As we pass the halfway point of 2025, there’s a growing sense that the Australian commercial property market is trying to find its footing again—but whether we’re moving toward sunrise or slipping deeper into the dark remains up for debate.
The question many are asking: Has the cycle finally turned, or is the recent stability just a pause before another jolt?
A Market in Transition—But Not Uniformly
Several signs point to cautious optimism. Returns in the retail and industrial sectors have nudged into positive territory. Prime office assets, long under pressure, are seeing improved leasing activity. Even the RBA has offered a glimmer of hope by flagging the potential for interest rate relief, with cuts now forecast to bring the cash rate closer to 3.1% over the coming months.
But beneath the surface, there’s no shortage of complexity—or controversy.
Retail: Still Standing Strong
Retail, perhaps unexpectedly, continues to hold its ground. While consumer confidence has taken a battering in recent years, data from Q1 2025 shows that well-located, experience-driven retail—particularly in lifestyle precincts and mixed-use hubs—has remained resilient. Returns are positive, and occupancy rates are largely stable.
What’s driving this? A mix of factors: sustained migration, a return to urban foot traffic, and a strong pivot by landlords and tenants toward hybrid digital-physical business models. While high-street retail may still carry risk, there’s no question that the best-located assets are proving their worth.
Industrial: No Longer on Fire, But Still Smouldering
After years of runaway growth, the industrial sector has settled into a more measured rhythm. Demand for logistics, warehousing and fulfilment space remains high—but investors are now more discerning.
Rents have flattened, and incentives are rising in certain pockets, indicating that we may have reached the peak of this particular industrial upswing. That said, vacancy rates are still under 2% nationally—a testament to the enduring strength of the sector, albeit with moderated expectations.
Office: A Market Divided
The office sector has become the clearest example of bifurcation in the market.
Premium-grade, centrally located office spaces are attracting attention again. Tenants are seizing the opportunity to upgrade their footprints, often at discounted rates, thanks to favourable leasing terms.
However, this upgrade cycle has left a clear casualty—secondary office stock. Many of these assets remain stranded, with double-digit vacancy rates and little tenant interest. And as corporate Australia continues to wrestle with hybrid work models, questions around long-term demand for these properties persist.
Put simply: the office market is no longer just about location—it’s about quality, experience, and ESG credentials.
Turbulence on the Horizon: Politics, Policy and Public Backlash
Beyond fundamentals, the wider context is shifting in ways that could reshape investor sentiment.
The Lendlease Saga
A very public dispute has erupted between Lendlease and some of the country’s most influential super funds, including UniSuper, Hostplus and Aware Super. Their frustration with fee structures and governance on Lendlease’s
$49.6 billion APPF platform has sparked talks of exits—and opened the door for Mirvac to potentially take over the reins.
It’s a high-stakes tug-of-war that raises deeper questions about transparency, alignment of interests, and the future of institutional property management in Australia.
Local Rate Shock: The Townsville Example
In Townsville, a proposed 50% hike in commercial rates has triggered fierce backlash from the local business community. While it may seem like a regional footnote, it’s emblematic of a wider issue: councils under fiscal pressure turning to commercial landlords and businesses to fill revenue gaps.
This kind of municipal cost creep is often underestimated in macro analysis but can have significant impacts on yields and operational planning, particularly in secondary markets.
Regional Trends Worth Watching
Australia’s property recovery isn’t moving in lockstep. Key regional markets are carving out very different trajectories:
• Newcastle has emerged as a standout performer, with strong leasing demand and investor interest buoyed by infrastructure and population tailwinds.
• Brisbane and Perth continue to benefit from interstate migration, major infrastructure spends, and affordability advantages.
• Melbourne, in contrast, still lags. A slower demographic recovery, a more fragmented office sector, and political uncertainty have weighed on sentiment—yet this may be exactly where value starts to emerge for strategic investors.
The Investor Lens: Five Key Takeaways
1. Quality trumps everything. In retail and office alike, the best-located, well-designed, ESG-aligned assets are recovering faster and commanding attention.
2. Interest rate cuts could spark action. With RBA movement anticipated, investors should be preparing to move quickly as cost of capital potentially improves.
3. Governance risk is back on the table. The Lendlease-Mirvac saga is a wake-up call: don’t overlook who’s managing your money—and how.
4. Secondary office remains high risk. Unless there’s a genuine pathway to repositioning or repurposing, many of these assets will remain stranded.
5. Watch the councils. Local government policy—including rating strategies—can have real and lasting impact on asset performance.
So—Where Are We, Really?
Back in February, I said we were at “Twenty Minutes to Midnight.” Today, the clock feels like it may have ticked forward. Maybe it’s Quarter Past Midnight—the initial panic has passed, but the full story of this cycle is still being written.
There’s no clear light on the horizon yet, but the outlines are starting to emerge: a market shaped not just by yields and vacancy rates, but by governance, local politics, and shifting tenant expectations.
The next phase won’t reward passivity. It will reward those prepared to lean in, think long-term, and embrace complexity.
Until next time, Mark Wizel