However, analysts warn that delaying the rate cut could significantly affect the recovery trajectory of the non-listed property sector.

According to MSCI Research Vice President, Benjamin Martin-Henry, while the market may be nearing the end of the current cycle, the sector remains vulnerable to global uncertainty and is not immune to geopolitical risks.

“I think that— [it] it looks like we’re nearing the bottom of the current cycle,” he told InvestorDaily, highlighting positive capital growth for both industrial and commercial property as an early signal of a potential recovery in 2025.

Although the office sector continued to experience negative capital growth, Martin-Henry saw significant improvements compared to Q2 results, reinforcing the view that the downturn may stabilize across all sectors.

Centuria's head of fund management, Jesse Curtis, similarly expects falling interest rates to increase the number of unlisted commercial property transactions.

“We are optimistic that conditions for the unlisted commercial property market will improve in calendar year 2025. Specifically, we expect transaction volume to pick up now that rate hikes are less likely and the prospect of a rate cut is on the horizon,” he said.

Curtis also noted a narrowing gap between seller and buyer price expectations, signaling a favorable environment for increased transactions.

"This is a positive sign for more transactions in the New Year and we expect property values ​​to recover," he said. "Lower interest rates will also lower the cost of debt for funds, which in turn would improve the likelihood of higher distributions."

Office sector

The head of MSCI Research highlighted the MSCI/Mercer Australia Core Wholesale Monthly Property Fund Index, which tracks the performance of unlisted wholesale property funds, noting that office funds saw a 3% decline in Q3, bringing the total down to 26.9 per cent

Martin-Henry explained that while the trend towards working from home continues to impact office values, the main driver is the rise in the cost of debt, which is impacting all types of property.

"While further losses are hardly welcome news, it is encouraging that the pace of decline is slowing, with this quarter's result showing a marked improvement on the 8.7 percent recorded in the second quarter of 2024," he said. .

Martin-Henry noted that one fund in the index delivered both positive total return and capital growth for the quarter, indicating that segments of the market are starting to recover, breaking away from the uniform declines seen over the past few years.

"Despite continued global uncertainty, the outlook for the office sector over the next 12 months looks more positive than previously," he said.

According to Curtis, local office assets that have recently transacted have done so at or near their book value, indicating that office asset values ​​may be stabilizing.

He also expects additional medium-term tailwinds on the horizon, such as mandates to return to office from major corporations and the government.

"We are already seeing an increase in public transport journeys in the major East Coast capital cities, which shows that more workers are returning to the office, so demand and use of offices is increasing," he said.

Headwind

But while sentiment for unlisted commercial property assets is expected to improve in 2025, the sector will continue to face challenges from global uncertainty, including potential policy changes under the incoming Trump administration.

The head of MSCI Research expects some of Trump's policies to be inflationary, although the full impact is "still up for debate."

"I've noticed that more and more forecasters are increasing their rate cut forecasts and, unfortunately, interest rates are a big determinant of the state of real estate and the cost of debt is still quite high," he said.

"If inflation remains stable, or even if inflation picks up again, then it will be difficult for the RBA to cut rates and that has a significant impact on property costs, which means it has a significant impact on the amount people can pay to buy commercial assets," he added.