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February 10, 2025

What’s coming for commercial property in 2025?

Colin Mackay, Research & Investment Strategy Manager, Cromwell Property Group

Santa has come and gone, prawn-induced food comas have ended, and workplaces and schools have started to hum again after the summer break. As the festive cheer starts to dissipate, now is a good time to look ahead at what the balance of the year has in store for us. This article touches on five key macro developments expected to influence commercial property performance and investment over 2025.

1. Rate cuts

After hopes of a late-2024 rate cut were dashed in October by resilient labour data, attention turned to 2025 for the turning of the economic cycle and a return of looser monetary policy supportive of stronger growth. While anything is possible and economic conditions can change quickly (particularly if geopolitical tensions intensify), markets have a high degree of confidence that the next move in the cash rate will be down – it’s now a question of when and by how much?

Financial market pricing indicates three cuts are expected in 2025¹, with economists also typically expecting two to four cuts in the year² for a 50-100bps decrease in the cash rate. Because these cuts are expected by the market, instruments like Australian Government 10-year bonds have likely already ‘priced in’ most of the change – and so long-term bond yields may not see significant movement from their current level of around 4.5%³.

Regardless, rate cuts should be a net positive for commercial property by supporting a stabilisation of asset pricing, increasing transaction activity, and easing cost of debt pressures. An ‘easier’ monetary policy environment should also stimulate the economy, which is a benefit for a growth asset class like commercial property where tenants’ demand for space is linked to economic activity such as jobs growth, retail consumption, and trade volumes.

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2. Shifting capital composition

In downturns, nimble private investors tend to trade commercial property more actively than institutional holders. This cycle has been no different, with private buyers making up 45% of acquisitions (by dollar volume) from 2022-23, up from 32% in the five years prior. As 2024 progressed, offshore institutional capital thawed and allocated to the Australian market, becoming the dominant buyer type. Such investors have been involved in some of the headline transactions of the year, including Sydney office towers 55 Pitt Street, 255 George Street and 10-20 Bond Street.

Over the course of 2025, we expect domestic institutional capital to join the party and step up acquisition activity. This expectation reflects the turning of the cycle which appears to be occurring, and the stabilisation of prices that should continue as the cycle enters its next phase.

Deepening of the capital pool and increased activity from institutional buyers will be important precursors to price recovery – with more competition comes more aggressive bidding for assets. This competitive shift will likely be felt in specific asset segments (e.g. premium office) before others, and to differing degrees. While markets and segments that follow the cycle (rather than lead it) may face a slower price recovery, acquirers can benefit from a longer ‘buying window’ where sentiment (and pricing) is yet to align with property fundamentals.

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3. Stronger consumers

Consumers have been buffeted since 2022 by various cost-of-living pressures, spearheaded by surging inflation, higher interest rates, and bracket creep. These contributed to a stark fall in consumer confidence, subdued retail sales growth, and tough trading conditions for businesses that cater to households more broadly.

In good news for 2025, many of these headwinds are abating.

Headline inflation has slowed from a peak of 7.8% in December 2022 to 2.8% as at September 2024⁴. Lower inflation is benefitting the real (inflation-adjusted) spending power of households.
As highlighted earlier, interest rate relief is expected to arrive relatively soon, which will lead to a decrease in what is the biggest expense for many Australian households.
The Stage 3 tax cuts went live from July and are improving households’ disposable (post-tax) incomes.

With a federal election approaching, we may also see additional assistance for households announced in the first half of the year as politicians try to shore up support before voters head to the polls.

An improved outlook is starting to become evident in stronger consumer confidence measures, setting the stage for stronger retail sales growth. While rising disposable incomes will be welcomed by retailers across all categories, we believe long-term consumption trends will continue to provide outsized benefits to shopping centre assets which are resilient to e-commerce competition and more heavily weighted towards ‘essentials’.

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4. Improved market sector

The labour market has been remarkably resilient considering the broader economic slowdown – jobs growth of 2.5% was recorded over the year to September 2024, in stark contrast to GDP growth of only 0.8%⁵. However, the robust outcome was largely driven by the non-market sector, comprised of industries such as education, healthcare, and public administration, where demand is not determined by typical market forces or the business cycle. During this period, the non-market sector accounted for 94% of the jobs created and market sector jobs growth was a meagre 0.2%.

Demand for office space is correlated with white collar jobs growth, which is largely represented by the market sector. Although headline jobs growth may slow in 2025, market sector jobs growth should accelerate from its low base due to the anticipated rate cuts, which benefit industries exposed to the business cycle. This is expected to contribute to stronger jobs growth in the typical ‘office-using’ industries, positively impacting office space demand, reducing vacancy rates, and enhancing rental growth conditions.

While the outlook for office market conditions appears more favourable over the next twelve months, the risk of asset obsolescence remains elevated due to shifting ways of working and amenity preferences. Property selection will be a key driver of outperformance for investors.

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5. Geopolitical uncertainty

Geopolitical uncertainty was a key feature of 2024. It was the biggest election year in history globally, with 80 countries heading to the polls and incumbents’ power diminishing in over 80% of the elections held⁶. At the same time, conflict in the Middle East escalated and the Russia-Ukraine war continued unabated.

It looks set to be much of the same in 2025. While most of the election outcomes are now known, implications for the global and domestic economies are yet to become evident. Trade policy is top of mind following Trump’s promise of 60% tariffs on Chinese goods, 25% on Mexican and Canadian imports, and 10% on imports from all other countries. While such extreme tariffs are unlikely, increased protectionism of some degree is anticipated and could lead to retaliatory measures including counter-tariffs. Similarly, tariffs are typically viewed by economists as inflationary and may stoke cost-of-living pressures once again, particularly if combined with fiscal stimulus. But it’s also possible that disrupted global trade has a deflationary effect if confidence and growth take a significant hit. It is a time of known unknowns.

Whatever occurs, times of volatility and uncertainty often reward quality and security. Assets with strong tenant covenants and stable cashflow are well placed, as are those with enduring location advantages. Shifting trade dynamics are of particular relevance to industrial property and assets which can cater to manufacturing occupiers may benefit from an increased focus on domestic industry.

5b. A Broncos premiership

The author is unable to provide supporting data for this prediction.

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A year with something for everyone

Economic growth should improve in 2025 as the RBA lifts its foot off the interest rate brake pedal, easing pressures on household wallets and business investment. A stronger economy is a positive for commercial property as increased consumption, jobs growth, and trade volumes underpin leasing demand.

Lower interest rates should also support the continued stabilisation of asset pricing, as capital markets normalise after several years of constrained liquidity and elevated debt costs. A stable price environment will be more conducive to improved transaction activity and subsequently valuation recovery.

