FOREIGN INVESTMENT DRIVES AUSTRALIAN COMMERCIAL PROPERTY SURGE

Australian commercial property has experienced a significant boost in foreign investment throughout 2024, with transaction volumes reaching $76.64 billion, marking a 19.2 per cent increase from the previous year.

Ray White Head of Research, Vanessa Rader, said the market has shown clear segmentation across different price points, with domestic and international investors targeting specific sectors.

“The Australian commercial property market has demonstrated remarkable resilience, with foreign investment surging particularly in the final quarter of 2024,” Ms Rader said.

“Domestic private investors have maintained their dominance in the sub-$50 million segment, accounting for approximately three-quarters of transactions, primarily focusing on industrial assets across NSW and Victoria.”

Ms Rader said the institutional segment, comprising deals over $100 million, showed substantial momentum in the final quarter.

“We’ve seen institutional transactions reach $30.43 billion, with Sydney accounting for more than $22 billion,” she said.

“Foreign investors have emerged as dominant players in this segment, representing over 60 per cent of purchases while accounting for 51.2 per cent of sales.”

The surge in foreign investment has been particularly notable from specific regions, Ms Rader said. “United States investors have dominated acquisition activity in 2024, leveraging their currency advantage to diversify portfolios,” she said. “Japanese capital has also strengthened its presence, followed by steady investment flows from Singapore, Hong Kong, and Canada.”

According to Ms Rader, early 2025 has already shown promising signs of further market expansion. “We’re seeing an expanding pool of international capital, with Korean institutional investors emerging as significant new players,” she said. 

“These investors are particularly attracted to build-to-rent and student accommodation developments in major metropolitan markets, which comes at a crucial time for Australia’s housing supply challenges.”

Ms Rader said the outlook for 2025 remains positive, with Australia’s market fundamentals continuing to attract global investment.

“The combination of Australia’s transparent market conditions, robust regulatory framework, and strategic position in the Asia-Pacific region suggests sustained offshore interest through 2025,” she said. 

PREMIUM OFFICE PROPERTY POISED FOR STRONG GROWTH

Commercial property investment is set to surge in 2025, with premium assets in key CBD locations expected to lead the market recovery.

According to CBRE’s latest forecast, commercial property investment volumes are projected to grow by 15 per cent to $36 billion in 2025, with a further increase of 23 per cent expected in 2026, pushing the total to $44 billion.

The office sector is emerging as the standout performer, with CBRE predicting a 25 per cent growth in investment volumes, significantly outpacing the 10 per cent growth expected in industrial, retail and hotel sectors.

Sydney and Brisbane office markets are positioned to lead the recovery, benefiting from a widening rent gap between existing buildings and newer developments.

“The major contractionary activity and sublease availability of the past few years appears to have passed,” CBRE reported, noting that premium properties in Sydney’s CBD are expected to see exceptional rental growth and capital appreciation.

Melbourne’s office market, despite recent challenges, is showing signs of improvement through increasing centralisation into its CBD, driving higher absorption rates and rental growth.

The industrial property sector continues to demonstrate resilience, with Australia maintaining one of the lowest vacancy rates globally at 2.5 per cent. 

However, CBRE indicates that normalised demand levels may put upward pressure on vacancy rates throughout the year.

Premium industrial and logistics assets in core locations are expected to maintain strong demand, although rental growth patterns will vary significantly across different markets.

“Pockets of exceptionalism around premium property and precincts will emerge in 2025,” CBRE stated, highlighting the potential for select assets to significantly outperform the broader market.

The momentum is expected to continue beyond 2025, with CBRE projecting investment volumes to reach new heights as the market recovery gains further traction.

“Brisbane and Sydney are likely to be the outperformers once again in 2025,” CBRE said, pointing to strong fundamentals and increasing demand in these key markets.

RETAIL VS OFFICE FITOUTS

A well-designed business space is more than just aesthetics, it directly impacts the customer experience, employee productivity, and brand perception. Whether you’re opening a retail store or setting up an office, fitout costs can be significant. Choosing the right finance solution can help you achieve the perfect setup without straining your cash reserves.

Understanding fitout finance

Fitout finance allows businesses to fund the design, construction, and furnishing of their premises without needing a large upfront investment. Instead of depleting their cash flow, business owners can spread costs over time through tailored financing options. Whether it’s shopfront displays, office partitions, lighting, or ergonomic furniture, fitout finance provides flexibility and preserves working capital.

Putting the customer first

Retail fitouts require a strategic approach to attract customers and drive sales. A visually appealing and functional layout can influence purchasing behaviour, making the investment critical. Financing options for retail fitouts often cover storefront design and signage, shelving, displays, and point-of-sale systems, as well as lighting, flooring, and interior design elements.

Security systems and technology integration are also important components of a well-executed retail fitout. Retailers often prefer short to medium-term financing solutions that align with seasonal revenue fluctuations. Leasing arrangements or unsecured business loans can be ideal for businesses that need to refresh their space regularly to stay competitive.

Improved productivity and efficiency

Office spaces require thoughtful design to generate more collaboration, efficiency, and employee well-being. The right office fitout can improve workflow, team morale, and overall business performance. Key components covered by office fitout finance include workstations, desks, ergonomic chairs, meeting rooms, and collaborative spaces. IT infrastructure and communication systems, along with air conditioning and lighting, create a productive work environment. 

