Navigating market volatility with the strength of real assets

Commercial real estate is at a turning point. After years of rising interest rates, the landscape is shifting — bringing renewed optimism and fresh opportunities.

Falling interest rates and stabilising property values are driving greater confidence in real assets, positioning the sector as a defensive investment amidst global uncertainty and market volatility.

Diversification, stability and growth

Real assets provide a compelling blend of diversification, stability, and growth potential. Commercial real estate and infrastructure offer consistent distribution streams and potential capital growth, backed by real assets. Unlisted assets also offer a low correlation to equites, making them attractive for investors seeking protection from volatility in listed markets.

Real assets can also act as a natural inflation hedge as rental income and property values rise alongside broader economic trends. Additionally, as populations grow, demand for essential infrastructure and real estate strengthens, reinforcing their long-term viability.

Beyond financial returns, high-quality real assets increasingly align with environmental and social goals, enhancing their appeal to investors focused on sustainability and long-term value creation. Energy-efficient buildings and infrastructure projects contribute not only to portfolio performance but also positive real-world impact.

With interest rates stabilising and asset values finding equilibrium, the ability of real assets to provide stability in an uncertain economic landscape positions them as a cornerstone of portfolio construction.

Resilience amid uncertainty

Geopolitical tensions and global economic shifts have created a ‘new reality’ — marked by market volatility, inflation risks, and slower global growth. While the direct effects of tariffs on Australian real assets remain minimal, broader economic uncertainties continue to shape investment conditions. Australia’s political stability, forecast GDP growth, and strong population growth serve as powerful buffers against global uncertainty, reinforcing its reputation as a safe haven for foreign investment.

Despite short-term volatility, the outlook for real estate and infrastructure remains steady. In this evolving landscape, unlisted real assets — spanning commercial real estate, healthcare, transport, and energy infrastructure — are becoming increasingly attractive.  Limited new supply in key sectors, particularly office and retail, coupled with falling interest rates, is supporting a recovery in Australian real assets.

Following two rate cuts this year, the Reserve Bank of Australia (RBA) is expected to deliver a further 50 basis points of interest rate cuts by the end of 2025. After a period of declining commercial property values, we’re at the point of the property cycle where stabilisation is in sight. In the past two quarters, capitalisation rates have remained steady. With income levels rising, total returns have improved, led by the retail and industrial sectors. This trend is expected to persist through the second half of 2025, reinforcing the sector’s resilience.

At a sector level retail is proving more resilient than expected. Office workers are increasingly returning to the office, and alternative sectors such as data centres and healthcare are benefitting from the tailwinds of Artificial Intelligence (AI) and an ageing population, respectively. The dynamics in industrial real estate remains strong, fuelled by e-commerce and logistics, while rising urban density supports growth across all sectors. While challenges mount in the lower-grade CBD office market, an opportunity arises to repurpose these assets for higher returns, with one compelling option being to address the chronic undersupply of residential.

DREP Series: Unlocking opportunity

History shows that periods of disruption often create the best vintages for opportunistic and value-added real estate funds. Investment vintage — the year in which an investment is made — matters significantly when assessing long-term performance.

Dexus launched the first opportunity fund, Dexus Real Estate Partnership 1 (DREP1) in 2021, securing $475 million in equity. The Fund capitalised on the expertise of our Dexus platform and a decade-long track record of opportunistic investing to complete 15 transactions across a broad spectrum of real estate investments. DREP1 is set to achieve its target net equity IRR of approximately 15%, reinforcing the strength of our platform’s investment strategy. Dexus Real Estate Partnership 2 (DREP2) is now open for investment, offering institutions and private wealth clients access to this high-performing strategy.

DREP2’s first investment — a repositioning of 41 George Street in Brisbane — exemplifies its opportunistic approach. Originally a B-grade office tower, the property is being transformed into a modern, high-quality student housing complex with approximately 1,200 beds, targeting the growing education sector.

This project aligns with our broader strategy of unlocking value in existing assets by leveraging the expertise and capability of our platform.  By combining capital and capability to deliver deal flow and execution DREP2 provides investors with a unique opportunity to take advantage of the current real estate market to achieve outsized returns.

John Taylor is Head of Private Capital at Dexus.