There are some potential speed bumps which could sap momentum, not least of which is the geopolitical landscape. Given the environment of uncertainty, flight to quality is a theme which will likely continue to play out over 2025, rewarding assets that can provide investors with stable and secure income.

ASX (as at 6 January 2025); Cromwell
Reserve Bank rate cut hopes skirt federal election decider, AFR (1 January 2025)
RBA (as at 6 January 2025)
September 2024 Quarterly CPI, ABS (30 October 2024)
ABS September Labour Account and National Accounts (Dec-24)
Market Outlook, Westpac (Dec-24)

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February 10, 2025

DigiCo REIT: The hottest initial public offering for several years

Stuart Cartledge, Manager Director, Phoenix Portfolios

Phoenix was peppered with questions about DigiCo REIT (DGT) in the lead up to the stock’s Initial Public Offering (IPO). This article provides a high-level explanation of the demand and supply characteristics of the data centre market along with some comments on DGT specifically and ultimately why we chose not to invest in the IPO.

Industry background

The data centre industry is a critical backbone of the global digital economy, enabling the storage, processing, and dissemination of data across businesses, governments, and individuals. The sector has experienced rapid growth over the past decade, driven by technological advancements, the proliferation of cloud computing, and the increasing importance of data-driven decision-making across industries.

Key demand drivers include:

Cloud Computing and SaaS: Cloud computing adoption continues to soar, with enterprises migrating workloads to the cloud for scalability and cost-efficiency. Platforms offering Software-as-a-Service (SaaS), such as Microsoft 365 and Salesforce, rely heavily on data centres.
5G and IoT: The rollout of 5G and the growth of Internet of Things (IoT) devices generate unprecedented data volumes, necessitating scalable and reliable data storage solutions.
Artificial Intelligence (AI) and Machine Learning (ML):AI and ML require significant computational power, leading to increased demand for high-performance data centres equipped with GPUs and specialised hardware.
Digital Transformation:Businesses across all sectors are investing in digital tools and platforms, further boosting the need for robust data infrastructure.

On a conference call in December 2024 with US based Digital Realty, the company described demand growth “greater than anything we’ve ever seen before” and went on to explain how they’ve moved from addressing the need for “growth in the cloud” to “enterprise digital transformation” to a current situation where Artificial Intelligence is accounting for approximately 50% of new bookings.

While all forecasts in this space need to be considered carefully, the chart below provides an indication of potential growth.

Supply is being added rapidly, albeit, the physical requirements of land, buildings, IT infrastructure and power can sometimes lag demand. In broad terms, the supply landscape comprises:

Hyperscalers: Technology giants such as Amazon (AWS), Microsoft (Azure), and Google (GCP) dominate the hyperscale market. These companies continue to invest heavily in expanding their global network of data centres.
Colocation Services: Colocation providers, such as Equinix and Digital Realty, are also experiencing high demand as enterprises seek hybrid solutions that combine on-premises and cloud storage.
Enteprise Data Centres: Large organisations such as banks and government, may own and operate their own data centres, specifically tailored to their needs.
Edge Centres: For certain uses, it is important that data centres are close to end users, helping latency. Edge centres are closely located to end users, but tend to be smaller in scale.

What is DigiCo REIT?

DGT is a newly established, ASX-listed Real Estate Investment Trust that seeks to own, operate and develop data centres. Initially focused on Australia and the USA. The trust has a global mandate and an equally broad strategic focus, looking for exposure across stabilised assets, value-add, and development opportunities.

Unlike traditional real estate metrics, where the focus is on gross or net lettable area, with data centres, it’s all about power¹, so the metrics turn to megawatts (MW) and gigawatts (GW) as the key attribute of a facility. In that context, DGT’s initial portfolio has installed capacity of 76MW, with the vehicle looking to materially expand this to 238MW via additions and greenfield opportunities already identified.
Externally managed by HMC Capital Limited, DGT benefits from a recently acquired operating platform of staff that brings the IT capability alongside the funds management, accounting, tax and risk management skills of the HMC Capital platform.

DGT is tapping into one of the mega-trends identified by its external manager.

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What’s not to like?

Data centre assets are more difficult to value than traditional real estate. Traditionally, as a real estate investor, we have been a provider of land and buildings with the tenants responsible for power, and everything that sits within the buildings. This type of real estate is reasonably easier to value, particularly where long leases provide certainty of income. Once we move further up the risk spectrum, by providing a powered shell, and potentially towards operating the assets ourselves, we benefit from much higher returns but are also more exposed to the operating business, and the risks around obsolescence of equipment. As such, valuation metrics become more challenging, as long term forecasts for cash generation are subject to large estimation error.

DGT is new to this space, and while we believe they have done a solid job of assembling a diversified initial portfolio and management team, they lack a solid public track record. Over time this will dissipate, but in the short term we require an enhanced return expectation to compensate.

The entire portfolio has been recently acquired and a large portion of it is yet to even settle. Given the strong interest in the sector, it would be hard to argue that it is anything other than a sellers’ market which is unlikely to be supportive of cheap acquisitions. Our estimate of the price paid per MW of capacity is around $28m. This includes both the cost and additional capacity of planned projects.

By way of comparison, Goodman Group (GMG), which has been a hugely successful developer, owner and operator of industrial property in Australia and key overseas markets, has also recently pivoted towards the development of data centres. Data Centres are expected to become more than 50% of GMG’s total development pipeline. GMG has a data centre pipeline of ~5GW, albeit this will take more than a decade to roll out. GMG is targeting 80MW facilities with an estimated end value of ~$2bn, implying a market value for a brand new facility of ~$25m per MW. Furthermore, this includes a substantial development margin for GMG. These figures are rough and ready, but do not flatter the DGT valuation.

One of the metrics we use to value property stocks is a “Sum of the Parts”. For externally managed REITs, this involves estimating a market value for each of the assets held, and then making adjustments for the capital structure (debt) and the management fee structure. For DGT, given all assets have been recently acquired, we have a reasonable starting point for valuation. At IPO DGT was priced at a ~4% premium to book value and a bigger premium to our assessed “Sum of the Parts” once the management fee stream is accounted for.

And finally, a word on externally managed trusts, which we have made many times before, but remains very important. There is an inherent conflict between the manager, who is incentivised to grow assets and fees, versus the unitholders of the trust who may be better served with a more stable portfolio. This misalignment is made worse when there are fees attached to acquisitions and dispositions. Sadly, DGT is encumbered with such fees, albeit the manager does have a substantial co-investment stake offsetting this concern to some extent.

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Conclusion

The data centre space is an amazing one. It represents a substantial opportunity, and we expect DGT to grow strongly as it develops out its current pipeline and makes acquisitions. However, each opportunity needs to compete for the same dollar of capital. Right now, we see some compelling opportunities in related areas, such as Centuria Industrial REIT (CIP), which trades at a material discount to its book value and also has some growth options.

