What’s in store for commercial real estate in Australia in 2025?

Like a ship after a passing storm, it appears Australian businesses have finally stopped rocking in the wake of the pandemic.

The last 12 to 24 months has seen organisations increase their revenues, expand their budgets and return their focus to what’s most important to business operations. There is confidence in the air and a sense of optimism. And while storms are difficult to predict, the environment almost always gives hints as to when one is on the way, particularly for those business leaders and expert investors who’ve spent most of their life at the helm.

Each sector sees unique challenges and opportunities going into the new year, driven by broader economic shifts, technological advances and evolving consumer behaviours.

So, whether you’re looking for new opportunities or considering what to do with your portfolio, here’s a sector-by-sector look at what to expect from the commercial real estate market in 2025.

Office market remains competitive

For the office sector, hybrid working models remain dominant on the east coast, with companies reimagining office spaces to focus on collaboration and flexibility rather than traditional desk arrangements. Working from home is more of an east coast trend, with many Perth CBD occupants preferring to have a central working space for employees.

Premium-grade offices in CBDs are expected to perform well, offering advanced amenities that cater to tenant needs, like wellness facilities, bike storage, charging stations, gyms and even saunas. That said, secondary office spaces may face challenges as tenants prioritise quality over quantity (unless they can enhance their offering).

In 2025, office landlords might want to consider putting extra emphasis, energy or capital on upgrading their existing premises, especially if lease expiries are fast approaching. It’s a tenant’s market and office property owners need to remain extremely competitive.

Another bumper year for industrial real estate

Yet again, industrial real estate will be a solid performer in 2025, driven by sustained demand for logistics, warehousing and manufacturing facilities.

The e-commerce boom shows no signs of slowing, with companies expanding their supply chains and requiring state-of-the-art warehouses close to urban centers. Green industrial spaces are unsurprisingly becoming a significant focus, with occupants and developers embracing renewable energy and sustainable construction practices to meet both ESG (Environment, Social and Governance) targets and community expectations.

On the east coast, land constraints in key markets like Sydney and Melbourne are expected to push industrial developers toward outer-ring suburbs or regional hubs, broadening the scope of opportunities.

In Perth, rents are expected to climb. NAB’s commercial property survey (Q3 2024) tips rental growth of 2.2 per cent to 3 per cent in the lead up to 2026. Values will also almost certainly head north thanks to supply constraints and buoyant demand from the resources sector.

Retail is still relevant (if tenants remain competitive)

The retail market is walking a tightrope and will continue to do so going into 2025. Unless retail operators have a steady footing in the digital world, online shopping trends could push them off balance.

Shopping centre foot traffic has mostly recovered since the pandemic and the sector is evolving to meet new consumer expectations. Experiential retail, such as dining, entertainment and fitness offerings, is becoming more popular in large shopping outlets, following the fashion of US shopping malls to create destination-based experiences.

Fast food not only remains stable but presents unique opportunities for retail property investors looking to expand their portfolio into secure assets with a proven history of steady yields—even in the face of adverse economic conditions.

Online retail continues to put pressure on traditional brick-and-mortar stores, but even those with a shopfront can take advantage of the digital shopping trend by incorporating it into their offering. Many are thankfully doing so, ensuring the in-store experience remains relevant.

WA remains extremely competitive in the retail property market, with retail sales recording the highest year-on-year growth in the country (3.5 per cent in May 2024) and yields remaining extremely competitive compared to the east coast market, consistently around 5 per cent to 7 per cent. We expect retail to have another good year in WA, as the population ascends to new heights and available retail space finds new lows.

The role of interest rates in 2025’s commercial market

As we move into 2025, the likelihood of interest rate cuts continues to grow. And if that eventuates, commercial property investors stand to significantly benefit.

Lower borrowing costs might reignite demand across many asset classes, seeing as high interest rates became the wet blanket for many commercial property investors chasing yields in the first place. Those with existing premises will enjoy higher net yields, but of course reduced rates will likely introduce more players into the game, driving prices higher in the short term for those looking to get into the market.

In 2025, investors will need to listen out for the starter’s gun and be ready to race.

Understanding cycles and subtle signs of headwinds

Investors need to remember that property cycles exist. It’s been a while since Australia has seen a significant downturn in either its commercial or residential market, and while 2025 almost promises continued growth and strong performance across many sectors, it’s worth keeping an eye on key economic and market indicators.

For example, when land values hit all-time highs—often brought about by investors pivoting to vacant land due to the unaffordability of established properties—it can often signal that the market is nearing its peak. Being aware of these subtle cues ensures investors are well-positioned to adapt, even in evolving market conditions.

While there are always perils about, it’s currently calm seas for those in the commercial property market. But to stay afloat in the years ahead, it’s crucial to keep an eye on the horizon. Just like good seafarers, it’s key to consult your trusted crew members and make decisions from valid, reliable information.

---

Want more expert property views like this? Subscribe to our monthly newsletter and we’ll deliver expert written news and views direct to your inbox. We never spam and you can unsubscribe anytime.