After years of economic uncertainty, Australia’s commercial property sector is poised for significant transformation in 2025, fuelled by cautious optimism that inflation will ease and the Reserve Bank of Australia (RBA) will cut interest rates, experts predict.
Return-to-office policies will accelerate demand in the high-end office sector while investors look set to re-enter the commercial real estate (CRE) market after a long hiatus. Retail is experiencing a long-awaited comeback, and changes to the way we live and work are fuelling different demands in the industrial sector.
Leading industry players – including Knight Frank, Ray White, JLL, Deloitte, and Cushman & Wakefield – have unveiled their forecast reports, highlighting key trends and opportunities for the year ahead.
Here are the emerging trends to keep an eye on in 2025.
Top 10 commercial property predictions for 2025
1. Economic recovery as rate cuts loom
According to Ray White’s Property Outlook Report 2025, the rising cost of living is putting pressure on the RBA to provide some relief to mortgage borrowers through lower rates.
“Financial markets think they will cut interest rates twice in the second half of the year, but this prediction could change depending on how things play out,” says Ray White chief economist Nerida Conisbee.
Several factors will influence when and by how much the RBA cuts rates.
“Their timing and size will depend on how inflation behaves, what happens in the global economy – especially in the US – and how well the Australian economy holds up through the year.”
According to Cushman & Wakefield’s 2024 EOY Market Commentary & 2025 Forecast, the Australian economy is expected to recover as inflation eases and the RBA slashes interest rates.
The national outlook reflects cautious optimism, with signs of recovery across key sectors and long-term growth potential.
“While 2024 has not progressed as many expected, the Australian economy is expected to recover through 2025 as inflationary pressures subside and allow the Reserve Bank to pivot and begin its rate-cutting cycle,” says Cushman & Wakefield ANZ chief executive Noral Wild.
2. Commercial property to return to growth status
Knight Frank’s Australian Horizon 2025 report says well-located core assets have now largely repriced and are poised to start recovering in 2025, with pricing, if not yet formal valuations, now at a cyclical low.
“Investors acquiring assets now – after values have adjusted down but not yet commenced the recovery – will be well-placed to see strong returns in years to come,” says the report’s author, Knight Frank chief economist Ben Burston.
“Core industrial and CBD office assets in Sydney will lead the way before the recovery extends to other cities.”
Wild says commercial real estate capital markets are rebounding, with 2024 investment volumes surpassing the total for 2023 by $1 billion within the first nine months, with the growth trend expected to continue.
Investment volumes for office, retail and industrial properties exceeded 2023 levels late last year, while alternative assets are on track to match last year’s performance.
“Commercial real estate valuations are expected to stabilise in 2025, accompanied by a gradual recovery in transaction volumes,” Wild says.
“Cushman & Wakefield projects an overall eight per cent adjustment in CRE pricing during this cycle, with a rebound of 20 per cent anticipated by 2030, beginning in late 2025. The pace and extent of this recovery will differ across asset classes, as the RBA shifts its stance and the economy emerges from a cyclical slowdown, paving the way for renewed market momentum.”
3. Investors ready to re-enter the market
After nearly three years with markets in a state of flux, many investors have reset their expectations and are ready to hone in on their preferred investment opportunities.
“This will drive broader interest and higher liquidity across all asset classes in 2025,” Burston says.
“Many investors are now attracted by lower pricing in the office market, while other groups are more focused on living sectors and have taken time over the past two years to better understand the feasibility constraints and are now better placed to execute on new developments.
“Meanwhile, retail markets are set to benefit from significantly higher demand as investors re-engage with the sector.”
According to JLL research, commercial real estate investments have a long track record of outperforming on returns. Some of the highest five-year returns were achieved with investments transacted between 2009 and 2011, in the immediate aftermath of the global financial crisis (GFC).
JLL’s Global Real Estate Outlook 2025 report notes that “investors deploying capital in 2025 are likely to see an early-mover advantage in terms of returns that will diminish as the cycle matures”.
Intensifying supply shortages as completions slow in 2025 will amplify competition for quality existing assets as more investors re-enter the market.
Ray White head of research Vanessa Rader says private investors will look for both defensive income streams and clear repositioning potential, driving renewed competition for quality assets.
“The ability to execute active management strategies and identify emerging sector opportunities will be key differentiators for successful private investors in the year ahead,” she says.
The retail sector will see private investors strategically target metropolitan assets underpinned by strong trade-area demographics and essential service offerings.
“Neighbourhood centres anchored by supermarkets, combined with healthcare services and daily needs retail, will likely remain highly sought after,” she says.
Rader expects the industrial sector to benefit from structural undersupply in key markets. Investors will target industrial units and last-mile logistics facilities, particularly those with value-add potential.
