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Commercial property investment is set to experience a significant upswing in 2025, with premium office property emerging as the standout performer in Australia's real estate sector
According to CBRE’s latest forecast, investors can expect robust growth across the commercial property landscape, with particularly strong returns in key CBD locations as market dynamics continue to evolve in the post-pandemic environment.
Overview of Australian commercial property investment forecast
The Australian commercial property investment market is showing strong signs of recovery, with investment volumes projected to grow by 15 per cent to $36 billion in 2025. This positive trend is expected to gain further momentum in 2026, with CBRE forecasting an additional 23 per cent increase, pushing the total to an impressive $44 billion. These figures represent a significant turnaround from the subdued investment activity experienced in recent years.
Within this broader market recovery, the office sector stands out with a projected 25 per cent growth in investment volumes. This significantly outpaces the more modest 10 per cent growth expected in industrial, retail, and hotel sectors, positioning premium office property as the clear leader in the commercial real estate landscape for the coming period.
“The major contractionary activity and sublease availability of the past few years appears to have passed,” CBRE reported, signaling a turning point for the office market that has weathered considerable challenges in recent years. This shift represents a critical inflection point for investors who have been waiting for clear signs of recovery before committing capital to the sector.
The projected growth in commercial property investment reflects improving economic conditions, stabilizing interest rates, and increasing confidence in the long-term viability of traditional workplace models. These macro factors combine to create a favorable environment for office sector investment, particularly for premium assets in well-established locations.
Office sector as the market leader
The remarkable performance projected for the office sector represents a significant shift in market dynamics. After years of uncertainty following the pandemic, premium office property is now at the forefront of commercial property investment growth, reversing earlier predictions about the permanent decline of office-based work.
Several factors are driving this resurgence in the office sector. The widening rent gap between existing buildings and newer developments is creating attractive investment opportunities, particularly in premium CBD locations. This disparity allows investors to identify value propositions in both established and emerging premium office assets.
Corporate tenants are increasingly differentiating between office spaces based on quality, location, and amenities. This flight to quality has strengthened demand for premium office property, while secondary assets face greater leasing challenges. Companies are willing to pay premium rents for spaces that enhance their ability to attract and retain talent, support collaboration, and reflect their brand values.
The highest performing assets within the office sector are predominantly premium properties in prime CBD locations. These properties are expected to deliver exceptional rental growth and capital appreciation, outperforming both secondary grade stock and suburban alternatives. Buildings with strong sustainability credentials, modern amenities, and flexible configurations are particularly well-positioned to capitalize on evolving tenant requirements.
The performance gap between premium and secondary office assets is likely to widen further in 2025. While premium office property is projected to see strong rental growth and high occupancy levels, secondary assets may continue to struggle with higher vacancy rates and downward pressure on rents. This bifurcation creates both risks and opportunities for investors, depending on their investment strategy and risk appetite.
Geographic trends in premium office property
The recovery in the office sector is not uniform across Australia, with certain markets positioned to deliver stronger returns than others. Sydney and Brisbane office markets are leading the recovery, with CBRE predicting they will be “the outperformers once again in 2025.” This geographic variation provides important guidance for investors seeking to optimize their exposure to the office sector.
Sydney’s CBD premium properties are particularly well-positioned, with exceptional rental growth and capital appreciation expected. The strength of the Sydney market is underpinned by limited new supply and increasing demand for high-quality office space in central locations. The harbor city continues to benefit from its status as Australia’s financial center and its appeal to international corporate tenants.
Brisbane’s office market is benefiting from strong population growth, infrastructure investment, and relatively affordable rents compared to Sydney and Melbourne. These factors are driving tenant demand and attracting investor interest, particularly for premium office property in the CBD. The city’s preparation for the 2032 Olympics is also expected to stimulate further investment in commercial property infrastructure.
Melbourne’s office market, despite facing greater challenges in recent years, is showing encouraging signs of improvement. The increasing centralization into Melbourne’s CBD is driving higher absorption rates and rental growth, though the recovery appears more gradual than in Sydney and Brisbane. The city’s substantial development pipeline has created more competitive conditions, but premium assets in prime locations are still performing well.
Leasing demand patterns offer interesting insights into market dynamics. For example, in Melbourne’s fringe areas, Southbank recorded positive six-month absorption of +636sqm in H2 2024, while St Kilda Road experienced negative absorption of -6,702sqm during the same period. These variations highlight the importance of micro-location even within broader city markets and underscore the need for detailed market knowledge when assessing investment opportunities.
Perth and Adelaide office markets are showing more modest recovery trajectories, with local economic conditions playing a significant role in market performance. In Perth, the resources sector continues to influence demand for premium office property, while Adelaide’s market is supported by government and defense-related tenants. Both cities offer higher yields than the eastern seaboard capitals, which may attract investors seeking income-focused strategies.
Canberra’s office market presents a unique proposition due to its high proportion of government tenants, which typically provide stable rental income but more modest growth potential. Premium office property in the nation’s capital tends to offer defensive characteristics that may appeal to risk-averse investors, particularly in uncertain economic conditions.
Investment opportunities in premium office property
For investors looking to capitalize on the projected growth in the office sector, understanding the nuances of the market is essential. The widening rent gap between existing buildings and newer developments presents a strategic opportunity, particularly in Sydney and Brisbane where tenant preferences are increasingly favoring high-quality spaces.
Premium office property in CBD locations offers compelling investment fundamentals. Vacancy rates for prime assets remain below those of secondary grade stock, reflecting the enduring demand for quality office space despite recent market challenges. CBRE’s data shows that across major markets, prime grade vacancy rates are typically 200-300 basis points lower than secondary grade, supporting stronger rental growth prospects for premium assets.