Footnotes:

Interestingly, and somewhat fortunately, renewable energy sources now power approximately 40% of global data centres, with many operators targeting net-zero emissions by the 2030s.

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February 5, 2025

December 2024 quarter ASX A-REIT market update

Stuart Cartledge, Managing Director, Phoenix Portfolios

Market Commentary

The S&P/ASX 300 A-REIT Accumulation Index gave back some of the gains seen in the previous quarter, dropping 6.1%. Property stocks underperformed broader equities in the period, with the S&P/ASX 300 Accumulation Index only losing 0.8%. The key factor affecting the performance of property stocks was the movement in interest rates. After beginning the quarter at just under 4.0%, the Australian Government 10 Year Bond yield, closed 2024 at approximately 4.4%. Related to this, expectations of interest rate cuts by the Reserve Bank of Australia have been delayed.

Office property owners were particularly weak during the quarter. Some sales evidence across a range of office property types did occur in recent times after an extended dearth in transactional activity. Dexus (DXS) announced the sale of two properties, 100-130 Harris Street in Pyrmont, adjacent to the Sydney CBD and 145 Ann Street in Brisbane, both at a capitalisation rate of approximately 7.6%. The sales represented a small discount to prevailing book values and are significantly below peak valuations. DXS closed the quarter down 9.6%. Other office owners fared worse, with Centuria Office REIT (COF) off 11.4%, GDI Property Group (GDI) losing 11.8% and Cromwell Property Group (CMW) giving up 13.9%.

Shopping centre owners performed broadly in line with the property index after strong performance in recent periods. Owner of Australian Westfield-branded shopping centres Scentre Group (SCG) lost 6.0%, whilst the owner of foreign Westfield-branded shopping malls, Unibail-Rodamco-Westfield (URW), dropped a similar 5.9%. Competitor, Vicinity Centres (VCX), fell a lesser 5.0%. Owners of smaller neighbourhood and subregional shopping centres underperformed their larger counterparts. Region Group (RGN) lost 6.7% and Charter Hall Retail (CQR) w as weaker, off 9.3%.

Owners of industrial property were also mostly underperformers, as market rent growth appears to have cooled from generationally strong numbers, however, remains positive. There also appears to be an increase in incentives offered to industrial tenants providing further evidence of a slowdown. Dexus Industria REIT (DXI) finished the quarter 10.0% lower, while Centuria Industrial REIT (CIP) fell 10.6%. Bucking the trend was Garda Property Group (GDF), which rose 5.4% in the quarter. This solid result came on the back of the sale of GDF’s massive North Lakes asset. The asset is a big land holding in the North of Brisbane, slated for the development of an industrial estate. Its true value was highly uncertain and the sale for $114 million (to close in 2025) both provides certainty and crystalises meaningful value creation for GDF shareholders. Property fund managers faced mixed fortunes in the quarter. Negatively, Charter Hall Group (CHC) underperformed, dropping 8.7%. Goodman Group (GMG) outperformed the broader index, however still lost ground, finishing the quarter 3.2% lower. Property debt fund manager Qualitas Group (QAL) was a strong performer, adding 16.1%, as it will be a beneficiary of higher interest rates to the extent that they do not cause losses on residential development projects. HMC Capital Limited (HMC) rallied, gaining 20.2% after listing a data centre REIT in the period. For more, see this quarter’s feature article below.

As we flagged may be the case, M&A activity in undervalued, small capitalisation property stocks has seen a noticeable uptick. Both AV Jennings Limited (AVJ) and Eumundi Group Limited (EBG) received takeover bids at meaningful premiums to prevailing share prices. For more see the performance commentary section of this report. In addition, CQR’s takeover of Hotel Property Investments (HPI) appears all but certain to complete, having gone beyond the minimum acceptance level.

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Market Outlook

The listed property sector is in good shape and provides investors with the opportunity to gain exposure to high quality commercial real estate at a discount to independently assessed values. While share market volatility may be uncomfortable at times, the offset is liquidity, enabling investors to rebalance portfolios without the risk of being trapped in illiquid vehicles.

Rising interest rates have been a headwind for many asset classes, with property, both listed and unlisted, a particularly interest rate sensitive sector. More recently, interest rates have been volatile, leading to mixed returns in property securities. The August reporting season saw stocks providing solid updates, with meaningfully more optimistic outlooks, based on the assumption that interest rates may have peaked and begun to come down. Long term valuations are driven by “normalised” interest costs, meaning the impact of short term hedges maturing is mostly immaterial. Should the forecast decline in interest rates eventuate, performance may be solid once again.

The industrial sub-sector continues to be the most sought after, given the tailwinds of e-commerce growth, the potential onshoring of key manufacturing categories and the decision by many corporates to build some redundancy into supply chains to cope with current disruptions. All of these factors are contributing to ongoing demand for industrial space, which is evident by rapidly accelerating market rents and vacancy rates at historic lows of around 2% in many markets. Strong rental growth has somewhat cooled and has been offset by capitalisation rate expansion in recent periods resulting in flat valuations and capitalisation rate spreads to government bonds more in line with long-term norms.

We remain cognisant of the structural changes occurring in the retail sector with the growing penetration of online sales and the greater importance of experiential offering inside malls. Recent performance of shopping centre owners has however been strong, with consumers showing resilience and share prices moving sharply higher. It is interesting to note the juxtaposition of very high retail sales figures despite very low levels of consumer confidence, no doubt impacted by rising costs of living. Importantly, we are also now seeing positive re-leasing spreads in shopping centres, indicating strengthening demand from retail tenants.

The jury is still out on exactly how tenants will use office space moving forward, but demand for good quality well located space remains. Leasing activity is beginning to pick up, and there has also been some transactional activity, albeit at prices typically at discounts to book values. Incentives on new leases remain elevated.

We expect to see further downside to asset values in office markets, but elsewhere expect market rent growth to largely offset cap rate expansion, particularly in industrial assets. Listed pricing provides a buffer to such movements.

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December 2024 direct property market update

Economy¹

Some of the biggest events of the quarter happened far from our shores, none bigger than the US election where the incumbent Democratic Party ceded control of the Senate and Donald Trump secured the keys to the White House. This was the biggest election year in history globally² and it turned out to be a year where voters turned against incumbents, with the final quarter also seeing Japan’s ruling Liberal Democratic Party reduced to coalition government. The US and Japan results followed similar outcomes in the likes of India, South Africa and the UK earlier in the year.

Cost-of-living pressures and the state of economies more broadly appear to have contributed significantly to election results. In Australia, the economy continues to fare relatively well compared to peer markets. Underlying inflation is tracking towards the target band and the labour market is a particular bright spot, with only 3.9% of those in the labour force unemployed. However, population growth is doing a lot of heavy lifting – this quarter saw the release of September GDP data, which showed real GDP growth of 0.8% year-on-year but a per capita decline of -1.5%.

