Rateseeker Round-up: January Business News

Rateseeker Round-up: January Business News

As we turn the page to start a new year, confidence in Australia’s commercial property market is beginning to stir. While the sector has faced its share of challenges, rising debt costs, shifting demand, and global uncertainty, there are signs that momentum is building, especially among sub-$20 million transactions and offshore investors eyeing value opportunities.

In this update, we’ll explore the latest insights from industry experts, including why population growth and a weaker Australian dollar could give the market a much-needed boost, and which types of commercial assets are best positioned for success in the current landscape.

Whether you’re an investor, business owner, or simply keeping a close eye on property trends, here’s what you need to know about where the commercial market is heading this year.

Slowdown in Spending, But Not in Staffing

Traditionally, when the economy cools, unemployment rises. Sales slow down, and businesses typically find it easier to hire. But in today’s market, things aren’t playing out the way the textbooks say they should.

Recent figures from the Australian Bureau of Statistics show a definite economic slowdown, with business turnover dropping by 0.3% between October 2023 and October 2024. That suggests demand is softening. But surprisingly, the job market is holding firm.

The unemployment rate in December 2024 stood at 4.0%, the same level it had been a year earlier. Even more telling, the underemployment rate dropped from 6.6% to 6.0%, indicating that fewer people are seeking additional hours. At the same time, the participation rate hit a record 67.1%, indicating more Australians than ever are either working or actively looking for work.

So, what does that mean for businesses? In short, hiring remains tough. Most people who want to work are already doing so, and most are happy with their current hours. While the economy may be cooling, the talent shortage is still a reality, making it harder for employers to fill roles, even as demand for their goods or services dips.

AI Boom Set to Reshape Commercial Property Demand

Artificial intelligence isn’t just transforming how businesses operate; it’s also set to reshape the commercial property landscape in a big way.

According to global real estate firm Savills, the rapid acceleration of AI is expected to increase demand for data centres significantly. As more businesses rely on AI-driven tools and infrastructure, the need for high-powered, secure data storage will continue to soar.

But it’s not just about more buildings, it’s about how and where they’re built. Savills notes that this rising demand will put pressure on land availability and power supply, particularly in areas already grappling with infrastructure constraints. This means developers and investors will need to get creative and fast.

We’re also likely to see a surge in capital raising activity, as investors look for ways to fund new data centre projects or acquire land for future developments. With the significant energy demands of these facilities, there is growing tension between expansion and sustainability. That challenge, however, also presents significant opportunities for innovation in energy use and green infrastructure.

In the long term, Savills expects institutional investors to increasingly target land that could be developed into future data hubs, marking data centres as a key strategic play in tomorrow’s commercial property market.

Inflation Cooling… But Not Quite There Yet

Inflation is heading in the right direction, but we’re not out of the woods just yet.

According to the latest figures from the Australian Bureau of Statistics, annual inflation has now remained below 3% for four months in a row. That’s a positive sign for the Reserve Bank of Australia (RBA), which is aiming to keep inflation within its 2–3% target range on a sustained basis.

But here’s the catch: while headline inflation (which includes all items) has eased, underlying inflation (which strips out volatile price movements like fuel and food) is still sitting above 3%.

In its most recent policy meeting, the RBA board made it clear they’re not ready to call it a win. The minutes revealed a consensus that inflation remains too high and may not return to the middle of the target band until 2026. That means interest rates are likely to remain “sufficiently restrictive” for the foreseeable future, at least until the RBA is confident inflation is truly under control.

So while there’s cautious optimism, there’s also a fair bit of waiting and watching ahead. The path forward for inflation and interest rates is still uncertain.

Commercial Property Market Showing Green Shoots of Recovery

There are early signs that the commercial property sector is starting to rebound, though progress varies depending on location and asset type.

According to Vanessa Rader, Head of Research at Ray White Group, activity is picking up, especially in the sub-$20 million segment, where both investors and owner-occupiers are still actively transacting. While the top end of town has been slower to move, larger institutional deals are beginning to show signs of life, with a potential uptick in offshore investment interest as 2025 unfolds.

Rader also points to Australia’s strong population growth as a key driver of future demand, particularly as new commercial supply remains relatively tight. This combination is expected to support occupancy rates throughout the year.

That said, challenges remain, particularly in the form of rising debt costs and ongoing pressure on yield expectations. But assets with strong underlying fundamentals, potential for value-adding improvements, and alignment with key demographic shifts are likely to be the standout performers.

And for global investors, there’s an extra incentive: with the Australian dollar trading below USD 0.70, local property looks like a bargain compared to other international markets, making Australia an increasingly attractive destination for capital looking for long-term value.

As the commercial property market finds its footing in 2025, now is a smart time to assess your options, whether you’re looking to invest, expand, or stay ahead of the curve. With changing market dynamics and growing opportunities, the right strategy could put you in a strong position moving forward.

Thinking about your next move? Get in touch with the team at Rateseeker, we can help you explore finance options, identify value-driven opportunities, and tailor a solution that aligns with your business goals. Let’s talk about what’s possible.