Commercial property recovery gains momentum 6 months into 2025
Six months into 2025, the commercial property market has strengthened its recovery with demand for prime industrial and logistics property booming in Sydney and Brisbane, driving up competition and pushing yields lower.
According to Knight Frank, Australia’s commercial property sector has been gradually recovering in the fist six months of 2025 and is expected to continue its growth trajectory across all states and territories.
Knight Frank chief economist, Ben Burston, said that the commercial property market is now in a good position for investors as the fundamentals for long-term growth remain strong despite the potential slower economic growth from US-imposed tariffs.
“The good news for the commercial property market was that it was in a post devaluation cycle, with the bad news largely having already been priced in and markets insulated from further downside risk,” he said.
“In this respect, property is better placed than other asset classes to withstand the trade war.
“Volatility in equity and fixed income markets highlights that they are subject to more immediate risks, so there is a strong case to raise allocations to property, reversing the 2022 to 2023 trend when many investors stepped back from the market.”
According to Knight Frank’s Australian Horizon 2025 outlook report, the competition for high-quality assets in Sydney and Brisbane intensified over the months as demand for prime industrial and logistics properties surged.
Additionally, yields have been compressing in Brisbane and are expected to follow suit in Sydney.
Across the country, the office markets have seen a slower recovery, with performance continuing to vary by asset, location, and grade, while the development pipeline has been shrinking as asset values remain well below replacement costs and current rents insufficient to spark new projects.
Meanwhile, living sectors have also been attracting investors’ attention, with around 6,900 student beds and 8,900 build-to-rent (BTR) apartments under construction nationwide.
An additional 20,000 beds have been approved for development over the next five years, supported by recent election results and ongoing reforms like the 15 per cent withholding tax rate for BTR investments.
Burston said that the commercial property market recovery was driven by the steady improvement of the broader economic landscape since mid-2024, even though some lingering risks continued to affect investor confidence.
“It started with the commencement of the rate cutting cycle overseas, which buoyed sentiment,” he said.
“Australia has been late to the party, with inflationary pressure more persistent than in other major economies during 2024, but sequential quarterly data releases in January and April have been reassuring and the RBA has now cut rates twice.”
Burston said that despite US tariffs shaking markets and raising investor uncertainty, expectations now point to two or three rate cuts by year-end, bringing the cash rate near 3 per cent.
“Property markets will respond to the rate cutting cycle, and the shift in the outlook raises the prospect of yield compression in the second half of the year, starting in the most favoured core markets,” Burston concluded.