Kathryn House
Hello and welcome to Talking Property with CBRE. I'm Kathryn House, your podcast host, and for our final 2025 episode, we're going to be discussing Australia's capital markets landscape. How did 2025 play out, what trends have emerged, what's driving investor decision making and what's the outlook for 2026?
Flint Davidson
I think it's probably going to be reasonably steady as she goes, to be honest. I do expect to see some increased volumes across most of the sectors, with the exception of perhaps retail, which just had a bumper year this year and I think is probably further along the recovery cycle than other sectors.
Kathryn House
That's Flint Davidson, CBRE's Pacific Head of Capital Markets.
Andrew McCasker
We've seen a very good response in relation to the willingness of the lenders to participate even greater into the market than what we've seen previously. We didn't see much of a change in preferred asset class, so industrial still leads the way and is the darling of the assets that we see at the moment, but quickly followed up by build to sell and then retail and office.
Kathryn House
And that's CBRE's Pacific Head of Debt & Structured Finance, Andrew McCasker.
Tom Broderick
While total volumes in Australia were down this year, it was pleasing to see that offshore investment was actually up by 12% year on year. it accounted for about $9.3 billion worth of transactions in Australia. And I think it proves that Australia is a key destination for capital within the APAC region.
Kathryn House
To round us out, that's our statsman, Tom Broderick, CBRE's Australian Head of Capital Markets Research. I hope you enjoy our conversation.
Kathryn House
Flint, welcome to Talking Property. I don't think I've had you on the show before.
Flint Davidson
Hi, Kathryn, great to be here. Thanks for finally having me on.
Kathryn House
And Andrew, you've been a regular guest, so great to have you back.
Andrew McCasker
Always appreciate the opportunity to have a chat Kathryn.
Kathryn House
And to round us out. Tom, you've also been on the show a few times. It's fantastic to have you on to interpret all the latest capital markets data.
Tom Broderick
Hi, Kathryn, good to be back.
Kathryn House
So, Tom, can I start with you? I know you've just crunched the preliminary transaction numbers on Australian property deals for 2025. Can you give us a quick snapshot and talk us through the main trends that you've identified?
Tom Broderick
Yeah, sure. So I think at the start of the year we were pretty optimistic, with interest rates trending down, that 25 had kind of outperformed 24 from a volumes perspective. It hasn't quite panned out that way. For the five main sectors that we track - office, retail, industrial & logistics, hotels and living - total volumes were down about 10% in 2025 compared to 24 to $32.7 billion. Now, there is two weeks to go in the year, so we could see a few more deals sneak in, but I'd still probably expect that volumes will be down this year compared to last year. I think the major bright spot this year, and this has been a trend for a couple of years, has been retail. It's up 13% year-on-year to $10.6 billion in 2025, which is the highest of any sector and actually the highest volume for the retail sector since 2021. Industrial & Logistics was second at $9 billion, down about 6% year-on-year, and office was in third at $8.9 billion, about 17% down from last year. Interestingly, the living sector was down about 37% this year, albeit that some of the living deals have been quite chunky in the past few years. And so it is kind of reliant on some of those larger transactions. And it's a bit more volatile.
Kathryn House
So lagging a little bit at this stage. Flint, we often have that sprint to the finish line. Do you think that we're going to see that this year?
Flint Davidson
Yeah, Kathryn, it's definitely a sprint to the finish, as it always is at this time of year. So no surprises there. And look, those numbers are not a huge surprise to us on the ground either. Just lagging a little bit. As far as office goes in particular, that's probably the one that looks like it's lagged a lot this year. And even though there's an office recovery on, it's not a huge surprise because I think in New South Wales, or Sydney in particular, where predominantly you would normally see a significant amount of the scale traded, Sydney's been pretty quiet this year, and the reason for that is I think people are seeing the upswing come through. There's potential for really strong rental growth and upside. So a lot of the sellers in Sydney, in particular, have probably been reluctant to sell and probably looking to hold on a little while in the next year or the year after once some of this rental growth comes through. So no major surprises in what we've seen. Having said that, there are some pretty significant trades that should come through before the end of the year across all sectors, particularly in retail and office. There is a chance, though, that given there is only a couple of weeks left to run, that those trades will drift into next year and that'll provide a pretty healthy start to the New Year in 26.
Kathryn House
So, Andrew, it'd be great to get some of your perspectives as well. You recently did your twice yearly Lender Intentions survey and it looks like lenders have a pretty positive outlook. Something like 50% of the respondents want to expand their loan books. Can you give us a helicopter view of some of the high level survey findings?
