Market update: Confidence creeping back
Australia’s commercial property market is starting to find its feet, with investment activity picking up and sentiment improving across most sectors. While conditions are still mixed, the outlook is more positive than this time last year, and with potential interest rate cuts ahead, confidence is expected to keep building.
Industrial: Still the market leader
Industrial property remains the strongest performer, with low vacancies and steady rental growth. NAB data shows values rose 1.4% in Q3 2024, with another 2.3% increase expected next year and 3.1% by 2026. Growth is strongest in Queensland (3.8%) and Victoria (3.6%), reflecting continued demand for well-located logistics and warehousing space. While incentives are creeping into some parts of the market, specialised assets like data centres, cold storage, and last-mile logistics remain in high demand. Rents are still climbing (+1.8% in Q3 2024), with further 2.2% growth expected in the next 12 months.
Office: A market in transition
The office sector continues to stabilise, with vacancy rates holding steady despite high levels of new supply, according to the PCA Office Market Report (January 2025). National CBD office vacancies edged up from 13.6% to 13.7%, while non-CBD vacancies remained at 17.2%.
Sydney saw the largest increase, rising from 11.6% to 12.8%, driven by 164,552sqm of new supply, more than double the historical average. Melbourne held at 18%, while Brisbane edged up from 9.5% to 10.2%. In contrast, Adelaide, Perth, and Canberra recorded declines as tenant demand remained positive.
New supply continues to offer high-quality, ESG-certified spaces that attract tenants, while older stock faces pressure to upgrade or reposition. With 333,000sqm of new office space set to hit the market in the next six months, landlords will need to adapt to evolving tenant expectations.
Retail: Holding steady in prime locations
Retail continues to show unexpected resilience, particularly in high-foot-traffic areas. NAB data shows capital values fell 1.4% in Q3, but the pace of decline is slowing, with just a 0.7% drop expected over the next year before a return to positive growth in 2026. Luxury retail and well-positioned shopping centres are holding up, while centres that blend retail, essential services, and entertainment are seeing stronger demand. Vacancies held steady at 6.3%, with Queensland at 5.0% and SA/NT at 7.0%. While rents declined (-0.9% in Q3), the outlook is improving, with growth expected in the next two years.
What’s next?
Momentum is building across the commercial property market, with investment activity increasing and confidence improving in key sectors. Industrial remains the standout performer, office is adapting to shifting tenant expectations, and retail is proving more resilient than expected. With interest rates tipped to ease, we could see further improvement in sentiment and transaction volumes heading into 2025.
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