The final quarter of the year is where the rubber hits the road for businesses – particularly retailers – exposed to the discretionary wallets of households. On this front, sales events such as Black Friday and Cyber Monday are becoming increasingly important. These events have shifted promotional activity (and spending) earlier, from December to November. While official ABS data for November retail sales are not available at the time of writing, higher frequency trading indicators from some of the banks suggest the promotional period did generate strong growth, led by discretionary non-food categories such as clothing. However, a more accurate assessment of performance over the quarter requires December data to be released (early February) given the slowdown that now tends to occur after the sales events conclude. While it does appear that the Stage 3 tax cuts and easing inflation pressures are providing some degree of stimulus to discretionary spending, a more significant improvement in retail growth may not be seen until cash rate cuts materialise.

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Office

It was another positive quarter for office space fundamentals to end the year. Analysis of JLL Research data indicates over 30,000 square metres (sqm) of positive net absorption (demand) was recorded across the major CBD markets in aggregate, taking net absorption to over 160,000 sqm for 2024. This was the strongest year (on a rolling basis) for net demand since mid-2019. The positive quarterly result was relatively broad-based, with every CBD market except Melbourne (-1,800 sqm) and Perth (-2,300 sqm) recording demand expansion. Brisbane CBD was the top performer, underpinned by solid demand across small and large occupiers. Sydney CBD also performed well, with small occupiers leading the demand for space.

While demand was solid, supply completions contributed to the national CBD vacancy rate nudging 0.1% higher to 15.2%. This was almost entirely driven by Sydney CBD, where vacancy increased in every precinct except the Core. The vacancy rate remained flat or decreased in every other CBD market except Perth (+0.1%), with Brisbane CBD the strongest performer due to demand tailwinds and no stock completions over the quarter. In a positive indicator for the future direction of the vacancy rate, sub-lease vacancy has now reverted to the long-term (20 year) average, as large occupiers have re-absorbed space they were previously offering to the leasing market.

The pace of national CBD prime net face rent growth (+1.2%) remained slightly above the long-term average over the quarter and contributed to strong growth of 5.0% over the year. Every market recorded rent growth with Adelaide CBD the biggest improver (+1.6%). Incentives were largely unchanged except for Canberra (+0.6%) and Melbourne CBD (+1.4%), with net effective rents in those two markets falling as a result. Brisbane CBD took a breather after three consecutive very strong quarters, however supply-demand conditions remain favourable. Sydney CBD recorded another solid quarter, somewhat masking a two-speed market where the Core continues to outperform other precincts.

Transaction volume exceeded $2 billion for the third quarter in a row. This took the annual figure to $8.4 billion, a healthy increase of nearly 50% compared to 2023. While deal activity is still some way short of pre-COVID levels, there are signs that capital has started to move the office sector out of the ‘do not touch’ bucket. Sydney CBD accounted for the largest transaction of the quarter, BGO’s ~$580 million acquisition of 10-20 Bond Street. There was also elevated activity in some Sydney fringe and suburban markets which lifted overall Sydney transaction volume to $1.4 billion. Consistent with its stronger underlying fundamentals, Brisbane continued to comprise an above-average share of national deal activity. Melbourne recorded its weakest calendar year of transaction volume since the Global Financial Crisis, reflecting the vacancy challenges and uncertainty that persist in that market.

Across the major CBD markets, average prime yields expanded by 12.5 basis points (bps) in Brisbane and 25bps in Melbourne – all other CBDs were unchanged. Melbourne yields are now in line with Brisbane, a rare position, as investors demand a higher risk premium to account for the southern state’s weaker outlook.

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Retail

Space market fundamentals improved across core retail (Regionals/Sub-Regionals/Neighbourhoods) with the vacancy rate decreasing for every centre type over the last six months (biannual data print). Regional and Sub-Regional centres now have a lower vacancy rate than pre-COVID. A lack of supply has contributed to the tightening of conditions with core retail stock growth of only +0.7% recorded over 2024.

Despite an improving supply-demand balance, rent growth was relatively muted over the quarter. While Regionals and Sub-Regionals recorded strong net rent growth in South East Queensland, Sydney Neighbourhoods was the only other segment to record material growth. On an annual basis, the rent growth rate seen over 2024 was the strongest achieved since 2011 for every sector.

Transaction volume totalled ~$1.8 billion for the December quarter, taking the 2024 figure to $6.3 billion. Activity over the quarter was buoyed by the Regional sub-sector, specifically the circa $900 million acquisition of QIC’s Westpoint Shopping Centre by Haben and Hines. Sub-Regional activity was also solid with nearly $500 million of deals recorded for the centre type, slightly exceeding the five-year quarterly average. It was a relatively quiet quarter for convenience retail, with less than $200 million of Neighbourhood centres changing hands. There were further signs that the cycle is starting to turn for the retail sector, with no yield expansion recorded for any centre type or market. Sydney yields compressed across every centre type after nearly $1.3 billion of transaction evidence over the quarter.

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Industrial

Occupier take-up (gross demand) maintained last quarter’s level of around 840,000 sqm, remaining in line with the quarterly average of the past five years. Manufacturing had its second-highest quarter of demand on record (back to 2007) accounting for 40% of take-up. There were also large sites leased by individual users in smaller industries such as healthcare and equipment storage. Space demand was concentrated in Melbourne and Sydney, with both markets recording their strongest quarter in over a year. Brisbane was a relative drag and well down on its average level of the past three years, with only one lease greater than 9,000 sqm signed and the total number of lease deals decreasing versus last quarter.

Rent growth remains above the long-term average despite a weakening of demand relative to supply. The quarterly pace of rent growth was mixed across markets. In precincts where rents moved, strong growth was achieved. However, rents were unchanged in 12 of 22 precincts nationally, dragging headline growth rates. Brisbane was the standout performer with all three precincts recording rent growth of at least 3.7% (QoQ). Perth performed worst relative to last quarter as rents were unchanged across all of its precincts. Incentives had a limited impact on effective rent growth. They increased in Sydney’s outer ring precincts – where take-up is more driven by new developments and higher face rents were recorded over the quarter – but were largely unchanged across the other markets.

While over 900,000 sqm of industrial supply was earmarked for completion in the final quarter of 2024, less than 600,000 sqm was actually delivered as construction delays continued to push out project schedules. This theme is helping to maintain a reasonable supply-demand balance despite a record level of supply being delivered in 2024. Supply delivered over the quarter was concentrated in Melbourne, with completions in Sydney and Brisbane relatively muted. There are currently nearly 1.8 million sqm of floorspace under construction and due to complete in 2025. A key determinant of underlying space market conditions over the year will be how much of the planned development pipeline not currently under construction actually proceeds to commencement.

