House Views FY27 Australian Real Estate
Our latest research and perspectives on the Australian Office, Industrial and Retail sectors.
- Office
- Industrial
- Retail
Scarcity creates opportunity
The office debate has shifted. The key question is no longer whether hybrid work has permanently changed the office. It is whether the market can deliver enough relevant space as demand stabilises and begins to recover.
Hybrid work is embedded, but occupier requirements are becoming more predictable. In Sydney, broad rightsizing has receded and demand is increasingly being supported by new entrants, expansion, centralisation and smaller occupiers. Three of the four major CBDs recorded positive net absorption in the latest report.
At the same time, the forward development pipeline is around one-third of its long-run average. Elevated construction costs and long planning and delivery periods are extending the runway for existing assets that can meet occupier demand. The outlook is improving but remains highly selective.
Key take-outs
01 - A clearer recovery
Demand is improving, but the market remains highly selective
Positive net absorption has returned across most major CBD markets, led by Sydney and Brisbane. Melbourne remains earlier in its adjustment, while elevated vacancy in some non-core locations highlights why recovery will be uneven.
02 - The scarcity advantage
A longer runway before supply returns
In a normal recovery, rising rents improve feasibility and eventually add supply. This cycle has a slower response: construction costs continue to outpace inflation, financing and return requirements remain demanding, and CBD projects can require years of planning before construction begins.
03 - Scarcity is separating assets
The flight to quality is broadening but remains building-specific
Premium buildings led the early recovery, but demand is now extending into relevant A-grade space as suitable premium options tighten. The benefits are not flowing evenly. Connectivity, amenity, flexibility and asset condition are increasingly separating the buildings able to capture demand from those that remain exposed.
04 - Demand is rebuilding
Smaller occupier decisions are adding up
The next phase of demand is not being driven by widespread large corporate expansion. In Sydney, smaller requirements, new entrants, selective expansion and centralisation are increasingly supporting absorption as rightsizing recedes. Knowledge-intensive employment and AI are also influencing how and where office demand may develop.
05 - The opportunity set
Different markets require different investment strategies
Improving demand and constrained supply are creating more favourable conditions, but the opportunity is not uniform. Sydney offers the clearest expression of scarcity, Brisbane has a more defined medium-term supply window, and Melbourne and Perth still need broader demand. Performance will vary across markets, locations and assets.
Working through the supply pulse
Australia’s industrial property market is entering a more selective phase. As new supply lifts occupier choice, location, asset quality and functionality will increasingly shape income and return outcomes.
Several years of strong occupier demand and rapid rental growth prompted a substantial development response. That supply is now being delivered, lifting vacancy and incentives from exceptional lows, even as leasing demand remains healthy. The adjustment is concentrated in Sydney and Melbourne, while Brisbane and Perth have more balanced near-term supply conditions. Within cities, outcomes are separating by precinct, building quality and functionality.
The supply pulse will take time to work through, but higher replacement costs, weaker feasibility and greater reliance on pre-commitments are already limiting further construction. Market depth, location and asset relevance will therefore matter more.
Key take-outs
01 - From expansion to normalisation
Strong occupier demand and rapid rental growth encouraged a substantial development response. The resulting projects are now being delivered into a market where leasing remains healthy but has normalised.
Completions are temporarily running ahead of absorption, lifting vacancy and incentives and weakening net effective rental growth. The issue is the timing and distribution of new supply, not a collapse in demand.
02 - Demand remains intact, but is more selective
The economic backdrop is more constructive than it appeared earlier in 2026.
Leading indicators are mixed but have improved. Forward orders have returned to positive territory, suggesting a recovery in business demand, while import growth across a range of consumer-related sectors supports freight and warehouse requirements.
03 - The supply pulse is concentrated and self-correcting
Strong demand and rental growth during the pandemic encouraged developers to expand pipelines significantly.
Projects commenced when vacancy was at record lows are completing after leasing conditions have moderated. That development lag, rather than a structural demand failure, is the main reason vacancy is rising.
04 - Pricing is adjusting through incentives
Leasing conditions are moving into a more normal phase of the cycle, with incentives accounting for a growing share of the adjustment.
Sydney and Melbourne have experienced the largest increases, weakening net effective rental growth even where face rents have remained relatively resilient.
05 - The era of dispersion
When occupiers had few alternatives, less functional buildings benefited from the same
scarcity as prime stock. As new supply expands choice, those differences are re-emerging.
