As we step into the new year, the commercial real estate landscape remains a study in contrasts—a market poised on the edge of revelation but with plenty of time left before its true cycle fully unfolds. In many respects, we are still at “Twenty Minutes to Midnight.”

A Cycle in Suspense
The current commercial property cycle has yet to reveal its full narrative. Investors are witnessing a gradual build-up of momentum rather than an immediate crescendo. While caution is warranted, there are bright spots that hint at emerging opportunities:

Logistics and Data Assets: Certain asset classes, particularly in the logistics and data sectors, continue to perform well. These sectors benefit from underlying trends such as e-commerce expansion, digital transformation, and the ever-growing need for robust data infrastructure.

Retail Resilience: Despite headwinds in other segments, retail assets have shown a capacity to maintain strength. This is partly due to strategic positioning in markets where consumer behaviour continues to favour physical interaction, as well as adaptive business models that blend physical and digital retail experiences.

Conversely, assets requiring new construction projects and those with heavy reliance on significant debt remain a tougher proposition. In today’s environment, these projects are subject to market uncertainties, increased borrowing costs, and a more discerning investor community that is aligning purchase prices with a more cautious view of underlying asset values.

Political and Economic Undercurrents
The policy landscape is also evolving in ways that could subtly reshape capital markets:

The Trump Inauguration: With the recent inauguration of Donald Trump, the coming months will be critical to understanding the early impacts of his policies and ideological shifts on capital markets. While it is too early to discern definitive trends, investors should stay informed and anticipate a period of adjustment as markets adapt to potential regulatory and economic changes.

Australian Political Instability: Across the Pacific, Australian politics remain unsettled. The upcoming Federal election, coupled with ongoing domestic debates, adds a layer of complexity to the investment climate. Notably, Victoria finds itself in a challenging economic position with elevated debt levels. This fiscal strain reinforces the need for a patient, long-term view, particularly for investors focusing on this region.

Shifting Dynamics in the Office Market
Early signs of improvement in the office sector are emerging, yet they come with a caveat. The improvement is largely driven by tenant-friendly deals, where tenants seize opportunities to negotiate favourable leasing terms and upgrade to modern, higher-quality spaces.

While this trend bodes well for tenants, it leaves a considerable question mark over secondary office spaces that are being vacated to accommodate these deals. Investors in the office market should carefully assess the long-term viability of such spaces as market preferences continue to evolve.

Patience Remains Paramount
In summary, the message for 2025 is one of cautious optimism and patience. For investors looking to navigate the commercial real estate market—especially within Victoria—the following factors should remain top of mind:

Post-COVID Challenges: The legacy of COVID-19 continues to influence market dynamics through higher interest rates, cost of living pressures, and a lasting impact on work-from-home trends.

Credit Market Tightening: Private credit lenders have grown increasingly wary, particularly when it comes to development assets. A notable gap has emerged between borrowers’ optimistic asset valuations and the more conservative pricing expectations of the market.

Select Opportunities Amid Caution: While many sectors present a waiting game, opportunities exist in logistics, data, and retail. A selective, patient approach may yield the best outcomes as the market’s full picture comes into focus.

As we count down the minutes to midnight in this cycle, we remain optimistic that the unfolding narrative will eventually present clear opportunities for those prepared to wait for the right moment and who can execute on heightened strategies to optimise value in the non-passive segment of the market.

Wishing you a thoughtful and prosperous 2025,

Until next time, Mark Wizel

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