Report | Intelligent Investment

Pacific Real Estate Market Outlook 2025

January 27, 2025 20 Minute Read

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Executive Summary

CBRE’s 2025 Pacific Market Outlook includes our house view on investment themes, transaction volumes, cap rates, demand, supply and rents that will guide decision making as the market shifts. 

 

Where are the pockets of exceptionalism that are driving rent and capital value growth into the mid-teens, how slow will leasing activity move and will development activity continue to shrink? 

 

  • High construction costs are expected to reduce future supply. Economic rents for most assets have increased by 40%-70% and are now 20%-30% above market rents. We believe in our "rent-a-demic" view as vacancies remain historically low.
  • Except for premium areas, net effective rents may see flat to low single-digit growth. Leasing activity is expected to stay low in 2025 due to slow economic growth and the Federal election cycle.  
  • Australia (+2.0%) and New Zealand (+1.0%) economies are expected to grow, but below trend. We anticipate three interest rate cuts in Australia in 2025, and cuts in New Zealand in the first half of the year.
  • Transaction volumes are expected to grow by 15% in 2025, with faster growth in Office. Over the long term, cap rates are expected to tighten by 60-100 basis points, depending on the asset class. 

Economic & Investment Outlook 

Economic Outlook  

Australia's economy is expected to grow 2.0% in 2025, 
with scope for three interest rate cuts in 2025. Immigration of 440k is likely to be a key contributor to economic growth. 

New Zealand’s economy is expected to grow 1.0% 
and inflation recede to 3.5%. Tourism related services are a welcome boost to consumption pressure. 

Investment Outlook 

We forecast +15% growth in investment volumes in 2025. Investors have indicated net buying intention and assets such as Office are trading at 30% below replacement value. The yield tightening cycle should commence in 2025. The majority of lenders that we survey have also indicated a willingness to grow their commercial real estate exposures. 
A stylized illustration of a modern office building with large windows and a red-brick facade.

Office

“While the upcoming Federal election may introduce some uncertainty in leasing activity, certain sectors are expected to return to a growth phase in 2025.”

Tom Broderick
Head of Office and Capital Markets Research

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For Grade A Office economic rents are 20%-35% above market rents. Vacancy should tighten as we pull back supply forecast to just 0.7% pa to 2028. For 2025, this should allow all markets to see net effective rent growth with Sydney CBD Core and Brisbane outperforming. 

Key Takeaways

  1. CBRE estimate office yields will tighten by about 100 bps from now until 2030, led by Sydney’s Core precinct.
  2. For Grade A economic rents are 20%-35% above market rents, supportive of buy vs build.
  3. For 2025, all markets are likely to see net effective  rent growth. Sydney CBD Core and Brisbane should outperform posting high single digit net effective rent growth
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Industrial & Logistics

“A ‘flight to quality’ trend, like the office market, is evident, with continued demand for good quality assets in core locations, as well as for infill/last-mile locations.”

Sass Jalili
Head of Industrial and Logistics Research

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Demand for high-quality assets in core locations will remain strong. Rental trends are anticipated to vary, with some precincts experiencing limited growth while others witness further increases driven by persistently low vacancy rates. In select markets, occupiers are leveraging rising incentives and favourable conditions to secure improved lease terms, driving increased leasing activity this year. 

Key Takeaways

  1. Logistics Super Prime yields will tighten by about 100 bps from early 2025 until late 2027.
  2. We forecast net face rent growth in 2025 to equate to c. 4.0% across Australia, with select precincts outperforming. 
  3. We expect to see more strategic partnerships to secure increasingly large sites required by Data Centre operators.
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Retail

“Retail sales have grown by over 50% during the past decade. Coupled with challenges in bringing on new supply, we’re constructive on rent growth outlook.”

Kate Bailey
Head of Retail Research

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Low occupancy cost ratio, sub 5% vacancy rates, lack of new supply, resilient retail sales and modest growth in online spend point to continuing positive re-leasing spreads. Transaction markets are supportive with scope for slight cap rate tightening.

Key Takeaways

  1. National shopping centre yields will tighten by an average of 60 bps from early 2025 until late 2027.
  2. 75% of supply over next three years is Large Format Retail and Neighbourhood Centres in population growth corridors. 
  3. Rents for shopping centres are forecast to grow at low single-digit rates through 2025, with Perth and Sydney outperforming.
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Living

“The potential unwind of restrictive interest rates could finally unlock capital value growth in 2025 and supply later this decade.”

Craig Godber
Head of Residential Research

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Capital city vacancy should continue to drift lower as apartment supply hovers at trough level of 50,000pa. We see rents moving higher, by +25% over the next five years. The current 20%-30% premium for new builds vs older vintage is likely to further support price growth. 

Key Takeaways

  1. CBRE forecast that capital city vacancy will fall to 1.2% by 2029 from 1.9% in 2024.  
  2. CBRE estimate that the significant pool of unmet demand for PBSA is likely to persist. 
  3. Retirement living units (ILU) are trading at an attractive 30%-50% discount to homes in close proximity, driving on-going demand for these facilities. 

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Research Contacts

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