Andrew McCasker
Sure, Kathryn. Look, it was interesting again this year to reconnect with all of the lenders that participate in this survey. And as you said, we've seen a very good response in relation to the willingness of the lenders to participate even greater into the market than what we've seen previously. We didn't see much of a change in preferred asset class, so industrial still leads the way and is the darling of the assets that we see at the moment, but quickly followed up by build to sell and then retail and office. It would have been interesting to wait an extra month before we went to the survey just to get the latest RBA announcement, post the interest rates and the inflation figures and see what the impact that may have had on some of the lenders. I think the other call out too, Kathryn, is just the compression that we're seeing in the risk margin across all lenders, both domestic and offshore, and that's primarily been driven by competition in the marketplace.
Kathryn House
So, Andrew, yes, interesting that you bring up the RBA and I really want to have a chat about that with all of you. But there was one other thing I wanted to talk about when it comes to some of those results from the intention survey and something that really stood out to me was the piece about data centres and that the lender interest in that sector is waning. When we seem to see data centres in the media every day, what do you put that down to?
Andrew McCasker
Yeah, look, that's a good pickup, Kathryn, and I think there's two things. The depth of market, so there's just not a large amount of transactions in the debt space happening in data centres. So we've seen the transactions happen with the large portfolios and once they've been done, the depth of the market's just not there. So I think lenders are looking at the asset class and going, look, we'd love to do it, but we know it's not there. So let's focus on something else.
Kathryn House
And on that interest rate front, there does seem to be that much more bearish outlook on rate cuts now. In tandem, Australia's 10-year bond yield recently hit 4.7%, which is close to that 10-year high. How much is this going to have an impact on capital flows next year. Flint, what are your thoughts?
Flint Davidson
Well, we've been in this elevated environment for a little while now, Kathryn, so I'm hoping that it won't have a major impact because it certainly hasn't impacted things over the last couple of months when we've seen, you know, certainly a lot more depth of capital participating in the market. So I think we've got to also remember that, you know, when we look at Australia in isolation, there's really good support for Australian real estate off the back of really solid fundamentals, including superior rental growth. I think you've also got to remember Australia is one of the few markets regionally that's had a meaningful rebase of pricing. So investors still see a lot of value and some really good returns in this market. I think if pricing does drift on the 10-year by much further, that could potentially pose some risk in the market. But as it stands today, we're still seeing really strong interest in the market.
Kathryn House
Do you think it means that rent growth will need to do more of the heavy lifting when it comes to valuations?
Flint Davidson
Yeah, there's no doubt that there is going to be some focus on terminal values and how quickly cap rate compression is going to start playing into the market. So there has been a real laser focus on rent growth and performance and for the most part, most of the sectors have actually stood up quite well in that regard. So, yeah, I think there will be, but I also think that the outlook is very strong from a rental growth perspective.
Kathryn House
One other thing I'd be interested to chat to you about is, and maybe this is for you, Andrew, the role that high construction costs are going to play in the capital markets space. It was something that really stood out in the lender intention survey as the biggest concern for lenders at the moment and that flow through to development feasibilities. What's your view on that construction cost front?
Andrew McCasker
Look, Kathryn, it's going to be hard to go back to the cost of construction that we've experienced a number of years ago and it's mainly due to obviously the cost of labour and raw materials. We've definitely seen the cost of raw materials stabilise, but the cost of labour continues to be something that builders and developers are finding difficult to manage and that's obviously going into the total cost of production as stock is being delivered. And I think the other part too is just the demand. We're seeing insatiable demand across a number of markets in that construction industry, from everything from government work through to private work and all that demand there, as Tom can attest to the old supply demand curve in economics. If demand's up, supply's got to come from somewhere.
Kathryn House
And that by extension, though, could have some real tailwinds for existing assetss? What do you think, Flint?
Flint Davidson
Yeah, I think we're actually going to see this whole thought process and discussion around supply start to really pinch next year and the year after, for that matter. I think there's going to be a lot of commentary about what it actually means for a number of different markets and different sectors. But I think if you think about where the demand that Andrew talks about from occupiers and the capital markets, the demand is there for the newest and best, and that's where the outperformance sits. And so that's naturally where the capital wants to invest. And there just isn't going to be this new product across really any of the sectors to satisfy that capital demand. So I think we're going to see a situation where anything that's still modern and presenting well is going to perform above expectation because of the lack of new product.
Kathryn House
Tom, how much do you think that lack of new supply has particularly propelled the retail sector?
