The Headline Numbers
Australia's commercial real estate market recorded $49.8 billion in total transactions in 2025 — a 6% year-on-year increase and the second consecutive year of volume growth. For institutional allocators tracking market momentum, the directionality is now difficult to argue against: the cyclical trough appears to be behind us.
Two structural data points define the year:
- Retail reclaimed the top position in transaction volumes — the first time it has led the sector rankings since 2015
- Office rebounded sharply, with volumes rising 31% to $12.2 billion, concentrated predominantly in Sydney CBD assets
These are not marginal shifts. They represent a reorientation of institutional capital flows that carries meaningful implications for portfolio positioning heading into 2026.
Retail's Return to Primacy
The return of retail to the top of the volume ladder is the more structurally significant of the two data points. A decade-long narrative of retail obsolescence — driven by e-commerce penetration, rising vacancies, and compressed investor appetite — appears to be undergoing a substantive reassessment.
Sophisticated buyers are increasingly differentiating between convenience-anchored and non-discretionary retail formats (neighbourhood centres, large format retail, QSR-anchored strips) and the challenged discretionary-heavy enclosed mall segment. The former has demonstrated resilient cash flows through the rate cycle; the latter continues to require more selective underwriting.
For Queensland-based investors, this retail repricing is particularly relevant. Convenience retail and fast food-anchored assets across South East Queensland have attracted consistent institutional and private capital, with net lease QSR assets — including brands such as KFC, Guzman y Gomez, and Red Rooster — continuing to transact at competitive yields. The long WALE, triple-net structures, and covenant strength of national QSR operators have made these assets a defensive allocation within broader retail exposure.
Office: A 31% Rebound Demands Context
The $12.2 billion recorded in office transactions — up 31% year-on-year — is an unambiguous volume recovery, but investors should resist reading it as uniform sector strength.
The rebound is geographically concentrated. Sydney CBD has been the primary beneficiary, driven by:
- Return-to-office mandates tightening effective vacancy in premium and A-grade stock
- Yield stabilisation following significant repricing through 2022–2024
- Offshore institutional appetite for core CBD assets at reset entry points
For markets outside Sydney — including Brisbane CBD, where structural vacancy compression is anticipated through 2026 — the office thesis remains constructive but is still in earlier stages of price discovery. Investors with a longer hold horizon and an appetite for leasing execution risk may find Brisbane offers more favourable risk-adjusted entry relative to Sydney's more efficiently priced prime stock.
Financing Conditions as the Enabling Variable
The easing of financing conditions is explicitly credited as a demand enabler across the 2025 volume recovery. Lower debt costs improve interest coverage ratios, widen the pool of viable acquisitions on a leveraged return basis, and reduce refinancing risk on existing positions — all of which bring previously sidelined capital back to the table.
For institutional investors operating at higher LVR thresholds, or those deploying value-add strategies reliant on favourable debt terms, the current rate trajectory represents a structural tailwind that did not exist through 2023 or most of 2024. The key risk variable remains duration: how long financing conditions remain supportive relative to cap rate expectations baked into current acquisition underwriting.
Investment Positioning
Three actionable reads from the 2025 data:
- Retail is a legitimate allocation again — not across all formats, but selectively in non-discretionary and convenience-anchored product. QSR net lease assets in QLD continue to attract strong demand.
- Sydney CBD office is repriced; Brisbane is repricing — the entry point arbitrage between markets favours patient capital in Brisbane.
- The financing window matters — volume growth in 2025 was partly a function of debt cost relief. Underwriting assumptions should stress-test rate scenarios rather than extrapolate current conditions.
The second consecutive year of growth confirms a market in recovery. The composition of that recovery — retail leading, office rebounding selectively — tells institutional investors where conviction is building and where caution remains warranted.
References
- [1] Financial News Wire — Retail Leads $49.8B Commercial Property Surge: https://financialnewswire.com.au/property/retail-leads-49-8b-commercial-property-surge/
- [2] Commo — Australia Commercial Real Estate Records Second Consecutive Year Growth (MSCI): https://www.commo.com.au/news/2026/02/11/australia-commercial-real-estate-records-second-consecutive-year-growth-msci