New Financial Year
Apropos that the start of the new financial year is in the middle of the footy season. The ref blows the whistle and the game begins. The training, the preparation and the analysis that occurs before each game is imperative. The best teams keep improving, fixing mistakes, and playing new plays to get the upper hand. And so it is with CRE. Things change. As Albert Einstein once said, “insanity is doing the same thing over and over again and expecting different results”.
Last financial year was one of high hopes that things would return to normal for much of the CRE industry. As we now know there is no normal, but perhaps a new normal or next normal.
For the office markets, rents increased (as did incentives) as the “flight to quality” narrative took hold. But real demand remained low, and by early 2024, the narrative turned to flight to value as financial officers across the country focused on costs. And speaking of costs, fitout costs would have to be one of the biggest issues for both tenants and landlords.
For the industrial markets, the hype was in the other corner. The hope was that the boom would never end but we have noticed things have calmed down, there is stock (choice), and demand has decreased.
The only market that fired was the data centre sector. However, many of the recent completions and current builds started planning 5 years ago before the AI revolution. So this has been coming for years. It’s not new, it’s just been kept quiet.
And speaking of technology, the CRE industry is known to be slow to adopt to new technologies. But that is not the issue. It’s about supply and demand. There is plenty of supply but what about demand? The real issue is how technology is going to continue to change the tenants and their demand for space; office or industrial. Will they lease more space or less space than their previous lease?
The one thing for certain is that our CREview posts will remain AI free. That is simply because they are our views and not someone else’s.
For our CRE tenant clients and prospective tenant clients, the new financial year will be tough on many fronts but there would be no better time to make a change of some sort with your CRE lease portfolio. The market is in your favour.
And landlords, perhaps this is the year that the market bounces back for them. But back to where? We are not going back to how it was pre-covid. We think it will be at least another year before “green shoots” appear on the office leasing front. On the industrial leasing front, choice has returned and more stock is being built. Perhaps it will return to equilibrium. Whichever sector, the economy and technology will be the main drivers.
Happy new financial year and all the best for it. To our clients, thank you so much for your support during the year, it is so appreciated. It is always a pleasure to work with you no matter the market conditions. We look forward to what lies ahead and presenting it in CREview as we see it. As one client has said, if you want a second opinion, ask us again.
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