Tom Broderick
Yeah, I mean, I think across the board, across all sectors. I mean, we track future supply and our outlook has dropped in all sectors. And retail's one of the key ones where we've seen a pretty big drop. And I think it's a pretty easy kind of equation here. We've got continued population growth into Australia, not a lot of new retail stock coming to market, which means that rents have to grow. So to Flint's point about outsized rental growth in the future, I think a lot of investors are kind of baking that into their assumptions when they're looking at investing in asset classes like retail.
Kathryn House
So if we flip back to what we're seeing in terms of offshore buyer activity versus onshore, there was that pickup this year in offshore buyer activity, and a lot of the headlines have been around Japanese capital, but the US were the number one buyer group this year. So what do you think's been driving that Tom?
Tom Broderick
Yeah, so I think while total volumes in Australia were down this year, it was pleasing to see that offshore investment was actually up by 12% year-on-year. It accounted for about $9.3 billion worth of transactions in Australia. And I think it proves that Australia is a key destination for capital within the APAC region. As you mentioned, the US was once again number one, attributed $2.9 billion worth of investment. Japan second at $2.3 billion. And then Singapore has been probably one of the more traditional kind of source markets that was in third at $1.6 billion. I think in terms of, when you look at sectors, office and industrial & logistics were still the preferred sectors for offshore groups. They both saw about an equal piece of the pie, $3.3 billion each from offshore investment.
Andrew McCasker
Tom, if you pick up, you've mentioned US and Singapore, is the currency playing much into their decision in the Australian market, given the benefit they've got bringing foreign currency into Australia?
Tom Broderick
Yeah, I mean, the Aussie dollar is pretty low at the moment and it remains low. So I think that is definitely one of the considerations. But I think if you are raising capital for an Asia Pacific fund, Australia remains at kind of the top of the list, along with Japan, as a market to deploy that capital. And I think we've seen that again this year.
Flint Davidson
Yeah, it's definitely evident on the ground whereby we're seeing genuine depth start to build out in those groups from offshore that are starting to look seriously at the Australian real estate market. And that's coming across a range of different sectors, not just one, but profitable sectors, really. So, you know, what's changed in the last 12 months is that where we've had a foreign buyer come in and be successful, you know, we've often got another foreign buyer who's missed out, and so they're moving on to other opportunities as well. So, to me, that's a really healthy sign that there's depth back in the market. We're predominantly seeing that in Sydney rather than other parts of the country. But I expect in 2026, we're going to start to see that foreign capital move out beyond Sydney and be really active in other markets as well.
Andrew McCasker
I was just going to add to that when Flint was mentioning about the foreign buyers. The other benefit that brings to the Australian market is that the foreign banks are very keen to follow their key clients into markets. And again, we've seen that happen into the Australian market as the offshore banks increase their appetite into Australia and New Zealand around various asset classes.
Kathryn House
Are we seeing those foreign groups looking more to partner with Australian investors, Flint?
Flint Davidson
Generally speaking, yes, Kathryn, but there's plenty of foreign groups who are happy to come into Australia for the first time and make an acquisition direct into the market without using the support of a local investment manager or a JV partner. But equally, there is a significant number of groups who are really active, looking to partner up with some of the domestic players, particularly in the development space. That's probably a big area where we'll continue to see that Japanese money move into the market in Australia alongside well credentialed Australian development groups, and bringing new product online, whether it's office, logistics or in the living sector.
Kathryn House
Yes, so those Japanese buyers do seem to be particularly interested in the living sector because they're very familiar with that asset class at home.
Flint Davidson
Yeah, entirely. Look at the amount of money that's gone into that sector this year. I suspect that'll be a very small number compared to what will play out over the course of the next couple of years in the living sector.
Kathryn House
And Andrew, are you seeing much appetite for, say, lenders to move a little more up the risk curve?
Andrew McCasker
Yeah, absolutely, Kathryn. Interestingly, the domestic banks are very focused on that and we see it as a couple of factors. One is driving market share. The domestic banks have probably been quieter than they had wanted to be throughout the last couple of years and they're all actively trying to claw back some market share not only from each other or offshore banks, but also private lenders. And because of that they're pushing that leverage up, reducing the number of pre-sales that they'll need for build to sell product and then correspondingly reducing the price associated with the facilities that they're offering out to the borrowers. So I've been saying for the last 12 months it's definitely a borrower's market and we're seeing that continue at the moment.
Kathryn House
So if we're looking at what's likely to play out in that Australian capital markets space next year. Flint, have you got any sort of key predictions? Are we going to see more deal activity in 2026?
