Trends to Watch: Increased liquidity, Data Centre FOMO & The Rise of Super Funds
2025: RISK APPETITE RETURNING AS INVESTMENT CAPITAL MOVES ON GROWTH PROSPECTS, SAYS SAVILLS REPORT
Leading agency Savills Australia’s ‘Spotlight on 2025’ Report has revealed an optimistic outlook for the coming year, hailing a new cycle characterised by increased risk appetite, heightened competition among investors and a surge in transactional activity. Savills predicts liquidity will improve in 2025, amid growing pressure to deploy capital, but cautions that the ongoing slide in fundraising activity points to a gradual recovery as investors shift focus to value-added and opportunistic strategies.
According to Savills, key trends to watch in 2025 include rising optimism for prime office assets and an increase in transactional activity among institutional players with renewed or increased allocation targets. Additionally, the growing interest in data centres is expected to drive significant capital raising efforts, alongside a resurgence in land banking as a strategy to unlock future growth opportunities.
“We anticipate increased risk-on activity in 2025, and heightened competition as more transactions move forward and capital markets begin to price in future growth,” said Chris Naughtin, National Director, Capital Markets – Research at Savills Australia and New Zealand.
“Investors are now in the process of recalibrating risk-return expectations, a strategic move that is being carried out with a heightened focus on deploying capital to drive returns through targeted income growth strategies.
““The drive will be on unlocking value, so we expect greater competition in particular subsectors of the market, with greater resilience in ‘beds’ and ‘sheds’ as well as data centres, retail and centrally located prime offices,” Mr Naughtin said, referring to the robust nature of the residential, hospitality and industrial sectors.
2025: Disinflation, Interest Rate Relief & Growth
The Savills ‘Spotlight on 2025’ Report predicts a brighter global economic outlook with ongoing disinflation coupled with relatively stable growth.
According to the International Monetary Fund (IMF), the global economy will expand by 3.2% in 2025, and advanced economies can expect to record 1.8% growth, the same pace as 2024. Headline inflation is forecast to decline to 2.0% in 2025, from 2.6% in 2024.
In Australia, economic growth is set to accelerate. This will be driven by a recovery in consumer spending, as wage growth outpaces inflation, coupled with strong government spending. The IMF expects the Australian economy to grow by 2.1% in 2025, up from 1.2% in 2024.
The Reserve Bank of Australia (RBA) is expected to join global counterparts and begin easing monetary policy by mid-2025, with economists forecasting a decrease of 50 to 75bps.
Capital Markets Impacts: Fresh Cycle to Unlock Transactional Activity
Despite recent volatility in bond markets, Savills predicts a recovery in investment markets, with stronger-than-expected economic growth supporting occupier market conditions. Meanwhile, slowing inflation and the prospect of rate cuts in 2025 are enhancing overall sentiment.
Reflecting the improving outlook for commercial property markets, REITs share prices have increased steadily in 2024. The S&P/ASX 200 REITs index has risen more than 30% from October 2023, recovering the losses seen since the beginning of the rate-tightening cycle in 2022.
Commercial property markets are reaching a cyclical bottom in the asset price cycle, with declines in capital values easing across the major sectors. Office capital values fell by 1.6% in Q3 to be 12.9% lower the year to Q3 2024, up from -13.6% growth over the year to Q2. The industrial, retail, and hotel sectors recorded only slight declines in capital values, with annual capital growth improving, albeit still negative.
“The stabilisation of asset values will help drive a recovery in investment markets, and we expect a return to capital growth in 2025, with liquidity continuing to improve amid growing pressure to deploy capital,” said Paul Craig, CEO of Savills Australia.
“The balance of risk is now shifting toward capital deployment, fuelled by asset repricing and the onset of a new growth cycle that has already stimulated transaction activity, with 2024 levels significantly up from the low levels of 2023.
“Globally, deal activity is turning a corner, with 2024 volumes expected to be slightly higher than 2023, and further improvement set to continue into 2025 and beyond,” said Mr Craig.
Savills says that superannuation and pension funds are set to play an increasing role in commercial property capital markets, both domestically and overseas.
As testimony to this, AustralianSuper invested $2.2 billion into US data centre company DataBank in 2024 and acquired a minority stake in Vantage Data Centers EMEA in 2023 for $2.5 billion. Meanwhile, the Canada Pension Plan Investment Board (CPP Investments) has teamed up with Blackstone to buy AirTrunk and its portfolio of data centres in Australia and across APAC.
The industrial and logistics sector remains firmly on super funds’ radars, with Aware Super and REST Super involved in separate joint venture acquisitions in the sector in Australia.
2025 – Savills’ Trends to Watch
Data Centre FOMO fuelled by AI. AI growth is set to accelerate through 2025, intensifying demand for power and grid infrastructure. This shift will put the spotlight on how the market navigates land and power constraints amid surging data centre demand. The rapid expansion of data centres will also prompt more investors to raise capital or seek out new equity sources for these investments.
Industrial Vs Data Centre. Expect increased investment in the data centre pipeline including sites, with competition against traditional industrial users set to rise. This demand will heighten pressure on renewable energy goals due to their substantial power requirements, and present significant opportunity for growth.
Super-sized funds to reshape capital markets. Savills says we will see increased appetite for risk among superannuation and pension fund investors as they become active players in land acquisitions for data centres, last mile industrial, land lease communities and even well-located Prime CBD offices. Early indicators reveal that some funds are positioned to capitalise on the anticipated growth cycle in core CBD markets, which are experiencing low supply and accelerating tenant demand.
Playing the Long Game with Land. 2025 will see an increased growing focus on land acquisitions to position longer-play development pipelines across sectors such as industrial (logistics, last mile and data centres), residential (including multifamily, student, land lease communities), childcare, and life sciences.
Liquidity Boost. An increase in motivated sellers and capital recycling is expected to boost market liquidity, enabling redeployment opportunities for investors with renewed or increased allocation targets.
Institutional Adjustments. Institutional investors are tipped to adjust sector commitment targets. Buoyed by demographic and technology tailwinds, Savills expects higher allocation to industrial, residential, select retail and hospitality, alongside niche subsectors such as data centres, cold storage, and student housing.
Supply Squeeze to Drive Rental Growth. Rising development costs have prompted more investors to shift strategies, creating a supply squeeze and constraints in certain locations for industrial, residential, retail and prime offices. Savills predicts this will trigger new rental growth cycles and attract investors.
Investors to Target Premium Office. Demand for premium central office spaces will be intensified by tenants’ "flight to quality," reducing premium vacancies and driving growth, with investors set to target and scale prime office assets in 2025.
Industrial Still a Firm Favourite. A strategic recalibration is underway as investors deploy capital to develop or reposition properties in high-demand, growth-oriented markets, aiming to expand sector exposure and enhance returns.
Risk-Return Reset. Investors will be recalibrating risk-return expectations, a strategic move with a heightened focus on deploying capital to drive returns through targeted income growth strategies, with greater resilience in ‘beds’ (residential and select hospitality), ‘sheds’ (industrial), ‘tech’ (data centres), retail and centrally located prime offices.
Decreasing Interest Rates & Pricing Stability. The expected pivot in central bank policy will stabilise prices, yet some pressures will remain. The market will remain competitive for select asset classes and unlock new opportunities for value-add and opportunistic investors.