The limited development pipeline in certain markets may also create favorable conditions for existing premium office property. For example, the office development pipeline remains empty for Southbank and St Kilda Road in Melbourne, which could support rental growth for existing assets in these locations. Similarly, construction constraints and financing challenges are limiting new supply in other markets, potentially supporting rental growth for well-positioned existing assets.
When evaluating potential office investments, investors should consider several factors including location quality, building specifications, tenant covenant strength, and lease profile. Properties with strong ESG credentials are increasingly commanding premium rents, reflecting changing tenant preferences and regulatory requirements. Buildings that can demonstrate strong sustainability performance, wellness features, and technological infrastructure are likely to outperform the broader market.
Value-add strategies may offer particularly attractive opportunities in the current market environment. Acquiring well-located but under-optimized assets and implementing targeted capital improvements can unlock significant value. Repositioning strategies focused on enhancing sustainability performance, amenity offerings, and technological capabilities can transform secondary assets into premium office property that meets contemporary tenant expectations.
Investors should also consider the potential for adaptive reuse of existing office buildings. Converting suitable assets to alternative uses such as residential, healthcare, or educational facilities can provide exit strategies for office investments that may face obsolescence in the future. This optionality can enhance risk-adjusted returns and provide a hedge against potential market downturns.
The emerging trend of “green premiums” for environmentally sustainable buildings is creating another dimension of investment opportunity. Premium office property with strong environmental credentials is commanding higher rents and experiencing lower vacancy rates compared to less sustainable counterparts. This trend is expected to accelerate as corporate tenants increasingly prioritize sustainability in their real estate decisions and as regulatory requirements become more stringent.
Future outlook beyond 2025
The momentum in the commercial property investment market is expected to continue beyond 2025, with CBRE projecting that investment volumes will reach new heights as the market recovery gains further traction. Premium office property is likely to remain a key driver of this growth, supported by evolving workplace strategies and the enduring importance of office-based collaboration.
CBRE’s analysis suggests that “pockets of exceptionalism around premium property and precincts will emerge in 2025,” highlighting the potential for select assets to significantly outperform the broader market. This trend is likely to continue into 2026 and beyond, creating opportunities for investors who can identify and access these high-performing assets and locations.
The future performance of premium office property will be influenced by several macro trends, including the evolution of hybrid work models, changing tenant space requirements, and the increasing importance of sustainability and wellness features. Buildings that can adapt to these changing requirements are likely to maintain their premium status and command stronger rental growth than less flexible assets.
Technology will play an increasingly important role in differentiating premium office property from secondary alternatives. Smart building features, contactless access systems, enhanced air quality monitoring, and integrated workplace management systems are becoming standard expectations for premium tenants. Investors should factor technology investments into their acquisition and asset management strategies to maintain the premium positioning of their office investments.
The industrial property sector, while growing more slowly than offices, continues to demonstrate resilience with Australia maintaining one of the lowest vacancy rates globally at 2.5 per cent. However, CBRE indicates that normalised demand levels may put upward pressure on vacancy rates throughout the year, potentially moderating growth compared to recent years. This suggests that premium office property may offer relatively attractive risk-adjusted returns compared to industrial assets in the medium term.
Face rents across fringe and suburban markets saw limited movement in Q4 2024, with most precincts experiencing stability. Incentive movement mostly stabilised over the quarter, partly attributed to limited deal evidence. This stability provides a solid foundation for the projected rental growth in 2025, particularly for premium office property in CBD locations where tenant demand is strengthening.
Looking ahead, investors should monitor several key indicators including CBD office occupancy levels, the pace of return to office, and the evolution of workplace strategies. These factors will influence the long-term performance of premium office property and shape investment strategies in the commercial real estate market. The ongoing “flight to quality” among corporate tenants suggests that premium assets will continue to outperform, even as overall office demand evolves.
Investment activity in Melbourne’s Fringe and Metro markets saw a moderate uptick in H2 2024, however total volumes remained subdued compared to historical levels. Yields continue to see expansion as pricing adjusts to meet buyer-vendor expectations. This repricing process creates opportunities for counter-cyclical investors who can identify assets with strong fundamentals that may be temporarily mispriced due to broader market sentiment.
Growth in 2025
The Australian commercial property investment landscape is poised for significant growth in 2025, with premium office property in CBD locations emerging as the standout performer. The projected 25 per cent growth in office sector investment volumes reflects increasing confidence in the future of workplace-based work and the enduring value of high-quality office assets.
Sydney and Brisbane are positioned to lead this recovery, offering investors attractive opportunities in premium office property. While challenges remain in certain markets and submarkets, the overall trajectory for the office sector is strongly positive, supported by improving economic conditions and evolving tenant preferences.
The split between premium and secondary office assets is expected to widen further, highlighting the importance of quality and location in investment decision-making. Buildings that can meet evolving tenant expectations regarding sustainability, wellness, technology, and flexibility are likely to command premium rents and experience stronger capital appreciation.
For investors seeking exposure to the Australian commercial real estate market, premium office property offers a compelling combination of rental growth potential and capital appreciation. As the market recovery gains momentum through 2025 and into 2026, strategically positioned office investments are likely to deliver superior returns compared to other commercial property sectors.
The office isn’t dead — it’s evolving. And premium office property is leading this evolution, creating opportunities for investors who understand the changing dynamics of the sector and can identify assets positioned to thrive in the new environment. As CBRE’s forecast suggests, 2025 may well mark the beginning of a new growth cycle for premium office property in Australia’s commercial real estate market.
Further questions
Why is premium office property expected to outperform other commercial real estate sectors in 2025?
Which Australian cities offer the best investment opportunities in premium office property?
How do vacancy rates compare between premium and secondary office properties?
What is the outlook for commercial property investment volumes in Australia?
How is Melbourne's office market performing compared to other Australian cities?
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