• Vacancies begin to decline
• Rental rates stabilise or slowly increase
• Capital values start to recover
• Investor confidence cautiously returns
• Minimal new supply enters the market

The recovery phase is often marked by opportunity. Asset prices may still reflect the recent downturn, but underlying fundamentals such as tenant demand and consumer activity begin to improve. Investors with a forward-looking approach can acquire well-located assets below replacement cost or at favourable yield spreads. Savills Australia (2023) reported neighbourhood shopping centres traded at average yields of 6.1% during early recovery phases, compared to 5.3% at market peaks.

Importantly, risk-adjusted returns are typically higher during this phase as competition for assets remains low. This is a suitable time to increase portfolio exposure through disciplined acquisitions, provided due diligence confirms improving fundamentals.

• Strong tenant demand and falling vacancies
• Rents rise at an accelerating pace
• Capital values increase in line with income growth
• Development activity ramps up
• Increased investor demand and transaction volumes

Confidence returns to the market during expansion. Property values rise in response to stronger income and lower risk perception. New investors such as institutional investors or offshore capital often return to the market, driving yields lower and increasing asset competition.

During expansion, investors benefit from income growth and asset appreciation. It is also a prime time for enhancing existing assets through re-leasing, rent reviews, or capital works. However, caution should be exercised as increasing development activity may eventually lead to oversupply.

• New developments exceed actual tenant demand
• Vacancy rates begin to rise
• Rental growth slows or reverses
• Tenant incentives increase
• Yield compression slows or reverses

This phase is often driven by developers, lenders, and investors extrapolating past growth and overestimating future demand. The resulting oversupply places downward pressure on rents and occupancy levels, and previously strong returns begin to moderate.

This is a time to exercise caution and scrutinise tenant retention risk, maintain strong leasing relationships, and ensure portfolios are not exposed to high-vacancy risk. Speculative development or aggressive acquisitions during this phase may result in underperformance.

• Demand for space declines
• Vacancies rise significantly
• Rents fall or stagnate
• Asset values decline
• Financing becomes more difficult or expensive
• Market sentiment turns cautious or pessimistic

This phase typically reflects the low point in the market cycle, driven by broader economic downturns or sector-specific corrections. Investor activity slows, capital becomes scarce, and transactional liquidity weakens.

Capital preservation becomes paramount. With a focus on assets with strong WALE’s and resilient income profiles. Defensive asset classes such as neighbourhood shopping centres anchored by essential-service tenants can outperform during this phase due to their stable cash flow and continued consumer demand. During COVID-19, essential-service neighbourhood centres retained rent collection rates above 90%, while discretionary retail dropped below 65% (Urbis, 2021).

While the environment is challenging, the recession phase can also present contrarian opportunities for long-term investors able to acquire distressed or under-valued assets and position themselves for the next recovery phase.