Business Insights | How a long-term outlook is vital for navigating market volatility

The outlook for 2026 is evolving amid geopolitical volatility, rising construction costs, interest rate pressure an AI adoption. And while the priorities of property occupiers, investors, and developers may change, long term strategy remains critical. 

CBRE’s CEO Australia & New Zealand Phil Rowland and our Pacific Head of Research Sameer Chopra unpack what has truly changed for Australian real estate and what fundamentals remain.  

Short term volatility masks strong long term fundamentals 

While geopolitical conflict and higher interest rates have dampened some of the momentum from earlier in the year, Australia’s labour market, population growth, and global investment appeal continue to support real estate over the medium to long term. 

“For anyone looking over a three, five or ten year horizon, I think a lot of this is just noise, and it’ll end up reinforcing the value of real estate,” says Sameer.  

Australia’s population continues to grow at around 250,000 people per year, well above pre COVID levels, and unemployment remains low, underpinning occupier demand. 

“I think this will reinforce Australia as a safe destination. We were a top three destination for high-net-worth individuals prior to this, and I think we'll end up seeing more inflows into private wealth,” Sameer adds. 

Construction costs are set to rise sharply and stay high

Construction costs are emerging as a defining constraint across sectors, driven by energy prices, labour shortages and major infrastructure programs. 

“Once construction cost inflates, it stays there and becomes the new base,” Sameer says. 

CBRE now expects construction costs to lift around 18% across 2026–27, followed by around 4.5% per annum into the next decade. 

“Investors and developers who started construction early will be in better shape than deals where construction is starting later in the decade,” Phil adds. 

Supply constraints support rent growth 

Higher costs and feasibility pressures are likely to delay or cancel speculative projects, reinforcing CBRE’s view that constrained supply will continue to support rents. 

“Rents need to move above trend by six to eight per cent to offset this higher cost of construction and the higher bond yields,” Sameer says. 

Early 2026 data is already showing upside surprises: 

• Prime office net effective rents rose 13% year on year in Brisbane and 8% in Sydney 
• Regional retail rents rose 5–7% across major markets 
• Industrial markets are increasingly bifurcated, with softness in Sydney and Melbourne but strong growth in Brisbane and Perth 
  
  

Sameer notes industrial markets are splitting sharply by location, with incentives rising in some locations as new supply comes online. 

“Industrial right now is the most bifurcated market out of all of the sectors that we cover,” Sameer adds. 

Capital markets remain active but more disciplined 

Transaction volumes were solid in Q1, particularly in Sydney office and retail, but rising bond yields are expected to temper activity through the rest of the year. 

CBRE now expects transaction volumes to grow closer to 5% in 2026, down from earlier expectations of 10%, with modest cap rate expansion likely before stabilisation in 2027. 

AI is reshaping demand  

“When you meet with investors and tenants, there is clearly some uncertainty around the potential longer-term impact on the type of space required in the future in an AI adopted world,” Phil says. 

Despite concerns around AI driven disruption, professional services recorded the largest job growth of any sector, adding 69,000 roles in the past quarter. 

“Much to my surprise, the sector with the highest growth in jobs was professional services,” Sameer says. 

“Despite all the rapid technological changes the volume of office employed jobs has grown significantly, and I am optimistic that this will continue,” he adds. 

‘Flight to quality’ is becoming a ‘flight to power’ 

As AI, robotics and electrification accelerate, access to power and energy capacity is becoming a critical differentiator across asset classes. 

“When we look at all this tech, our overarching belief is that access to power and energy is vital. And it's not just data centres but also office, residential, industrial, health care, and retail. Real estate that is already pre provisioned with access to higher power loads should do well,” Sameer says. 

“Just like we’ve experienced a flight to quality, we could see premiums emerge for a flight to power,” Sameer adds.