Australia’s commercial property market has turned a crucial corner, with fresh data showing capital values rising again after two years of adjustment.
The latest PCA/MSCI figures for the quarter to December 2025 show all-property total returns hitting 7.4% nationally, underpinned by a return to positive capital growth of 2%.
Vanessa Rader (pictured), head of research at Ray White Group, said the results point to “capital growth returning across most sectors after two years of adjustment,” signalling a shift from the correction phase that defined 2023, 2024, and much of 2025.
The monetary policy setting remains a key swing factor for investors. The Reserve Bank cut the cash rate three times last year before reversing course as inflation flared again, driving borrowing costs higher in early 2026. CBA, Westpac, NAB, and ANZ now all tip one more cash rate rise in May, followed by a lengthy hold, indicating cap rates are likely to hold steady rather than see meaningful compression in the near term.
Retail is once again the standout performer. The sector posted total returns of 9.2%, fuelled by capital growth of 3% and income returns of 6%. Sub-regional centres led the pack with total returns of 10.9% and capital growth of 3.9%, while regional centres came in close behind at 10.5%.
Neighbourhood centres delivered 8.5% total returns and 2.7% capital growth, underscoring the resilience of convenience-based retail formats. Rader noted that the “consistency of performance across all retail subcategories indicates the sector's structural recovery is broad-based rather than concentrated in specific property types.”
Industrial property remains a core target for investors. The sector generated total returns of 8.6%, with capital growth strengthening to 4.1% and income returns of 4.3%. Distribution and warehouse assets both recorded returns above 8.4%, reinforcing the asset class’s reputation as a balanced total return play.
State-level results highlight where demand is strongest. Queensland industrial led the nation with total returns of 10.8% and capital growth of 5.7%, supported by population growth and logistics demand. New South Wales followed with 9.7% total returns and 5.6% capital growth, while Western Australia industrial delivered 10% total returns and 4.2% capital growth, helped by the resources sector and tight supply.
Office assets remain under structural pressure, but performance is increasingly divergent. Nationally, office total returns reached 5.9%, driven by income returns of 5.5%, while capital growth scraped into positive territory at 0.4%.
Premium CBD stock is now close to stabilising, with “premium CBD office has narrowed capital decline to just 0.4% with total returns of 6%.” Premium Sydney and Brisbane CBD assets both recorded strong double-digit or high single-digit total returns backed by solid capital growth, while Melbourne CBD lagged with negative capital growth amid high vacancy and incoming supply.
Rader said the latest results “mark the transition from yield adjustment to capital growth”, but warned that higher inflation and interest rate pressures in 2026 could temper urgency. For investors, she said, “quality and positioning matter more than ever” as capital growth concentrates in better-located, higher-grade assets.
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