Flint Davidson
Kathryn, I think it's probably going to be reasonably steady as she goes, to be honest. I do expect to see some increased volumes across sort of most of the sectors, with the exception of perhaps retail, which just had a bumper year this year and I think is probably further along the recovery cycle than other sectors. And I think we'll definitely see some more scalable trades which alone is going to drive those volumes. So scale will be well and truly back in 2026 and we've seen that this year in the retail sector. But I think to your point earlier, it's probably going to come in the form of some more structured transactions like JVs, recaps and perhaps even some M&A. I think, otherwise, we're probably going to see foreign capital continue to play a pretty major part in the market across all the sectors and going into those locations like Brisbane, Perth, Adelaide, Canberra, where perhaps they haven't been as prevalent. And I think the other thing we need to watch out for next year, we haven't talked a lot about domestic capital, but the domestics have actually been really active this year, particularly some of those big syndication groups who have been able to raise a phenomenal amount of equity. So it's likely that that will continue next year. Some of the wholesale funds and some of the other local groups have managed to raise money for the first time for a long time for areas like neighbourhood retail. And so don't discount the domestic groups in 2026 in terms of their ability and capacity to raise money and to be quite formidable.
Kathryn House
It's a good point you raise because we are seeing a lot more private wealth coming into the market and a lot of that showing a real interest in alternative assets. Are you seeing that we're going to perhaps see a lot more private wealth activity in the market?
Flint Davidson
Yeah, absolutely. I mean, we're seeing, If you have a look at what the syndicators have done this year through their retail channels and the amount of equity that they've been able to raise, in some cases it's hundreds and hundreds of millions of dollars worth of raisings through retail channels and wholesale channels as well. It just shows that there is a lot of money out there and I suspect that they're going to continue to tap into that and it will be really active again next year.
Kathryn House
And probably one other question I had, more on that alternative side of things. We've just seen, you know, a really big deal that's playing out in Australia for National Storage. So a $4 billion deal to take out a big self storage operator. Do you see that alternatives interest continuing in 2026?
Flint Davidson
Yeah, I think there is going to be continued support for a lot of those sectors. We call them alternatives, but a lot of those sectors that are still scaling up in Australia. So they're going to require a lot of support from a development perspective to allow them to build out scale and that's areas like build to rent, you know, data centres. All of these sectors are going to need a lot of money to continue to play out and develop. So I suspect that we will see continued support for those areas.
Kathryn House
So probably a last question to round us out, and I've posed this to at least two of you in the past. But if you had a lazy $200 million looking for a home, where would you park the cash and why? Andrew?
Andrew McCasker
Look, Kathryn, I would split the investment into 50, 50. And I know that's not part of the question, but that's the way we're going to do it. I'd put half into neighbourhood retail because I still think that's very robust and proven a good investment over the last five years. And just to go a little bit left field and more off the back of the cost of housing that we're seeing in Australia at the moment, is Land Lease communities, which is providing people the opportunity to get into housing but at a fraction of the cost, having to buy land and houses at the same time.
Kathryn House
What about you, Tom?
Tom Broderick
I think I'd have to go with retail, Kathryn. I think the rental growth over the last 10 years has been relatively negligible in that sector and so at some point it's got to pop because there's not the supply coming through. So I think that's probably my favourite sector at the moment.
Kathryn House
And Flint, where would you put a lazy $200 million?
Flint Davidson
Oh, Kathryn, look, I could probably give you a really boring answer like core, A-grade office in Sydney, you know, ready to take advantage of refurbishment and a massive run on rents, but that's pretty boring. It's been a really long year for most of us. I think we've almost survived 25. So I'm just going to give my money to Michael Simpson and tell him to go and buy me a private island so I can disappear for a month.
Kathryn House
Oh, I'd love that. Can I come and visit?
Flint Davidson
Yeah, you're all welcome.
Kathryn House
Well, thank you, Flint. It was great for you to make your debut on Talking Property.
Flint Davidson
Thanks, Kathryn. I can't believe it's taken so long.
Kathryn House
I know I'm getting you back very soon next year. And Andrew, thank you for joining us once again.
Andrew McCasker
My pleasure, Kathryn, always happy to be involved.
Kathryn House
And Tom, it will be interesting to see if we do see a run to the end of the year, so I look forward to seeing your final Capital Flows report.
Tom Broderick
Cheers, Kathryn. See everyone on Flint's island.
Kathryn House
So to our listeners, thank you for all your support in 2025. I hope you've enjoyed this year's episode line-up and I'd love to hear from you at any time via
[email protected]. If you don't already subscribe, make sure to follow Talking Property wherever you get your podcasts. That way you won't miss our two-part Property Prediction series in January featuring Mirvac, Aware Super, Brookfield and Centuria Capital. Until next time.
