Global Capital Flows into Australia Logistics as Market Hits Inflection Point Sponsored Feature

After purchases of logistics and industrial assets jumped 40 percent in 2024 from a year earlier, the first few weeks of 2025 have seen some of the world’s largest investment managers make fresh commitments to the sector, with property consultancy Cushman & Wakefield expecting more deals to come.

With investors having snapped up A$7.2 billion ($4.6 billion) in warehouses, distribution centres and other industrial facilities last year, Cushman & Wakefield predict in a new report that investment in the sector will rise another 38 percent to total around A$10 billion for 2025.

The company’s top analysts link this deal wave to the end of a market dislocation in 2022 and 2023 as investments in the country’s industrial sector now offer compelling yields across a broad range of strategies.

“When you look at Australian logistics opportunities offering cap rates at a blended average across the country of around 5.85 percent, it certainly paints a pretty good picture, particularly when combined with continued strong sector fundamentals, and this is what separates the market from a lot of other locations globally. Australia is still one of the tightest markets globally and this will drive further rental growth in 2025 and beyond,” said Luke Crawford, head of logistics and industrial research for Australia at Cushman & Wakefield.

Strong Start to the Year

Tony Iuliano, C&W international director and head of logistics and industrial for Australia, who co-authored the company’s Australia Logistics and Industrial Capital Markets Outlook 2025 report issued this week, has seen 2024’s hot streak continuing this year, with more transactions on the way.

“Over the first six weeks of the year, we’ve seen in excess of A$500 million that has actually traded, but beyond that there’s another billion dollars or more currently in due diligence, so we’re certainly seeing a strong start to the year,” Iuliano said, adding that 2024 had finished strong after a slow start to the year.

The pace of activity has been spurred by KKR forming an A$388 million logistics partnership with an Australian developer and fund manager seeded with a set of three Sydney properties.

M&G Real Estate also upped its bets on Australian logistics recently with an A$415 million partnership with the same local player.

During February, Brookfield Asset Management agreed to sell a 12-building distribution hub in western Sydney to a Gateway Capital fund for A$330 million within three months of opening the facility.

C&W’s Iuliano sees these transactions being driven by attractive fundamentals which are continuing to drive compelling opportunities for investors.

“Australia maintains a very tight vacancy rate of 2.5 percent and the market is still seeing solid rental growth, including double digit growth in some sub markets,” Iuliano said.

In its report, Cushman & Wakefield tracks 2024 investments in Australia’s logistics sector by global heavyweights including TPG Angelo Gordon, Blackstone and Goldman Sachs.

2024 also saw the biggest capital commitments by Japanese investors to Australian logistics ever, according to the report. The nearly A$500 million in Japanese investment pouring into the market last year was led by Hankyu Hanshin Properties, with other major players from Asia’s second largest economy also betting on Australian warehouses.

Rate Cuts and the Return of Core Capital

With the Reserve Bank of Australia having last week cut its cash rate target for the first time since late 2020, Iuliano sees the market becoming more attractive to investors from around the world.

“If you take a step back, Australia screens very well for global capital,” Iuliano said. “Not only does Australia have a strong economy with very solid levels of population growth, but if you look historically, the Australian market has provided a superior risk-adjusted return to most other markets globally.”

With interest rates coming down, asset prices having stabilised after adjusting from earlier levels and rents continuing to head northward, Iuliano sees core buyers returning to a market where low-risk deals have been hard to price in recent years.

“If you look at the product that has traded over the last two years, a lot of it has been for core-plus and value add, particularly for assets with a shorter WALE (Weighted time to average lease expiry) where they can access that positive rent reversion in a short period of time, that’s where a lot of the capital has been wanting to be placed,” Iuliano said. “However as we head into this year, the narrative around core strategies is changing with greater appetite expected and we are already seeing this play out on the ground.”

Yields Set to Tighten

While rate cuts and market adjustment helped boost the yield spread on Australian logistics over the past year, Crawford and Cushman & Wakefield expect those conditions could change within the next 12 months, with company predicting in its market outlook report that cap rates in the sector could fall to 5.65 percent by early 2026.

After book values of Australian logistics and industrial assets stabilised last year, Cushman & Wakefield expects business confidence to recover throughout this year with compression in investments yields forecast to commence late in the third quarter.

The property consultancy sees potential for between 10 to 25 basis points of yield compression for Australia’s logistics and industrial sector in 2025, followed by a further 25 to 30 basis point reduction in 2026, with that trend potentially more pronounced in higher barrier to entry markets, such as Sydney.

For this year, with occupiers demanding more modern properties, Iuliano sees investors favouring top quality logistics assets just as the most up-to-date office properties have held more of their value.

“Beyond the macro themes,  the big change that we’ll see is the flight to quality trend, not only in the capital market space, but also across the leasing market and that’s certainly played out in the office market globally,” Iuliano said.

“Prime stock will really do well not only from rental growth point of view, but certainly from a capital appetite perspective as well. That’s where we’ll see the greatest level of outperformance,” he added.

*Note: all outlines are approximate.