Australian commercial property is experiencing a change of fortunes with renewed investor confidence and a return to capital growth across key sectors, according to new analysis.
Ray White Group Head of Research, Vanessa Rader, said the market is moving beyond defensive income-only strategies as investors begin pursuing active capital growth opportunities.
“Market confidence is returning to Australian commercial property as we move around the property clock, with many sectors now emerging from their trough periods,” Ms Rader said.
“Particularly encouraging is institutional capital showing renewed appetite for Australian assets together with the private investor market despite the apparent end of the rate cutting cycle for 2025.”
Ms Rader said this renewed investor interest signals genuine conviction in underlying market fundamentals rather than just opportunistic positioning based on interest rates.
“Supply and demand imbalances are creating scarcity value in select asset classes, particularly where development pipelines remain constrained and occupier demand stays firm,” she said.
According to the latest MSCI data, all property recorded 0.6 per cent capital growth alongside 5.4 per cent income returns for a combined 6.1 per cent total return, marking a significant shift in market performance.
“This marks the return of genuine capital appreciation after years of relying entirely on income to deliver any positive performance,” Ms Rader said.
The retail sector has emerged as the clear market leader, posting impressive returns that reflect its resilience and recovery.
“Retail has emerged as clear market leader, posting 8.2 per cent total returns driven by 6.0 per cent income and 2.0 per cent capital growth,” Ms Rader said.
She noted that sub-regional centres lead the sector at 8.8 per cent total returns with 1.9 per cent capital growth, while neighbourhood centres, a private investor favourite, delivered 8.3 per cent returns with 2.5 per cent capital growth.
The geographic performance within retail reveals concentrated areas of strength, with New South Wales retail recording exceptional 9.0 per cent total returns including 2.8 per cent capital growth, while Queensland achieved 8.7 per cent total returns with 2.1 per cent capital growth.
“Even metropolitan and country retail showed similar performance at 8.0 per cent and 8.3 per cent respectively, suggesting the recovery extends beyond just prime urban locations to quality centres with strong trade area fundamentals,” Ms Rader said.
Industrial property continues to demonstrate its status as a defensive asset class, delivering both income security and capital appreciation.
“Industrial property demonstrates why it maintains defensive asset status, with total returns of 7.6 per cent comprising 4.4 per cent income and robust 3.1 per cent capital growth recorded across Australia,” Ms Rader said.
She highlighted that distribution facilities posted 8.0 per cent total returns with 3.3 per cent capital growth, while warehouse assets achieved 7.8 per cent returns with 3.4 per cent capital growth.
Geographic variations within the industrial sector reveal significant opportunity differences across states.
“Western Australia industrial led all markets with exceptional 10.6 per cent total returns and 4.6 per cent capital growth, reflecting resource sector strength and supply constraints,” Ms Rader said.
“Queensland industrial matched the 10.6 per cent total return with even stronger 5.5 per cent capital growth, demonstrating the impact of population growth and limited development pipeline on asset values.”
