After a tough couple of years, commercial property markets across Australia are beginning to stabilise. While economic signals remain mixed, the rate-cutting cycle is starting to have a positive effect, with sentiment improving in many parts of the sector.
But the recovery isn’t uniform, and success over the remainder of 2025 will depend on knowing where to invest.
Investor sentiment across commercial property has reached its highest level in nearly a decade, driven by falling rates, moderating inflation, and expectations of more monetary easing throughout the year. But a deeper look reveals a sector changing at very different speeds across asset classes.
Industrial property reclaims its crown
Industrial property is once again the standout performer. The combination of tight supply, resilient tenant demand, and rising investor interest has pushed yields lower and capital values higher. Brisbane and Perth are leading the charge, with industrial leasing activity rising and yields starting to compress. However, in Perth, prices are so hot right now that they really aren’t representing value any more.
A recent national outlook report from a major agency noted that industrial capital value growth is forecast to rebound to nearly 9% over the year, the strongest performance since late 2022. This is being fuelled by both domestic and international investors on the hunt for stable, income-producing assets.
Rents are also trending upward. National prime net face rents climbed in Q1 2025, with Adelaide and Perth posting some of the strongest gains due to acute supply constraints.
Retail stabilising as investor interest returns
Retail had been written off by many during the pandemic, but the story is changing. Vacancy rates in CBD locations are now falling, with new tenants in food, beverage, and lifestyle sectors reactivating previously quiet precincts. In fact, national retail sentiment has returned to positive territory for the first time since 2017.
In Perth, retail was the best-performing commercial asset class over the past year, with sale prices rising more than 23%. That growth is now attracting interest from interstate investors comparing value and yield opportunities across markets.
Still, risks remain. Retailers continue to face cost pressures and soft consumer spending. In many locations, landlords are adjusting expectations, and rent negotiations remain common. Mixed-use developments are also gaining traction, with owners repurposing traditional retail assets to include medical, childcare, and residential uses, especially near transport hubs.
Office still lagging
The office sector remains the most subdued part of the commercial market. Vacancy rates are still elevated, especially in Melbourne, and while development activity has slowed, it’s not yet enough to rebalance supply and demand.
However, experienced investors are starting to step back into high-quality, well-located assets. With current values are well below replacement cost, and with fewer new buildings being delivered, upward pressure on rents may build over time.
Most forecasts suggest a slower recovery for office, with only modest capital growth expected in the near term. But those positioning early, particularly in core CBD markets, may benefit as sentiment improves alongside broader economic momentum. We aren’t typically interested in office as an asset class, but it is a good indicator of business confidence.
Rate cuts the key
The return of rate cuts has been a turning point that has helped boost sentiment. While Australia lagged other advanced economies in bringing inflation under control, two cuts in the first half of 2025 have already lifted confidence. Market expectations suggest more could be on the way, potentially falling to near 3% by year-end. Lower borrowing costs support yields, reduce funding pressure, and make property more competitive relative to other asset classes.
Developers are responding too. Nearly half plan to start new projects within the next six months, the highest proportion in years, with residential and industrial the primary focus areas.
The recovery may be national, but performance varies widely by location. Perth is a standout, with retail and industrial markets both experiencing strong price and rental growth. Sydney and Brisbane remain highly competitive, particularly in logistics and industrial submarkets.
In contrast, Victoria continues to struggle in parts of the office and retail sectors. While some improvement has been noted, especially in CBD leasing activity, high vacancy rates and subdued tenant demand are still weighing on sentiment.
While the good markets are tight, there are still great opportunities in the commercial market. If you’ve built up a capital base, then with falling interest rates, this is a great time to look to diversify into commercial.