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.
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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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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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