Survive and thrive to 2025: Navigating Sydney city fringe commercial property

By Kristian Morris

2023 was a year of reckoning for the Australian commercial property market. Rising interest rates, inflation, and economic uncertainty sent shockwaves through the sector, leaving investors and developers grappling with new realities. As we step into 2024, the question looms: Can you thrive, or merely survive, the road to 2025?

According to Propmodo, a US-based property/technology firm, the US economy appears headed for a recession. The yield curve, especially the 10-year/3-month spread, has begun to de-invert. In the past, this has been the precursor to an economic downturn.

Should the projected US recession spread to Australia, we can expect mostly negative impacts on commercial real estate. Any cost-cutting and staff layoffs will see reduced demand for offices (except A-grade). Retail could struggle; industrial activity could slow.

On the bright side, healthcare, data centres and logistics will likely be more insulated from any downturn.

Here are five key trends that will shape the commercial property landscape in the coming year and beyond, presenting both challenges and opportunities for those willing to adapt and innovate:

1. Blocks of units: a beacon for investors?

With traditional office markets facing headwinds, residential apartments, particularly in well-located inner-city areas, are poised to shine. Tight rental vacancy rates and strong population growth are driving demand for quality living spaces, making blocks of units – particularly established blocks – an attractive investment proposition.

However, navigating this sector isn’t without its hurdles.With councils concerned about the loss of dwellings, 2024 is not the year for developers to purchase unit blocks, however, unless their remit is to refurbish rather than rebuilding that would result in a net loss of units. Focusing on efficient use of space, innovative design and sustainable features will be crucial to stand out in this market.

2. Education takes the stage: offices transformed

The evolving education landscape is creating a new chapter for office space. With hybrid learning models gaining traction, educational institutions are increasingly leasing office space for classrooms, co-working spaces, and administrative functions. This trend presents an opportunity for landlords to repurpose underused office buildings, catering to the unique needs of the education sector.

Adapting existing office layouts, offering flexible leases and incorporating technology-enabled learning environments will be key to attracting educational tenants.

3. The sustainability imperative: building for the future

The climate crisis is not just an environmental concern; it’s a financial one too. Investors are increasingly prioritising sustainable assets and net-zero buildings, both for environmental responsibility and long-term value creation.

Meeting stringent environmental targets, incorporating renewable energy sources and achieving operational efficiency will be essential for future-proofing any commercial property. Developers who embrace sustainable practices will not only attract responsible investors but also secure greater occupancy rates and higher rental premiums. In addition, ‘green’ buildings attract premium prices at sale time.

4. Distress knocks: rerating the market

Rising interest rates are putting pressure on highly leveraged assets, potentially leading to distressed or underperforming assets hitting the market as owners struggle to service their debts. This presents an opportunity for opportunistic investors with strong cash reserves to acquire valuable properties at discounted prices.

However, due diligence is paramount. Buyers must have a keen understanding of the underlying reasons for distress and carefully assess the potential for revaluation before making any acquisitions.

5. The waiting game: interest rates and holding assets

For many property owners, particularly those with long-term investment horizons, the best strategy might be to simply hold onto existing assets and weather the storm. With interest rates expected to stabilise and potentially even decrease in late 2024, those who can ride out the current market volatility will be well-positioned to reap the rewards in the long run.

However, holding does not equal stagnation. This period can be used to optimise operational efficiency, reduce costs and implement value-adding renovations to ensure property assets are in prime condition when the market turns.

Can you survive to 2025?

Thriving in 2024 and beyond requires agility, foresight, and a willingness to adapt. By understanding some of the key trends shaping the commercial property landscape and making strategic decisions, you can survive and emerge stronger from the current market uncertainty.

Remember, the market is a dynamic ecosystem. Staying informed, constantly innovating and keeping your finger on the pulse of emerging trends will be key to navigating the road to 2025 and beyond.

Let us help you with your commercial property

As dedicated local commercial real estate agents, we can help you extract more value from your commercial property. Please get in touch to discuss your circumstances and assets so that we can give you personalised advice. Whether it’s commercial leasing, management, or sales, we’re here to help you with your Sydney-based commercial property.

Contact us at Ray White Commercial Sydney City Fringe

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