It was a fairly weak quarter for transaction volume, owing to a lack of large portfolio deals and weak activity in Melbourne (after a record quarter previously). While every other quarter during the year had a top transaction value of at least $600 million, the biggest transaction in Q4 was less than $200 million. Prime yields were relatively stable, with 25bps of expansion in two Melbourne precincts the only notable movements.

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Outlook

There are still some offshore factors that could knock the Australian economy off course, namely geopolitical developments (e.g. Trump tariffs), conflict in the Middle East, and China’s waning economic growth. Positively, local conditions are largely evolving as hoped with inflation continuing to moderate as labour market gains are retained. While expectations continue to bounce around as new data is released, markets are currently forecasting at least one RBA rate cut by May³. This growing confidence that a rate cut will land in the first half of the year is supporting the stabilisation of commercial property market pricing which now appears to be occurring across all the sectors.

With capital market conditions appearing to improve and liquidity constraints easing, the strength of underlying property fundamentals should come into sharper focus. Opportunities that are aligned to Australia’s population growth tailwinds are well positioned, as are those where sentiment has become dislocated from property performance.

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How did the Cromwell Funds Management fare this quarter?

In the last quarter, approximately 28% of the Cromwell Direct Property Fund’s (Fund) portfolio was revalued, with a further 19% revalued in October during the December quarter. This resulted in a 2.3% decrease in the Fund’s portfolio value, which now sits at $542 million, including its investments in the Cromwell Riverpark Trust and Cromwell Property Trust 12. The Fund is 58% hedged, with a weighted average hedge term of just over two years, positioning it well to benefit from potential future interest rate cuts. The Fund’s portfolio is currently 96.4% occupied, with a weighted average lease expiry of 3.6 years. Notably, this lease expiry metric does not include executed leases yet to commence, such as a six-year lease for over 2,100 sqm at 545 Queen Street in Brisbane, starting in March 2025.

In December, the Cromwell Riverpark Trust, of which the Cromwell Direct Property Fund owns 23% valued at just over $32 million, held an Extraordinary General Meeting. Unitholders were asked to vote on extending the Trust’s term through to 31 December 2026. Of the almost 70% of Unitholders who voted, 88% were in favour of the proposal. The decision by Cromwell Riverpark Trust Unitholders to extend the investment term reflects a strategic approach to navigating current market challenges. By allowing more time for market conditions to stabilise and improve, the Trust aims to achieve a more favourable sale price for Energex House. The strong fundamentals of the Brisbane office market, combined with early signs of price stabilisation and potential future decreases in interest rates, support this decision to wait, rather than sell in a depressed market. Cromwell Funds Management will monitor the market closely to determine the optimal timing for launching a formal sale campaign for Energex House, aiming to achieve the best possible outcome for investors.

Cromwell Direct Property Fund’s portfolio is performing well against the 2025 financial year budgets, driven by the expertise of Cromwell’s asset management, projects, and leasing teams. Cromwell’s full in-house management model allows tenants to engage directly with staff on leasing, maintenance, ESG initiatives, and more.

Major capital expenditure projects are ongoing across the portfolio. These include carpet and lighting upgrades at the19 George Street asset in Dandenong, heating improvements at the 100 Creek Street asset in Brisbane, wet wall remediation works at the 420 Flinders Street building in Townsville, leasing works at 545 Queen Street in Brisbane, and lobby, end-of-trip, and carpark façade upgrades at Altitude Corporate Centre in Mascot. These efforts ensure the assets are maintained to a high standard, driving tenant retention and minimising downtime, particularly in multi-let assets such as the buildings at 100 Creek Street and 545 Queen Street in Brisbane.

Sustainability remains a key focus, exemplified by the recent lift upgrades at 100 Creek Street. The new motors provide energy savings of 55% compared to the older ones and regenerate 35% of the power used, feeding it back into the building grid. This initiative delivers both environmental and financial benefits, especially with rising energy costs.

In Adelaide, the team achieved strong leasing results at 95 Grenfell Street. While one tenant surrendered a full floor, they extended their lease on another floor for two years and paid a surrender fee, delivering a positive financial outcome. Terms have already been agreed to re-lease the surrendered floor for five years starting in April, ensuring minimal downtime.

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Data sourced from various ABS publications, except where otherwise specified
A ‘super’ year for elections, United Nations Development Programme (2024)
As at 6 January 2025.

About Cromwell Direct Property Fund

Read more about Cromwell Direct Property Fund, including where to locate the product disclosure statement (PDS) and target market determination (TMD). Investors should consider the PDS and TMD in deciding whether to acquire, or to continue to hold units in the Fund.

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November 11, 2024

Taking advantage of the property cycle

Colin Mackay, Research and Investment Strategy Manager, Cromwell Property Group

Understanding the property cycle can be useful for investors as it enables them to make informed investment decisions and stay focused on their long-term goals.

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Commercial property market cycle phases

In our view, the commercial property market cycle includes four phases:

Peak: This phase features strong economic growth, rising property prices, and high investor confidence. Demand accelerates and vacancy rates drop well below normal levels. However, it can also lead to overvalued assets as sentiment moves ahead of underlying property performance and prices reach their zenith. Interest rates may also start to rise in this phase as the RBA seeks to take some ‘heat’ out of the economy.

Slowdown: In this phase, market dynamics shift, leading to weaker demand and softening prices. Construction, which typically picks up in the expansion phase, starts to create an oversupply and vacancy rates increase. Interest rates continue to rise, impacting jobs growth and slowing the economy. Sentiment worsens, perpetuating falling prices.

Trough: Characterised by low investor confidence and sometimes widespread despondency, this phase sees prices hitting their lowest point. However, it can also present opportunities for investors to buy undervalued assets at attractive prices. Towards the end of this phase, rate cuts often stimulate activity and lay the foundation for asset appreciation.

Expansion: During this phase, economic and financial conditions improve, boosting investor confidence and supporting asset prices. This is typically the longest phase, underpinned by moderate growth rather than the sentiment-driven extremes of the market peak and trough.

Property market cycles repeat over time, but each one is unique. This is because the intensity and duration of a cycle depends on a multitude of factors such as macroeconomic conditions, geopolitical events, investor sentiment, and unexpected occurrences like natural disasters or global pandemics. Sectors within a market and even different locations can be at different phases of the cycle at the same point in time.

Now that we have the basics covered, let’s take a look at the current property market.

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The macro landscape

As mentioned above, macroeconomic conditions play a big role in property cycles. Recently, we’ve seen a significant increase in interest rates – 425 basis points in 18 months, which has significantly impacted commercial property prices. However, many believe that interest rates have peaked for this cycle. Other countries such as the US, Canada, New Zealand, and several across Europe, have already started lowering rates.

