Commercial property primed for recovery in 2025 amid calls for tax and labour reform

The chief executives of some of Australia’s largest commercial property companies forecast a recovery in 2025, calling on governments to kickstart tax and labour reform.

The $1.7 trillion Australian commercial property market is poised for a recovery in 2025.

The Australian commercial property sector is primed for a recovery in 2025 with costs under control and the promise of interest rate cuts, according to chief executives of some of the country’s largest companies.

However, while they were optimistic after a tough 2024, respondents of The Australian’s CEOs survey also called for much needed taxation and labour reform to underpin the recovery of the $1.7 trillion-plus sector.

Charter Hall chief executive David Harrison said commercial property hit the trough in asset pricing in December last year and he forecast a recovery in valuations in 2025 as demand grew.

“New building supply is a significant challenge and will limit space creation versus population growth, which will be a tailwind for existing asset rent growth and values,” he said.

“The easing cycle forecast for 2025 will support a recovery, and if there’s sustained progress with cooling inflation, we’re likely to see the timing of rate cuts to be in line with expectations or even may be quicker and sharper than consensus as cost-of-living crunches household disposable income.”

Charter Hall Group chief executive David Harrison.

Mr Harrison said if equities continued to rise in value, global investors will be underweight in property and Australia was well-positioned to capture that growth, with its reputation as a safe haven for global capital.

However, he said the greatest headwind for the sector was the ever-increasing tax and duty rates being applied by most state governments.

“State government revenue actually falls in absolute terms as tax rates rise as it virtually stops dead capital investment and transaction markets – this will become most evident for states who are overtaxing property and distorting capital markets by deterring foreign investment,” Mr Harrison said.

Dexus Group chief executive Ross Du Vernet said the labour market remained tough and cost pressures still existed while expected interest rate cuts this year will boost the sector.

“Rate cuts will have a big impact on investor confidence and we should see stronger volumes in commercial real estate transactions. We see lots of opportunity in this market to invest and are actively working to deploy capital alongside clients,” he said.

But, Mr Du Vernet said in regard to reform it will be a slow process with “no silver bullet”.

“Labour market reform that looks at mobility and the skills that business and the nation needs five to 10 years from now would be a good start,’ he said.

“On the tax side, the various state based taxes and duties that single out foreign capital — which the nation needs — is counter-productive to creating the stable investment environment these long term investors need.”

Greg Goodman, the chief executive of major industrial player Goodman Group, said while the Australian economy was relatively subdued demand remained strong in his sector.

“In our business, we see a shortage of good quality industrial infrastructure, because infrastructure generally is difficult and slow to develop which is constraining supply,” he said.

“Demand is holding up because it’s been driven by the need for greater productivity. What we want to see in the Australian economy is more emphasis on productivity and more encouragement and incentives for businesses to grow.”

Greg Goodman, head of Goodman Group.

Mr Goodman said his company was a global business and they were keeping a close eye the US and the approaching presidency of Donald Trump.

“With a significant operation in the US, the growth in the US economy is important to Goodman, so we’re watching the change in approach closely,” he said.

“We’re looking for confidence in economic growth as that drives customer demand for our properties.”

Lendlease chief executive Tony Lombardo said cost pressures have eased with material price increases slowing to near pre-pandemic levels, although labour costs remained high.

“In regards to the Australian rate cycle, although it has pushed out with rates holding steady now for over 12 months, we’re seeing capital investor confidence return as other global markets commence their rate cutting cycles,” he said.

“This is improving sentiment around real estate valuations more generally and contributing to an improvement in transaction volumes.”

“Our global office portfolio is currently 95 per cent leased, evidence that high-quality and well-connected workplaces are in demand. And now that the Victoria Cross Station is open in North Sydney, we’re seeing increased leasing momentum at our new workplace precinct there.”

Mirvac chief executive Campbell Hanan.

Mirvac chief executive Campbell Hanan said they were cautiously optimistic that the market was starting to turn for the better.

“We support the view that Australia will join the global easing cycle and that we’ll see rate cuts. In saying that, employment remains quite tight and core inflationary remains sticky,” he said.

“It’s been pleasing to see green shoots emerging in the economy, and with interest rates set to fall mid next year, we’re setting our business up for the next cycle,” he said.

“I’m excited about the projects that we’re delivering – across both residential and commercial. We remain disciplined in our investment spend and manage our balance sheet prudently; we will look to do more capital partnering across our projects to improve the velocity of our capital and unlock value.”

Originally published as Commercial property primed for recovery in 2025 amid calls for tax and labour reform