Asset quality, specification and location are likely to explain more of the return than city-level figures alone.
The irreplaceable asset
Australian retail has moved beyond the disruption narrative that shaped market perceptions for much of the past decade. The focus is now on which assets can convert structural demand and limited new supply into sustainable income growth. This has developed a more resilient operating model than many offshore markets, supported by a stronger mix of non-discretionary retail, lower exposure to department stores and increasingly constrained new supply.
Low vacancy, healthier retailer economics, positive re-leasing spreads and population growth concentrated in major urban catchments are creating more supportive conditions for high-quality assets. However, the opportunity is not uniform. Asset quality, trade-area strength, barriers to new competition and execution capability are likely to play an increasingly important role in determining performance.
Key take-outs
01 - The retail reset
Retail turnover has materially outpaced inflation over the past decade, while vacancy is low and leasing spreads have turned positive. With much of the valuation reset having occurred, the focus is shifting from a broad recovery in sentiment to the ability of individual assets to generate sustainable income and value growth.
02 - Fundamentals matter
Lower occupancy costs, improving retailer profitability and positive re-leasing spreads are creating a stronger base for income growth. Regional-centre re-leasing spreads exceeded 4% at 30 June 2026, while lower occupancy costs provide tenants with greater capacity to absorb rental growth as leases reset.
03 - Densification advantage
Population growth is concentrating in major urban catchments where new retail floorspace is difficult to deliver. Retail sales are forecast to grow by 3.5% per annum over the next decade, supporting established centres that can capture both catchment growth and rising expenditure per person.
04 - Scarcity advantage
Retail demand is growing while conventional new supply remains difficult to deliver. Construction costs, scarce infill land, long approval pathways and competing land uses continue to challenge development feasibility. Existing owners can benefit where established locations create a genuine incumbency advantage.
05 - Beyond e-commerce
Physical stores are increasingly operating as part of integrated retail networks rather than as an alternative to e-commerce. Centres that support discovery, fulfilment, services and high-conversion in-store spending can attract a deeper tenant pool, while tenant mixes continue to shift towards uses less exposed to digital substitution.
06 - Driving outperformance
Stronger fundamentals will not remove performance dispersion. Premium catchments can create the opportunity, but income growth depends on asset quality, active leasing and execution. Mixed-use intensification and data capability can provide additional value, subject to planning, feasibility, funding and delivery requirements.
Further research
Australian Real Asset Quarterly Review Q4 2026
Dexus Research has released its Q4 2026 Australian Real Asset Review (ARAR), examining how real asset markets are responding to a higher cost of capital.
19 Oct 2026
Australian Real Asset Quarterly Review Q3 2026
Dexus Research has released its Q3 2026 Australian Real Asset Review (ARAR), examining how Australia's real asset markets are evolving amid an uncertain economic backdrop and a still-elevated interest rate environment. After a difficult start to 2026, recovering business confidence and a share market close to record highs point to a more constructive outlook than initially feared, even as global uncertainty lingers.
20 Jul 2026
Australian Real Asset Quarterly Review Q2 2026
Dexus Research has released its Q2 2026 Australian Real Asset Review (ARAR), examining how Australia’s real asset markets are evolving amid elevated inflation, geopolitical uncertainty and a more volatile interest rate environment. These conditions have driven a widening divergence between listed and unlisted real assets over the quarter, with unlisted markets underpinned by comparatively stable valuations.
29 Apr 2026
Australian Real Asset Review Q4 2025
Dexus Research's Real Asset Review for Q4 2025 describes key trends in the real asset market, confirming Australian real estate is entering a definitive cyclical upturn, backed by historical recovery patterns seen only twice in the past 35 years. This recovery has been coined 'the return of returns' by Peter Studley, Dexus Head of Research.
20 Oct 2025
Hot Take - ASIC RG97 review positive news for Australian real estate
The Australian Securities and Investments Commission (ASIC) has decided to undertake a review of its requirement for superannuation funds to disclose the stamp duty paid on real estate acquisitions.
15 Aug 2025
Australian Real Asset Quarterly Review Q3 2025
Dexus Research's Real Asset Review for Q3 2025 describes the key trends in Australia's main real asset market including commercial real estate, healthcare and infrastructure, including a spotlight on office performance.
22 Jul 2025
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