Australian Cap Rate Outlook

Since mid-2022, higher interest rates have significantly impacted commercial property yields in Australia. With the outlook for interest rates improving, yields are likely to reach their peaks in Australia by the end of 2024 or early 2025. CBRE Research has tried to put some science behind what the next cap rate tightening cycle might look like across the Office, Retail and I&L sectors. Our expectations are that the risk free rate (10 year real bond rate) could drop by about 100 bps from current levels due to below trend growth in Australia. This will relieve interest rate pressure and will make real estate look much more attractive to investors, thus driving cap rates lower. We have also looked at timing of cap rate tightening for different cities across Office and I&L, as well as sub-sectors for Retail. For example, Sydney is likely to lead the way in the office sector.