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$50bn market: Investors find new opportunities in office and living sectors
New data showed that Australia’s commercial real estate market recorded A$49.8 billion in transactions in 2025, up 6 per cent year on year.
According to MSCI’s latest Australia Capital Trends report, the market saw its second consecutive annual increase for the first time since 2019.
While transaction volumes fell by $13.0 billion in Q4 2025, down 42 per cent from Q4 2024, the report said that full-year volumes exceeded both five- and ten-year averages by 10 per cent.
Benjamin Martin-Henry, MSCI’s head of private assets research, Pacific, said investors should consider the underlying annual trend and not just the quarterly decline.
“2025 marked a clear turning point for transaction activity, supported by easing financing conditions earlier in the year and improved pricing clarity across several major sectors,” he said.
The report also revealed that market performance rose over 2025, with the MSCI/Mercer Australia Core Wholesale Monthly Property Fund Index showing a 7.0 per cent total return.
MSCI said the result was the strongest annual outcome since 2022, comprising 4.8 per cent income return and 2.1 per cent capital growth.
The sectors leading growth
While retail came out on top as the most active market, the report showed that investment in office spaces had rebounded, while living spaces continued to gain traction.
According to MSCI, the retail space recorded $13.1 billion in transactions, reclaiming the top position for the first time since 2015.
Activity was driven by large shopping centres, including Sydney’s Macquarie Centre, Westpoint Shopping Centre, and Top Ryde City, with momentum increasing into the December quarter.
The report said that retail returns led performance in the commercial space with a 9.4 per cent total return, due to yield compression across sub-regional shopping centres, and improving tenant conditions.
Office investment bounced back to record the sector’s strongest annual result since 2022, with volumes rising 31 per cent year on year to $12.2 billion.
“Investors increasingly targeted Sydney CBD assets, attracted by reset pricing and the prospect of a cyclical recovery,” MSCI said.
The company said that, similarly to retail, both industrial and office funds returned to positive territory, showing growing pricing stability.
Meanwhile, the living sectors also gained prominence, with investment volumes reaching a record $8.2 billion, primarily driven by entity-level and portfolio transactions.
“Brookfield’s $3.9 billion divestment of its Aveo seniors housing portfolio was the largest contributor, highlighting strong offshore and domestic appetite for scaled living platforms,” the report said.
Overseas investors increasingly dominate activity
According to the data, overseas investors accounted for 40 per cent of total direct acquisitions in 2025, largely in line with long-term norms.
MSCI said that while fourth-quarter overseas investments declined sharply, full-year offshore volumes still reached $19.7 billion, exceeding historical averages.
It said investors from the Asia-Pacific (APAC) region led offshore activity, investing $12.2 billion, 2.5 times the amount invested in 2024.
The most active APAC investors were South Korea and Japan, while the United States was the largest single overseas investor for the fourth consecutive year.
Martin-Henry said that large platform and portfolio transactions were changing the composition of offshore capital flows, particularly in the living sectors.
Rate cuts impact investor sentiment
According to the report, investor sentiment was directly impacted by the Reserve Bank of Australia’s rate decisions in 2025.
“Early-year rate cuts by the Reserve Bank of Australia supported renewed buyer-seller engagement, while a more cautious stance later in the year reinforced selectivity and pricing discipline,” it said.
Martin-Henry said that large-scale capital was increasingly focused on sectors where valuation uncertainty had diminished.
“With returns improving and liquidity rebuilding, conditions are in place for a more durable recovery as the market moves into 2026,” he concluded.