Australia’s inflation cycle took hold around six months later than peer markets and rate cuts are also expected to commence a bit later (around early next year). Cromwell expects lower interest rates will boost market confidence, stimulate transaction activity and support property prices.

Property pricing

We’re starting to see signs that property prices may be stabilising. The pace of capitalisation (cap) rate expansion (a driver of declining property values) is slowing for retail and industrial properties, an indication that the cycle may be turning for these sectors. It is important to note that because the valuation cycle lags, waiting until market valuation cap rates have started to compress means the best buying (i.e. the bottom of the cycle) has actually already passed you by.

For office properties, cap rate expansion is yet to slow but should follow the example of retail and industrial, in part supported by the emerging cap rate differential to the other sectors, which will boost the relative attractiveness of office investment. Increased transaction activity is another sign that the market cycle might be turning.

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Office fundamentals

While the macroeconomic and capital cycles appear to be becoming more favourable, they would be of little consequence if office market fundamentals were too far out of sync. Despite some challenges, like high vacancy rates in Sydney and Melbourne, there are still reasons for investors to be optimistic about the office market.

Firstly, rents are at cyclical lows, similar to the levels seen after the early 90s office market blowup. With rents at low levels, occupiers aren’t under financial pressure to reduce their space or avoid expanding if they’re growing. This also means that cutting office space or rent isn’t the first option for saving costs. Companies understand that losing staff or having lower productivity due to a poor work environment is a bigger risk to their profits.

The other cyclical element of office fundamentals is the development pipeline (i.e. supply risk). This is relatively small, with the amount of national CBD stock expected to grow by only 0.9% per year from 2024 to 2028¹, compared to the 20-year average of 1.6% per year². It’s not practical to build new offices unless they are already under construction or part of an infrastructure project, due to low rents and high construction costs affecting profitability.

It’s unlikely this dynamic will be resolved any time soon, with construction cost inflation expected to remain elevated³ and state infrastructure pipelines set to continue outcompeting for scarce resources and labour for at least several years. The lack of new development is good for the performance of existing buildings, helping to balance supply and demand and support rental growth.

The long-term trend

Over the past 40 years, investing in Australian office, industrial, and retail properties has generally paid off, with property values growing steadily despite facing a number of downturns and crises. While looking at a shorter timeframe will accentuate cyclical ups and downs, the market has shown a long-term upward trend.
Adopting a long-term approach when investing in property means investors can benefit from this steady growth. This approach helps avoid the stress of predicting market movements. Sticking to a disciplined, long-term strategy based on solid fundamentals can help investors navigate market cycles, reduce risk, and build wealth over time.

Getting in on the ground floor

It’s hard to know exactly when any market will peak or bottom out, but there are signs that can give clues about the general position of the commercial property cycle – whether it’s falling, stabilising, rising, or peaking.

With rate cuts expected in 2025, financial markets believe the overall economic cycle is close to turning. Similar signs are appearing in commercial property, with slower cap rate expansion in some sectors and increased transaction activity. For office spaces, very low rents and limited supply are reasons for optimism and present a good buying opportunity.

For investors who have the courage and capital to buy now, the benefits can be significant. Attractive prices are available, with buyers able to take advantage of distressed sales and the gap between market fundamentals and sentiment. While choosing the right properties is still crucial for investment returns, getting in early and riding the market upswing can provide a strong advantage for investors. Those who have been patient and held onto their investments through this stage of the cycle are also likely to benefit.

‘

Source: Cromwell (Jun-24)
Source: Cromwell analysis of JLL data (Jun-24)
Source: International construction market survey 2024 (Turner & Townsend)

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November 11, 2024

In conversation with… Michelle Dance

Chief Financial Officer, Cromwell Property Group

Cromwell Chief Financial Officer Michelle Dance began her professional career during the catastrophic worldwide stock market crash of 1987. This remarkable experience steeled her for the next 36 years, which she has spent working in finance and real estate markets across the world.

Skilled in navigating capital markets, portfolio and funds management, as well as debt origination and arrangement, Michelle has been with Cromwell for more than two-and-a-half years – recently stepping into the CFO role.

Michelle holds a Bachelor of Economics from the University of Queensland, as well as a Master of Commerce, Economics, and Finance from the University of New South Wales.

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1. Michelle, you have an impressive, decades long career in finance and property – and have worked with some large organisations – what initially appealed to you about this line of work?

My favourite subjects at school were economics and English – I had the same teacher for both, who was quite an inspirational woman. As I was finishing high school, I decided that I didn’t want to be a teacher, which seemed to be the only clear career path for someone who was considering studying English literature at university. And so, economics became the most logical path for me to take, given my love for the subject – and it’s a love that’s still there today.

As I was studying economics at university, I got it into my head that I wanted to be a dealer, working in dealing rooms. I don’t even think that, at the time, I had a clear idea of what that meant – but it sounded like a lot of fun.

When I finished university, a recruiter friend set up a series of job interviews at various brokerage houses and dealing rooms around Sydney. The day that I flew into Sydney from Brisbane for my interviews was 19 October 1987 – Black Monday.

I remember walking into dealing rooms for job interviews that day, and the interviewers being close tears; people shouting and screaming around the offices; people running out of my interviews to scream at other people and then coming back in to continue our conversation. It was quite dramatic!

It was only really the next morning when I opened the newspaper that I realised exactly what I’d been witnessing. Regardless, I was offered a job as a trainee dealer at CSR and I moved to Sydney the day after my 20th birthday.

I spent the first decade of my career working in dealing rooms in corporate group treasury roles. It was exciting – it was all the things that I’d learned about in economics at school and university playing out in in real life, in real-time.

Here I was, a very young kid from the suburbs in Brisbane, suddenly dealing with vast, vast quantities of money. And it was kind of intoxicating – I just loved it.

‘

2. What appealed to you about joining Cromwell Property Group?

One of the key things that I’ve learned is that your level of happiness in an organisation is very much dependent on the work that you’re doing – but it’s equally impacted by the culture of the organisation. You can be doing exciting work, but, if the culture that doesn’t work for you, it can be a pretty unhappy experience.

So, all the questions I asked of Cromwell and the leadership team during the interview process were about the culture that they wanted to build and, very quickly, that line of questioning became, “what is the culture that we’re going to create together?”

And so, I made the decision to join an organisation where I could see such enormous potential – if we could reset the culture and really embrace what Cromwell had been in the past – a really nimble, exciting property manager – then we had the ability to reestablish something that was pretty exciting.

In the years since, we’ve been fortunate to foster the kind of culture that we want to work in, and the kind of business that we would have been really excited about joining when we were starting our careers.

‘

3. What does your role as Cromwell’s Chief Financial Officer involve?
What are some of the key responsibilities that you take on daily?

I love the CFO role – I’m really, really enjoying it.

