Real Estate Returns Rebound as Investors Shift from Caution to Confidence
Dexus Research sees renewed momentum across office, retail and industrial sectors as market sentiment improves.
2 min
Australian real estate is showing signs of a comeback, with new data revealing accelerating returns across all major property sectors and improving investor confidence.
The latest Q3 2025 Australian Real Asset Review from Dexus Research highlights a positive shift in momentum, driven by falling interest rates, stabilising vacancy rates and renewed business sentiment.
The report suggests that the market may be transitioning from a period of “Fear of Acting Too Early (FATE)” to “Fear of Missing Out (FOMO)” as capital begins to flow back into real assets.
Unlisted property funds are leading the resurgence, posting their strongest returns in two years in June 2025, particularly in retail and industrial.
Dexus forecasts sector-wide returns exceeding 7% per annum within the next 12 months, buoyed by positive revaluations and rising deal activity.
In the office sector, the Sydney CBD appears to be entering a classic recovery cycle.
For high-quality assets, capitalisation rates are believed to have peaked, vacancy rates are levelling off, and rental growth is back on the rise. With demand strengthening and limited new supply, Dexus says this could mark a rare window of opportunity for investors.
Retail property is also showing signs of renewed strength, helped by real wage growth and declining mortgage rates. CBD vacancy rates have dropped and rents are firming, especially in regional shopping centres.
Meanwhile, infrastructure transaction volumes rose significantly in Q2 2025, with renewed focus on renewable energy and battery storage projects.
Government spending is playing a major role, with the Federal Government’s $60 billion infrastructure pipeline and various state initiatives expected to drive new project originations into 2026.
Overall business confidence is improving, even amid a sluggish broader economy. Falling inflation, political stability, and a rising equities market are contributing to stronger leasing expectations in the second half of the year.
“Global uncertainty continues to influence sentiment in capital and occupier real asset markets,” said Peter Studley, Dexus Head of Research.
“However, with interest rates falling and supply constrained, there are compelling reasons to expect stronger real estate returns in the months ahead. The big question is, how quickly will the tide turn from Fear of Acting Too Early (FATE) to Fear of Missing Out (FOMO) for real asset investors?”
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The 2026 McGrath Report warns that without urgent reforms to planning, infrastructure and construction, housing affordability will continue to slip beyond reach for most Australians.
3 min
Australia’s housing market has reached a critical juncture, with home ownership and rental affordability deteriorating to their worst levels in decades, according to the McGrath Report 2026.
The annual analysis from real estate entrepreneur John McGrath paints a sobering picture of a nation where even the “lucky country” has run out of luck — or at least, out of homes.
New borrowers are now spending half their household income servicing loans, while renters are devoting one-third of their earnings to rent.
The time needed to save a 20 per cent deposit has stretched beyond ten years, and the home price-to-income ratio has climbed to eight times. “These aren’t just statistics,” McGrath writes. “They represent real people and real pain.”
McGrath argues that the root cause of Australia’s housing crisis is not a shortage of land, but a shortage of accessibility and deliverable stock.
“Over half our population has squeezed into just three cities, creating price pressure and rising density in Sydney, Melbourne and Brisbane while vast developable land sits disconnected from essential infrastructure,” he says.
The report identifies three faltering pillars — supply, affordability and construction viability — as the drivers of instability in the current market.
Developers across the country, McGrath notes, are “unable to make the numbers work” due to labour shortages and soaring construction costs.
In many trades, shortages have doubled or tripled, and build costs have surged by more than 30 per cent, stalling thousands of projects.
Need for systemic reform
McGrath’s prescription is clear: the only real solution lies in increasing supply through systemic reform. “We need to streamline development processes, reduce approval timeframes and provide better infrastructure to free up the options and provide more choice for everyone on where they live,” he says.
The 2026 edition of the report also points to promising trends in policy and innovation. Across several states, governments are prioritising higher-density development near transport hubs and repurposing government-owned land with existing infrastructure.
Build-to-rent models are expanding, and planning reforms are gaining traction. McGrath notes that while these steps are encouraging, they must be accelerated and supported by new construction methods if Australia is to meet demand.
One of the report’s key opportunities lies in prefabrication and modular design. “Prefabricated homes can be completed in 10–12 weeks compared to 18 months for a traditional house, saving time and money for everyone involved,” McGrath says.
The report suggests that modular and 3D-printed housing could play a significant role in addressing shortages while setting a new global benchmark for speed, cost and quality in residential construction.
Intelligent homes
In a section titled Weathering the Future: The Power of Smart Design, the report emphasises that sustainable and intelligent home design is no longer aspirational but essential.
It highlights new technologies that reduce energy use, improve thermal efficiency, and make homes more resilient to climate risks.
“There’s no reason why Australia shouldn’t be a world leader in innovative design and construction — and many reasons why we should be,” McGrath writes.
Despite the challenges, the tone of the 2026 McGrath Report is one of cautious optimism. Demand is expected to stabilise at around 175,000 households per year from 2026, and construction cost growth is finally slowing. Governments are also showing a greater willingness to reform outdated planning frameworks.
McGrath concludes that the path forward requires bold decisions and collaboration between all levels of government and industry.
“Australia has the land, demand and capability,” he says. “What we need now is the will to implement supply-focused solutions that address root causes rather than symptoms.”
“Only then,” he adds, “can we turn the dream of home ownership back into something more than a dream.”
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