Since office fitouts are typically long-term investments, financing solutions such as asset-backed loans or equipment finance provide cost-effective ways to upgrade without impacting cash reserves. For businesses planning to scale, flexible repayment structures allow for future modifications as the team grows.

The right option

Selecting the best financing option depends on the nature of your business, budget, and long-term goals. Retail businesses with fluctuating income may benefit from flexible repayment terms, while office-based companies might prefer fixed repayments for stability.

Retailers who frequently update their store layout may find leasing a cost-effective option, whereas offices investing in permanent fixtures may benefit from ownership-based financing. Some fitout financing options offer tax deductions on lease payments or depreciation benefits on owned assets. Consulting with a finance broker can help compare your options based on what the business needs.

OFFICE VACANCY RATES HOLD STEADY DESPITE NEW SUPPLY SURGE

Australia’s office market is showing plenty of resilience as vacancy rates remain relatively stable despite significant new supply entering the market across major cities. The latest Office Market Report from the Property Council has found that CBD office vacancy experienced only a marginal increase from 13.6 to 13.7 per cent over the six months to January 2025, while non-CBD rates held steady at 17.2 per cent.

Different cities showed varying trends, with Adelaide and Perth seeing improvements in their vacancy rates, while Sydney and Brisbane experienced increases due to new supply entering the market. Property Council Chief Executive Mike Zorbas said the continued strength of the office market was a positive.

“We have continued to see the supply of new office space above or near the historical average, providing access to a wealth of new, high-quality office space in our cities,” Mr Zorbas said. Sydney’s office market saw the most significant change, with vacancy rates climbing from 11.6 to 12.8 per cent, driven by more than 164,000 square metres of new supply – more than double the historical average.

Melbourne maintained its position as the city with the highest vacancy rate at 18 per cent, prompting calls for government intervention. “Melbourne continues to have the highest CBD office vacancy in the country. We need to see active leadership from the state government to support the vibrancy of the CBD and help Melbourne remain one of the best cities to visit in the world,” Mr Zorbas said.

Notably, Hobart retained its position as the tightest office market in the country, despite a slight increase from 2.8 to 3.6 per cent vacancy, while Darwin showed the most improvement with rates falling from 14.4 to 11.9 per cent. The outlook remains positive with substantial pre-commitments for future developments. Sydney is set to see 277,048 square metres of new office supply by 2027, with almost half already pre-committed, while Brisbane shows strong confidence with 67.9 per cent of its upcoming 162,630 square metres pre-committed.

Sublease vacancy, a key indicator of business confidence, showed improvement across both CBD and non-CBD markets, with only Melbourne and Brisbane recording rates above their historical averages. “Over the last three and a half years, positive demand for office space in our CBDs has been recorded in five of the last seven reporting periods. 

Sydney, Perth, Adelaide and Canberra saw positive demand for office space above their historical averages in the last six months,” Mr Zorbas said. “High levels of supply show that businesses still call our CBDs home as they balance flexible working arrangements with face-to-face contact in the office.”

HOW TO USE ASSET FINANCE TO UPGRADE EQUIPMENT WITHOUT DRAINING CASH

For many businesses, having the right equipment is important for the growth and efficiency of their operations. However, purchasing new equipment outright can put a strain on your cash reserves, limiting flexibility and creating additional risk. Asset finance provides a smart alternative, allowing businesses to acquire the tools they need while keeping their working capital intact.

Understanding asset finance

Asset finance is a flexible funding solution that allows businesses to acquire essential equipment without paying the full cost upfront. Instead, the cost is spread over a fixed term through regular payments, making it easier to manage cash flow. This approach can apply to a wide range of assets, including vehicles, machinery, IT infrastructure, and office equipment.

One of the key advantages of asset finance is that it allows businesses to upgrade their equipment without depleting cash reserves. By keeping capital free, businesses can continue investing in other areas, such as staffing, marketing, or product development. On top of that, spreading payments over time makes budgeting more predictable and reduces the risk of financial strain. In some cases, asset finance arrangements may also provide tax benefits, as lease payments or interest costs may be deductible.

Choosing the right asset finance option

There are several types of asset finance, each suited to different business needs. Lease agreements allow businesses to use the equipment for a set period, often with the option to upgrade or purchase at the end of the term. 

Hire purchase agreements, on the other hand, involve paying instalments toward full ownership of the asset. Chattel mortgages offer another option, where the business takes ownership of the asset immediately while using it as collateral for the loan. Selecting the right type of asset finance depends on factors such as how long the equipment will be needed, whether full ownership is a priority and the business’s overall financial strategy.

Common issues

While asset finance can be a powerful tool, it’s important to approach it strategically. Businesses should avoid overcommitting to taking on too much debt by carefully assessing their needs before entering an agreement. Understanding the total cost of financing, including interest rates and fees, helps prevent unexpected financial strain. 

It’s also wise to plan for asset depreciation so that upgrades will align with business growth rather than becoming an unnecessary expense. Integrating asset finance into a broader business strategy makes sure it supports long-term growth rather than becoming a financial burden. Before committing to any financing arrangement, businesses should evaluate their current and future needs, explore multiple lenders with the help of a finance broker, and seek professional financial advice if necessary.

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