Over the past year, we’ve made incredible inroads into getting the balance sheet into the position you’d want it in at this point of the real estate cycle. We’ve had far too much capital invested in Europe, and our gearing was way higher than we wanted it to be. We’ve exited non-core investments in Australia, but the exit from Europe is the real game changer.

The interest rate environment has been as challenging as the property market; and working with the team to refine how we manage our interest rate risk has been important too.

Obviously, having less debt in the first place makes us less sensitive to movements in interest rates, which is a good start.

While the improvement to the balance sheet is incredibly rewarding – and critical to being able to grow returns for our investors – where I get a real buzz is from the people I get to work with, the role is about people more than anything else. You can’t achieve superior financial performance without great people and a positive culture.

Cromwell has a large and very diverse finance team, and I’m responsible for supporting these incredible people to be themselves; to give them the space to grow and do more of what they do well.

The CFO role is really about strategy and people and relationships – I feel incredibly lucky to lead such an incredible group of finance professionals.

‘

4. The last few years have been challenging for markets across the world – how does the current environment compare to previous market downturns that you’ve helped guide organisations through?

There’s a principle derived from a quote in Leo Tolstoy’s Anna Karenina, which essentially says that all families are functional and happy in the same way, but they’re dysfunctional and unhappy in their own individual ways.

Markets cycles are a little bit the same – when markets are trending in a bullish direction, cap rates are compressed; interest rates are low; money is easy; life is easy.

It’s when markets turn that you really learn a lot about the environment you’re working in – you get to find out who’s really good at what they do, and you learn a lot more about the character of the people that you work with.

I’ve been through several market cycles – I started working the aftermath of the stock market collapse of 1987; through the challenges of the real estate market in the early 90s; and I worked through the Global Financial Crisis.

The cycle we’re going through at the moment is similar to other previous real estate cycles that I’ve experienced.

Traditionally in downcycles, the risk premium that gets eroded when everyone’s buying reappears. And it’s normal that you should have a risk premium – you should have a higher return from a riskier investment than a safer investment. People forget that when you’re in a very bullish market – I think we’re seeing that at the moment.

Having said that, there are two key differences in the current market when compared to the Global Financial Crisis, for instance.

One is that the market is still very liquid – the banks are very healthy, you can get money. At the moment, the debt markets are functioning perfectly well.

By contrast, the GFC was very much about the banks having no liquidity. You had strongly performing assets, but you had very distressed owners because they couldn’t get access to capital.

Secondly, for those of us who primarily own office buildings – we’re experiencing what retail experienced when people figured out that they could shop on their mobile phones.

It didn’t mean that all shops ceased to exist, it meant that bad shops ceased to have a reason to exist.
Office space is currently going through the same thing.

For many years, we’ve been working towards a more flexible working environment – I think that’s really important for employees, and I think it’s really important for employers, too.

Because of the aging population, anything that can be done to grow the pool of available labour – like offering hybrid working – is good for employers.

What hybrid working means for providers of office space is that we’re no longer just competing with other providers – we’re also competing with people’s lounge rooms. So, there’s a structural element to what’s happening in the property market currently, compared to previous cycles.

As a business, Cromwell is always working to make sure that we meet the specific needs of our tenants. We’re continuing to be adaptable and cater for tenants with changing needs, and we’re also making sure that we spend our money wisely on attractive places for people to come and enjoy.

‘

5. Why was the sale of Cromwell’s European portfolio so important, and how does the sale position our business going forward?

The sale of the European platform is extremely significant for the future of our business. It was important for us to realise that operating in Europe wasn’t benefitting the business or our investors to our expected standard, and that it was instead prudent to focus on the things that we’re good at, in the markets that we know.

Since we ventured into Europe, it had become very difficult for the market to understand who we were and how our business worked. We were a Brisbane-based asset and fund manager that was buying assets across Europe; investing in a vehicle in Singapore; and investing in shopping centres in Poland. This made it hard for us to engage with equity markets.

So, getting out of Europe achieves a few things – one it completes our simplification strategy which was executed to bring us back to our core sectors and markets, and make Cromwell attractive to investors once again.

Secondly, it brings back a huge amount of capital that we can reinvest in growing our Australian business.

A lot of our peers are still going through the de-gearing process; they’re still going through the process of selling assets, and they’re selling assets at the bottom of the cycle. Whereas the Australian assets that we sold were largely sold at the beginning of the cap rate expansion cycle.

So, we’re fairly uniquely positioned to grow our business. I find that incredibly exciting – and the culture that we’ve in place got should enable us to do that.

‘

6. What market/economic indicators are cause for optimism, looking forward? And where do you see opportunity for Cromwell over the next 12-18 months?

I see that we’re currently bouncing around the bottom of the real estate valuation cycle – but buildings that are well-located, and that have good amenity, are very well let.

Most of the vacancies in Australia are contained to a very small number of assets. If you look at Melbourne, for example – September 2024 research from JLL finds that just over 60% of vacancy in Melbourne was across 38 buildings. So, it’s very concentrated.

Importantly, we know the sorts of things that are attractive to retaining tenants – our leasing team and asset management team are amazing. You just have to look at the incredible third spaces we’ve created, like at our 400 George Street asset; the end-of-trip facilities in buildings across our portfolio; or the ESG upgrades that we’ve completed in the past 12 months and you get a sense of what we can accomplish.

We’ve also identified a number of key areas of investment going forward. In particular, we see really good opportunity in non-discretionary retail – there’s really good opportunity to generate really good returns in that space, as well as in the small lot industrial space.

It’s not our aim to establish billion-dollar funds to compete with the likes of Dexus and Mirvac – our intention is very much to focus on the things that we’ve always been good at: repositioning of assets, finding stuff that other people don’t know what to do with, and then just managing it really well. We’re good at that!

‘

7. What do you enjoy most about your role at Cromwell?

The people! The people are awesome.

I’ve been reflecting on this recently – there are very few moments in my career – very few organisations I’ve worked for – where the executive team all like each other. It is shocking how rare that is.

In other organisations, that factionalism in executive committees filters down and just infects the culture with this really quite toxic feeling. And Cromwell just doesn’t have that.

I love working with everyone at Cromwell – it’s an awesome place.

Want to learn more about investing in property?

Information on commercial property investing, plus the latest industry research and insights, are available on our learn page to help you start planning your investment journey.

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August 1, 2024

The Essential Guide to Investing in Unlisted Property

Cromwell continually strives to help securityholders and potential investors better understand the nature of the market – and our business – so that they can make more informed investment choices.

As such, we have compiled a comprehensive series of papers that form The Essential Guide to Investing in Unlisted Property, which is now available online. This information set will be a valuable resource for anyone seeking to diversify their portfolio and explore alternative avenues for growth through unlisted property funds and trusts.

