INTRODUCTION
Australia’s commercial real estate (CRE) sector is entering a new phase of recovery, underpinned by a shifting macroeconomic landscape. After a prolonged period of tight monetary policy, the Reserve Bank of Australia (RBA) has cut interest rates three times in 2025; a further two cuts expected in the next six months as inflationary conditions continue to moderate.
These macroeconomic shifts are creating a more favourable environment for CRE. Lower debt costs, stabilising inflation, and peaking cap rates are expected to accelerate rental growth. At the same time, supply constraints are likely to amplify the recovery, as demand outpaces new development. However, the recovery is far from uniform, with significant divergence across and within asset classes.
BEDS AND SHEDS
The “beds and sheds” theme—referring to living and logistics assets—continues to dominate investor interest across the Asia Pacific region, with Australia and Japan leading the charge. Cushman & Wakefield Australia, New Zealand and North Asia CEO Noral Wild has emphasized that international investors remain highly focused on these sectors, drawn by their resilience, demographic tailwinds, and long-term growth potential.
The logistics and industrial narrative is by now well known. Demand remains robust, driven by e-commerce expansion, supply chain reconfiguration, and population growth. Although vacancy rates have moved off historic lows and rental growth has moderated, both remain favourable relative to other CRE asset classes.
Australia’s chronic housing undersupply, strong population growth and shifting demographics have created a fertile environment for institutional investment in living assets. Tight national residential vacancy and a rising share of renters speaks to the need for increased institutional capital in the residential rental market, while the continued flow of international students amid a shortage of beds outlines the need for more Purpose-Built Student Accommodation (PBSA). Meanwhile, as the generation of Baby Boomers continue to settle into retirement land lease and aged care will generate steady demand for these assets.
Ms. Wild noted that despite strong investor appetite, Australia lacks the scale in its living sector to absorb the capital international investors are ready to deploy. This presents both a challenge and an opportunity. The challenge lies in accelerating development pipelines and overcoming construction productivity issues. The opportunity is in shaping a new institutional-grade housing market that can deliver stable returns and social impact.
PRIME ASSETS AND VALUE TRAPS
The office sector has arguably been the most disrupted segment of CRE since the onset of the pandemic. Shifts in tenant preferences driven by hybrid work models and evolving employee expectation have translated into uneven demand across the sector. The result has been a complex, multifaceted recovery, marked by significant divergence in occupancy rates, leasing incentives, and asset performance across locations and assets of varying quality.
Encouragingly, tenant downsizing has largely plateaued. The focus has now shifted from consolidation to enhancing the workplace experience. This evolution is reflected in a growing number of corporate real estate decision-makers reporting to human resources departments rather than finance departments. This shift in reporting lines signals a broader change in how office space is evaluated: financial metrics remain important, but employee wellbeing, engagement, and cultural alignment are increasingly central to decision-making.
Despina Katsikakis, Global Head of Total Workplace Consulting at Cushman & Wakefield, describes this transformation as a move from a bifurcated to a trifurcated office market. In addition to traditional prime and secondary assets, a new category of “super-prime” offices has emerged: spaces that offer market-leading amenities, wellness features, and hospitality-inspired design. These assets are commanding premium rents and attracting tenants who view the workplace as a strategic tool for talent retention and brand differentiation.
This shift underscores the need for landlords to fundamentally rethink the purpose and design of office spaces. With 95% of employees expecting flexibility in when they work and 85% expecting flexibility in where they work, the office must evolve into a destination that fosters interaction, collaboration, and community. As Ms. Katsikakis notes, employees who build friendships at work are seven times more likely to stay with their employer, a powerful argument for investing in spaces that support social connection.
Technology will play a critical role in this transformation. Smart building systems, workplace apps, and data-driven design can enhance user experience and operational efficiency. But the real challenge for landlords is not just to bring employees back to the office once: it’s to make them want to return consistently. This requires adopting a hospitality mindset, where the office is curated to deliver comfort, convenience, and culture.
CONCLUSION
Australia’s CRE sector is navigating a dynamic and promising landscape. The recovery is underway, supported by easing financial conditions, resilient demand in key sectors, and growing investor confidence. Yet, the path forward is not uniform. Success will depend on recognising the sector’s complexity and responding with asset-specific strategies.
The office market, once seen as a liability, is now emerging as a space of opportunity—provided landlords are willing to invest in experience, amenity, and adaptability. The future of office real estate lies not in square metres, but in the quality of human engagement it enables. For investors and landlords alike, the imperative is clear: embrace innovation, prioritise the human experience, and deploy capital strategically to unlock value in a market that redefining itself.
