Citi upgrades shopping centre operator Scentre in recovering market
Scentre Group is poised to benefit from “healthy underlying” consumer demand and a reduction in borrowing costs as the Reserve Bank of Australia is expected to cut rates three times this year, Citi analysts said as they lifted the retail landlord to a “buy” rating from “neutral”.
The commercial property market is turning a corner – except office property – and the investment bank said Goodman Group had also performed strongly for two years and remained attractive due to the global demand for data centres, a focus of the former warehouse specialist.
Other stocks including National Storage REIT, Ingenia Communities and Stockland were well-priced for investors and benefited from longer-term demand for self-storage, industrial land and the growing land lease market developing affordable housing for downsizing over-55s, Citi said.
“We expect 2025 to be an inflection year for Australian real estate stocks, driven by the interest rate cut cycle which we expect to start in May this year,” analysts Howard Penny, Suraj Nebhani and Akshit Batra wrote in a research note.
“Our outlook remains particularly strong for high-growth sub-sectorssuch as data centres, retail, self-storage and land lease, where structuraloperational momentum continues to deliver robust returns.”
The more positive environment will be boosted by interest rate cuts of 25 basis points in May, August and November that lower the benchmark lending rate from the current 4.35 per cent to 3.6 per cent – a level the sector last saw in April 2023, the analysts said.
This would make cap rates – a measure of the value of real assets akin to yields, which rise as values weaken – peak, they said.
“We do anticipate 2025 to see a peaking and stabilisation of cap rates as interest rates and bond yields potentially peak and start to turn downwards globally,” they said.
But the improvement won’t come in all sectors. Office property – a sector in which some observers are already predicting an increase this year in deal volumes and prices for the best-quality assets – was likely to take longer to recover.
“We foresee a slower recovery in Australian office markets, where elevated vacancy rates and persistent tenant incentives are likely to delay a meaningful shift in the demand-supply dynamics,” the analysts said.
The Citi analysts also flagged developer, landlord and funds manager GPT – which last year appointed former Charter Hall chief financial officer Russell Proutt as its new chief executive – as one of its key stock picks for the year.
“Within value stocks, we expect 2025 to be a foundational year for GPT as new management starts to implement a renewed strategy,” they said.