The guide also highlights the key benefits of investing in an unlisted property trust, which include:

The pooling of investors’ funds, providing access to assets they could not otherwise purchase individually, such as large office buildings or major shopping centres.
A regular income stream, with distributions ranging from monthly to six-monthly payments.
Professional management, covering due diligence, debt, property management, and tenant management.
The need for only a small investment, allowing investors to more easily diversify across properties and managers.

Get the full, unabridged guide for free

Cromwell’s The Essential Guide to Investing in Unlisted Property is comprised of four parts:

Part 1 – The different property asset classes
Part 1 explores the differences between the residential and commercial property and provides an overview of the sub-classes of commercial property – retail, office, industrial, and specialist properties.

Part 2 – Various ways to invest in commercial property
In part 2 we examine different investment methods, ranging from direct property ownership to professionally managed property trusts.

Part 3 – How does an unlisted property trust work?
Part 3 provides insight into the structure of unlisted property trusts; the issuance of units; borrowing arrangements; property management; costs and fees, distributions; tax-deferred income; and the process of exiting your investment.

Part 4 – Reviewing an unlisted property trust
Before investing in an unlisted property trust, it is important to understand and review the provided Product Disclosure Statement (PDS) and Target Market Determination (TMD), particularly the ‘risks’ section, to fully comprehend the nuances of the trust and its assets. In part 4 we provide a summary of what to look out for.

Get the full guide

The different property asset classes

The first section of The Essential Guide to Investing in Unlisted Property clearly separates the property asset class into two groups – residential property and commercial property.

For the purposes of this article, we’ll highlight office properties, which fall within the commercial property class.

‘

Excerpt from The Essential Guide to Investing in Unlisted Property: Part 1

‘

Commercial property

The fundamental difference between commercial and residential property is that commercial properties are usually valued based on the income return they will provide to an investor, which is known as the capitalisation rate (cap rate) or yield.

For example, if an A-grade office building typically trades at a cap rate of 7% at a given point in time, then the market value will be calculated using the formula: income/cap rate = value. So, for a building generating an income of $1,000,000, its theoretical value would be $14.3 million (i.e.,$1,000,000 / 7%).

The value is also affected by additional factors, including the lease terms, quality of tenant, and other building attributes. Management expertise is an essential consideration with commercial property, as there are undoubtedly more issues to be addressed compared to residential property.

Tenants, particularly government or large corporate tenants, have specific and often complex needs that may include how their leases are structured to ensure better funding or tax outcomes.

Compliance requirements, such as Occupational Health and Safety, are also a significant burden to commercial property owners, and understanding the applicable regulations and associated costs is essential. For these reasons, most commercial property owners use professional property managers, which should be a core part of a property fund manager’s business.

Office property

From a yield perspective, office properties can vary substantially. There is a substantial difference in the yield you would expect to receive from a premium-grade building (low yield) compared to a C or D-grade building (high yield). Other factors which can affect yields include the location of the property, the tenants and length of lease.

Premium-grade property is not necessarily a better investment than a lower grade building; however, it does tend to attract more financially secure tenants, which lowers the risk for investors. As office buildings are rarely located in isolation, it is important to review the supply and demand characteristics of the area in which the property is located to ensure long-term demand for space in your building.

In recent years, government and blue-chip tenants have increased their demand for newer, environmentally sustainable office buildings. This is a vital consideration when assessing the long-term outlook for office properties.

Office building quality

Office buildings in Australia are classified under a voluntary, market-based system developed by the Property Council of Australia (PCA). The PCA’s Guide to Office Building Quality provides two classification tools – one for new buildings, and the other for existing buildings.

The Guide classifies office buildings into Premium, A and B grades for new buildings and additional C or D grades for existing buildings – according to their size, location, configuration, environmental performance, communications, security, lifts, air conditioning, as well as other services and amenities.

‘

To earn a Premium classification, a new building would need to be a landmark office building located in a major CBD office market with expansive views and outlook, ample natural light, premium quality finishes and amenities, and a 5-Star or above National Australian Built Environment Rating Scheme (NABERS) Energy rating.

It would also need to have a minimum net lettable area (NLA) greater than 30,000 square metres (sqm) if in Sydney or Melbourne.

The criteria to earn a Grade A classification is less stringent, but still requires a building to have high quality views, lifts, finishes and amenities, a 4.5-Star or above NABERS Energy rating and a NLA over 10,000 sqm if located in major capital CBDs.

B-grade buildings are required to be ‘good quality’ with a minimum 4-Star NABERS Energy rating.

Existing buildings are rated on slightly different parameters with additional categories for C and D-grade buildings. The ratings acknowledge that existing buildings will not be as energy efficient as new buildings, but reward owners and tenants for taking steps to improve efficiency.

Cromwell’s The Essential Guide to Investing in Unlisted Property is available to download for free.

Download your copy

Learn

What’s coming for commercial property in 2025?

1. Rate cuts

2. Shifting capital composition

3. Stronger consumers

4. Improved market sector

5. Geopolitical uncertainty

5b. A Broncos premiership

A year with something for everyone

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Taking advantage of the property cycle

Understanding the property cycle can be useful for investors as it enables them to make informed investment decisions and stay focused on their long-term goals.

Commercial property market cycle phases

The macro landscape

Property pricing

Office fundamentals

The long-term trend

Getting in on the ground floor

Learn

In conversation with… Michelle Dance

Cromwell Chief Financial Officer Michelle Dance began her professional career during the catastrophic worldwide stock market crash of 1987. This remarkable experience steeled her for the next 36 years, which she has spent working in finance and real estate markets across the world.

1. Michelle, you have an impressive, decades long career in finance and property – and have worked with some large organisations – what initially appealed to you about this line of work?

2. What appealed to you about joining Cromwell Property Group?

3. What does your role as Cromwell’s Chief Financial Officer involve? What are some of the key responsibilities that you take on daily?

4. The last few years have been challenging for markets across the world – how does the current environment compare to previous market downturns that you’ve helped guide organisations through?

5. Why was the sale of Cromwell’s European portfolio so important, and how does the sale position our business going forward?

6. What market/economic indicators are cause for optimism, looking forward? And where do you see opportunity for Cromwell over the next 12-18 months?

7. What do you enjoy most about your role at Cromwell?

Learn

The Essential Guide to Investing in Unlisted Property

Get the full, unabridged guide for free

The different property asset classes

Excerpt from The Essential Guide to Investing in Unlisted Property: Part 1

Commercial property

Office property

Office building quality

Cromwell’s The Essential Guide to Investing in Unlisted Property is available to download for free.

Excerpt from The Essential Guide to Investing in Unlisted Property: Part 2

Direct investment

Private syndicates

Pooled professionally managed property trust

ASX-listed Real Estate Investment Trusts

Unlisted property trusts

Economy¹

3. What does your role as Cromwell’s Chief Financial Officer involve?
What are some of the key responsibilities that you take on daily?