Rader predicts a turning point for the office sector as the market finally adjusts to hybrid working patterns.
“Metropolitan assets with strong tenant covenants and modern amenities are attracting renewed interest, particularly buildings that have already undergone ESG [environmental, social and governance] upgrades,” she says.
Childcare centres and service centres are highly sought after due to annual rental hikes and long-term leases. These assets offer compelling income security through structured rental growth.
Deloitte’s Perspective: 2025 Commercial Real Estate Outlook report names “high-growth property sectors such as industrial and manufacturing, multifamily, and hotel and lodging assets” as the top investment opportunities.
4. Office leasing is back, but only at the top end
High office vacancy rates in most markets and elevated incentives continue to point to the need for caution in bringing forward new office developments, and many markets appear oversupplied at the aggregate level, the Knight Frank report says.
“This, however, obscures the prospect of a tightening of supply at the top end of the market, owing to a slowdown in new development while many tenants still need to adapt and upgrade their workplace experience,” Burston says.
“The slowdown in commencements is now clearly impacting the pipeline, particularly in Sydney and Brisbane, which will act to drive up face rents on new developments and aid the Sydney market recovery.”
After several years of reducing office space requirements, portfolio expansion is back on the cards, with office attendance policies to shift towards an average of four days a week, the JLL report predicts.
“Recent announcements from high-profile global businesses indicate a trend toward mandating increased office presence, with some requiring up to five days a week and implementing attendance tracking measures,” the report reads.
In the short term, the focus will be on transforming spaces into fit-for-purpose workplaces, with a degree of built-in flexibility to allow for future expansion in years to come. More spending on office design, employee experiences and hospitality services is expected.
“For now at least, many organisations have some degree of certainty around the hybrid/in-workplace split and are in a position to make real estate decisions,” JLL says. “As a result, we expect more CRE leaders to start executing on their strategies after a period of hiatus.
“CBD locations, vibrant mixed-use neighbourhoods, buildings with leading sustainability and green credentials and ‘destination workplaces’ that can help attract and retain talent will be in highest demand.”
As the pivot to premium accelerates across Australia’s major office markets, Ray White head of research Vanessa Rader says the secondary office market faces a critical crossroad due to evolving tenant demands and greater ESG pressures.
“Corporate Australia’s focus on workplace experience and sustainability credentials has transformed from a ‘nice-to-have’ into a non-negotiable requirement,” Rader says.
“Major tenants are increasingly bound by corporate ESG commitments and reporting obligations, forcing their hand in relocating to buildings with superior environmental ratings.”
The issue is further compounded by the capital expenditure needed to bring older assets up to modern standards, and lenders are increasingly cautious.
“Basic refurbishments no longer suffice – tenants demand end-of-trip facilities, sophisticated air conditioning systems, smart building technology and high NABERS ratings,” Rader says. “Given the high cost of upgrades in the current market, this cost may not be recoverable through rental uplift in the current market.
“Buildings unable to meet rising environmental standards and tenant expectations risk becoming stranded assets. The market is likely to see an increase in opportunistic investors targeting these assets for conversion or redevelopment, particularly in locations where alternative uses can unlock greater value.”
5. Data and logistics to drive industrial sector
Due to the rise in artificial intelligence, data centres are experiencing critical supply shortages in many markets around the world, with extremely high demand exceeding robust supply growth.
JLL’s report notes that completions in 2025 are forecast to be above their 2021-24 peak, with growth in markets in the US, Europe, the Middle East and Asia Pacific.
“And yet shortages will still exist,” it says. “Such is the growing demand for data centres, boosted by AI requirements, that even this increase in supply will be only a fraction of what the market needs.”
National logistics and industrial leasing demand is anticipated to strengthen further, driven by an uptick in economic growth and further improvements in consumer spending.
“We are forecasting take-up levels to jump to around 3.6 million square metres in 2025, representing an almost 20 per cent increase from current levels,” says David Hall, national director and head of brokerage logistics & industrial – ANZ at Cushman & Wakefield.
“Supply will also thin as developers hold back some projects, which could result in the market tightening further as demand picks up.”
6. Retail return – strongest investor demand since 2015
Macro headwinds in the retail sector are now dissipating and shopping centre performance is benefitting from extended efforts to enhance the number of visits and the customer experience, according to Knight Frank’s research.
“Improving asset performance has been noticed by a broader range of investors, and the outlook for income growth is increasingly supportive off the back of rising real incomes and sustained population growth,” Burston says.
“As a result, we think that investor demand for retail assets in 2025 will be the strongest for at least a decade.
“With investor sentiment having shifted, a lack of available stock relative to the level of demand will tilt the balance toward a recovery in capital values.”
Ray White’s Rader says brick-and-mortar retail property looks to be the standout performer for 2025, marking a significant shift from recent years where industrial assets led the way.
