Commercial Property Market Set to Rebound Through 2026
Knight Frank’s latest Horizon 2025 update signals renewed confidence in Australian commercial real estate, with signs of recovery accelerating across cities and sectors.
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The recovery of Australia’s commercial property sector is expected to gather pace throughout 2025 and into 2026, according to new research released by Knight Frank.
The update to the firm’s Horizon 2025 outlook finds that the sector is “sequentially turning the corner back to growth,” with fundamentals for long-term expansion firmly in place.
While global risks, such as the impact of US-imposed tariffs, still linger, the report notes the worst may be behind the market.
Knight Frank Chief Economist Ben Burston said: “In this respect, property is better placed than other asset classes to withstand the trade war,” adding that volatility in equity and fixed income markets has made property a more attractive option once again.
Following a period of disruption, retail and industrial asset values were the first to recover, with all segments and cities returning to growth by late 2024.
“Office values have also now turned positive in Q1, off the back of improving prospects for core CBD assets despite pockets of over-supply elsewhere,” Burston said.
The report also points to increasing liquidity, with large-scale acquisitions becoming more common and investor confidence returning amid expectations of further interest rate cuts.
“Property markets will respond to the rate-cutting cycle, and the shift in the outlook raises the prospect of yield compression in the second half of the year, starting in the most favoured core markets,” said Burston.
Industrial and logistics assets are leading the charge, with competition intensifying for prime properties in Brisbane and Sydney.
Meanwhile, the living sectors continue to gain ground, with nearly 16,000 new student accommodation and build-to-rent units under construction and more than 20,000 approved for future development.
With asset values now well below replacement cost and market rents lagging, Knight Frank reports a growing pool of investors positioning themselves in core markets to take advantage of cyclical recovery and medium-term rental growth.
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Buyer demand, seller confidence and the First Home Guarantee Scheme are setting up a frantic spring, with activity likely to run through Christmas.
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The spring property market is shaping up as the most active in recent memory, according to property experts Two Red Shoes.
Mortgage brokers Rebecca Jarrett-Dalton and Brett Sutton point to a potent mix of pent-up buyer demand, robust seller confidence and the First Home Guarantee Scheme as catalysts for a sustained run.
“We’re seeing an unprecedented level of activity, with high auction numbers already a clear indicator of the market’s trajectory,” said Sutton. “Last week, Sydney saw its second-highest number of auctions for the year. This kind of volume, even before the new First Home Guarantee Scheme (FHGS) changes take effect, signals a powerful market run.”
Rebecca Jarrett-Dalton added a note of caution. “While inquiries are at an all-time high, the big question is whether we will have enough stock to meet this demand. The market is incredibly hot, and this could lead to a highly competitive environment for buyers, with many homes selling for hundreds of thousands above their reserve.”
“With listings not keeping pace with buyer demand, buyers are needing to compromise faster and bid harder.”
Two Red Shoes identifies several spring trends. The First Home Guarantee Scheme is expected to unlock a wave of first-time buyers by enabling eligible purchasers to enter with deposits as low as 5 per cent. The firm notes this supports entry and reduces rent leakage, but it is a demand-side fix that risks pushing prices higher around the relevant caps.
Buyer behaviour is shifting toward flexibility. With competition intense, purchasers are prioritising what they can afford over ideal suburb or land size. Two Red Shoes expects the common first-home target price to rise to between $1 and $1.2 million over the next six months.
Affordable corridors are drawing attention. The team highlights Hawkesbury, Claremont Meadows and growth areas such as Austral, with Glenbrook in the Lower Blue Mountains posting standout results. Preliminary Sydney auction clearance rates are holding above 70 per cent despite increased listings, underscoring the depth of demand.
The heat is not without friction. Reports of gazumping have risen, including instances where contract statements were withheld while agents continued to receive offers, reflecting the pressure on buyers in fast-moving campaigns.
Rates are steady, yet some banks are quietly trimming variable and fixed products. Many borrowers are maintaining higher repayments to accelerate principal reduction. “We’re also seeing a strong trend in rent-vesting, where owner-occupiers are investing in a property with the eventual goal of moving into it,” said Jarrett-Dalton.
“This is a smart strategy for safeguarding one’s future in this competitive market, where all signs point to an exceptionally busy and action-packed season.”
Two Red Shoes expects momentum to carry through the holiday period and into the new year, with competition remaining elevated while stock lags demand.
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