it ’ s all about that steady, stable income stream.” Student accommodation and land-lease seniors living communities also have been attracting strong levels of investment. “Basically, we just need more of every residential asset class—we just need more of all of it,” Martin-Henry says. In August, Australia’s largest student accommodation provider, Scape, closed on $3 billion in fresh debt financing. Part of the offering was almost three times oversubscribed amid growing investor appetite for the asset class. Such is the level of investor demand for PBSA, Martin-Henry says he believes it will just “roll on” despite a proposed cap on overseas student numbers. “By and large I think investors are continuing on despite all the headlines, expecting the student accommodation sector will keep growing. Education is our third largest export, so who realistically wants to limit that. It ’ s basically like saying we ’ re just going to stop sending iron ore overseas.” The dark horse: Agriculture assets “Going back to your fundamentals, population growth and those basic necessities—the other thing you need is food,” Martin-Henry says. “So we’re starting to see investors, who traditionally invest in real estate, branching out and investing in some kind of agriculture—be it massive hydroponic sheds or glasshouses. “They’re buildings—so technically, it’s real estate but they’re doing farming.” Centuria Capital and RF Corval are among the rising crop of investors strategically diversifying their portfolios and scaling up their exposure to agriculture assets. In December, RF Corval—backed by the Roberts family, founders of builder Multiplex—revealed plans for a $32-million facility comprising four large glasshouses near Tongala, about 200km north of Melbourne. Meanwhile, Centuria Capital has been investing in state-of-the-art large-scale glasshouses since its takeover of Perth-based Primewest in 2021. Its assets supply major supermarket chains including Coles, Woolworths, Aldi and Harris Farms. Among its facilities is Sundrop Farms, a 20ha greenhouse facility at Port Augusta in South Australia, a cutting-edge, renewables-driven horticultural showpiece, producing 17,000 tonnes of tomatoes a year. “Driven by population growth, I think that ’ s going to be a bit of a dark horse, so to speak, in that you ’ ll start seeing more and more investors dip their toes into this kind of stuff over the next few years,” Martin-Henry says. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

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