“This rebound in retail property is particularly evident in transaction volumes, with retail now representing 41.1 per cent of all commercial transaction numbers in late 2024; a remarkable increase from its long-term average of 28 per cent,” she says.
“This surge comes as industrial sales, which dominated at 60 per cent of deals in 2023, have moderated to 50 per cent.”
Rader says physical retail stores – particularly in metro markets – reflected “remarkable resilience” despite the threat of online shopping, which accounts for just 11.4 per cent of total retail transactions, largely down to clothing and homewares purchases.
Entertainment offerings and online integration are likely to emerge as a key component of successful shopping centres, creating lifestyle destinations rather than pure shopping venues.
However, Rader says the sector faces some challenges.
“The growing influence of social media marketplaces – with Facebook Marketplace activity growing 3.6 per cent annually – and Australia’s ageing demographic could reshape retail demands over the next two decades,” she says. “These changes suggest successful retail assets will need to adapt to changing consumer preferences and needs.”
7. Mid-market key to build-to-tent (BTR) success
This year will be a critical one for the build-to-rent (BTR) sector, with potential for meaningful policy changes – including to the withholding tax rate applying under the managed investment trust (MIT) regime – that would trigger the accelerated roll-out of new schemes.
The perception of where BTR sits within the overall housing mix is linked to these debates and potentially other policy changes to support development, according to Burston.
“The perceived success of schemes targeting the middle of the rental range will be important in widening awareness and understanding of BTR and winning broad community support for policy changes,” he says.
“On the other hand, if BTR is perceived to be exclusively a premium product, this reduces the likelihood that policymakers will adjust planning and taxation frameworks to encourage a faster roll-out.”
8. Focus on sustainability reporting standards
ESG disclosure will be high on the corporate agenda this year, with new rules taking effect.
The new Australian Sustainability Reporting Standards (ASRS) took effect on January 1 for the first portion of organisations captured by the standard after the mandatory climate reporting bill was passed in federal parliament last year.
The rollout is staged over two years, with the largest emitters and corporations being the first cab off the rank. This affects those with more than 500 employees, with at least $1 billion in consolidated gross assets, and revenue of at least $500 million.
In this new realm of corporate transparency, as part of their annual reports, each year organisations must provide a seperate sustainability report detailing their climate-related risks and opportunities, plans and strategies.
“The ASRS requirements represent the most significant step forward in climate and sustainability performance disclosure in Australia for a number of years and will compel organisations to disclose their scope 1, 2 and 3 emissions, as well as provide information on how they are assessing and responding to climate risks facing their organisation,” says Cushman & Wakefield head of sustainability, ANZ, Gehan Palipana.
“For the property industry, the spotlight on scope 3 or supply chain emissions will be particularly relevant as the focus of sustainability programs expand from running buildings efficiently to minimising emissions across the entire property lifecycle and embedding circular economy and zero-waste principles to reach organisational net-zero goals”.
9. Tackling cost pressures and energy security will drive decarbonisation efforts
Decarbonisation efforts are increasingly being integrated into broader real estate strategies as a form of achieving operational excellence.
“This is because the capex invested in optimising energy use and reducing emissions in buildings results in lower operational costs, secure energy, regulatory resilience and improved employee attraction,” the JLL report says. “This evolution will transform the concept of decarbonisation from solely an ESG consideration to a critical component of operational – and risk – management, as well as a strategic economic opportunity.”
Electricity demand is projected to rise in 2025 at its fastest pace for two decades, according to the International Energy Agency, in part due to AI technologies, electric vehicles (EVs) and the electrification of buildings, raising concerns about electricity costs and security of supply.
“Energy use is the single largest operating expense in office buildings, representing approximately one-third of typical operating costs,” JLL says. “Light to medium retrofits can unlock between 10 per cent and 40 per cent in energy savings.”
10. Focus on risk mitigation
There is much greater focus now on the scale of potentially obsolete assets across the real estate spectrum, as a result of shifting preferences for how space is used, changing patterns of urban development and tightening sustainability requirements, JLL says.
Building age and design, location and ESG considerations are the key factors commercial real estate owners should take into account when making strategic decisions about their assets, particularly as new sustainability legislation is implemented in 2025 and as 2030-35 city and national net-zero targets approach.
The continued reshuffling of office users into top-quality spaces will begin to open up ample repositioning and retrofitting opportunities for real estate owners now and into 2026.
“At the same time, housing and accommodation shortfalls will further push city authorities to accelerate construction and revise land use policies, which will enable more conversion of aging office assets to residential and hotel use,” JLL says.
“We expect this process will accelerate in 2025 but still take time to play out over the next several years due to the complexity of navigating the physical, capital and regulatory challenges.”