The return of returns is well underway. Each sector is now reporting returns moving toward, or already in the 7% to 9% range. New MSCI data shows total real estate returns grew 2.1% in the Dec-25 quarter (7.4% YoY). The strongest result since the recovery. This acceleration has been led by retail, with all sub-sectors reporting over 8% returns YoY. Compared to the same period last year, office returns have improved the greatest of all sectors.

Asset values posted their sixth consecutive quarter of growth and cap rates were broadly stable. As pricing continues to settle, higher initial yields will contribute more meaningfully to total returns. 

Total returns by sub-sector (% YoY)

Source: MSCI

Key highlights

Office:

Returns accelerated, recording 5.9% YoY with Brisbane the clear stand out at 10.6%. Asset values have risen for the fourth consecutive quarter.

Industrial:

Delivered a strong 8.6% YoY return, led by NSW and closely followed by WA in the quarter. NSW experienced the greatest cap rate compression of 10bps.

Retail:

The standout sector, returning 9.2% YoY, led by sub-regionals (10.9% YoY) closely followed by regionals (10.5% YoY). Cap rates compressed by 8bps, again led by sub regional and regional centres.

Healthcare:

A slow quarter for healthcare with revaluations dragging on returns, recording a -0.2% QoQ (3% YoY). Asset values fell -0.5% QoQ, reversing some previous gains.