Commercial Property Market Set to Rebound Through 2026

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.

Australia’s housing crisis will not be solved by first-home buyer incentives or tax changes alone, with leading property figures warning governments must tackle supply constraints if affordability is to improve.

Speaking at the Kanebridge Quarterly Property Leadership Summit in Sydney last week, expert project marketing specialist Sam Elbanna, property investor and fund manager Paul Miron and property consultant Karla McNeice said that a lack of housing supply remained the central issue facing the market.

Elbanna, Director of CPM Realty with more than 30 years’ experience in project sales, argued that successive governments had focused too heavily on stimulating demand rather than addressing the barriers preventing new housing from being delivered.

“The misconception is that politicians think the way to solve the housing crisis is to drive demand,” he said.

“The reality is that’s not the way. This is a supply-side problem, and it needs to be solved on the supply side.”

Drawing on his experience in project sales, Elbanna said policies designed to help first-home buyers often had unintended consequences, pointing to previous grants that ultimately flowed through to higher property prices.

Instead, he said developers were facing increasing red tape, approval delays and rising costs, which were discouraging new housing supply.

“In the absence of stock, demand exceeds supply,” he said.

Miron, a Co-Founder and Fund Manager of Msquared Capital, said the housing debate had become overly focused on tax policy while overlooking broader structural issues.

He argued that affordability challenges stemmed from a combination of factors, including planning constraints, supply shortages, migration levels and interest rates.

“No-one can be 100 per cent certain on the real reason for property prices is going up,” he said.

“The reason why property prices are higher is a combination of interest rates, lack of supply, migration, vacancy rates and maybe taxes play a role.”

Miron was critical of recent federal housing policy changes, warning they could reduce the number of new homes being built and further constrain supply that was even highlighted in the budget.

He also highlighted the importance of the property sector to the broader economy, noting that residential real estate and related industries employed more than one million Australians.

McNeice, who advises developers on sales strategy and market intelligence, said understanding buyers had become increasingly important as affordability pressures intensified.

While affordability remained a major consideration, she said today’s buyers were focused on value rather than simply price.

“People are looking for value for money,” she said.

She said buyers were increasingly evaluating factors such as transport connections, walkability, nearby amenities and flexible living spaces that could accommodate changing family needs.

“What infrastructure is going on? Can I walk to the shops? Can I meet people at the local cafe?” she said.

The panel also discussed the mounting pressures facing developers, with Elbanna arguing that many projects become financially unviable from the moment a site is purchased.

“The viability of a development happens at the moment the site is bought,” he said.

He said rising construction costs, higher interest rates and overly optimistic feasibility assumptions had left some developers exposed as market conditions changed.

While acknowledging the growing number of smaller and first-time developers entering the market, Elbanna said property development required expertise across finance, construction, marketing and legal disciplines.

“It is actually a business that requires a level of expertise,” he said.

Looking ahead, the panel agreed opportunities remained in the market despite current challenges.

Miron said property should continue to be viewed as a long-term investment and cautioned against trying to time short-term market movements.

McNeice said success would increasingly depend on identifying projects that genuinely met changing buyer expectations.

Elbanna said affordable housing remained achievable, but developers needed to deliver more than just homes.

“We can provide affordable housing in this country,” he said.

“But we’ve got to wrap that affordable housing with the things that people want.”

As Australia’s housing affordability debate intensifies, the panellists agreed on one point: without a meaningful increase in housing supply, demand-side measures alone are unlikely to solve the nation’s property challenges.

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.

Australia’s housing affordability crisis is being fuelled by chronic undersupply, planning delays and rising development costs, as politicians continue to focus on the wrong solutions.