Understanding the Commercial Real Estate Landscape in 2025

The commercial real estate sector is undergoing transformation, shaped by economic shifts, evolving tenant expectations, the increasing importance of technology and more. To gain a clearer picture of market trends, investment priorities, and operational challenges, this report presents key findings from a survey of commercial property owners, managers, and investors across Australia.

This survey represents a diverse cross-section of the AU CRE industry, capturing insights from seasoned professionals with extensive portfolios to newer investors entering the market. The findings shed light on market confidence, investment strategies, lease trends, and the adoption of technology and sustainability initiatives in 2025.

Sentiment toward the Australian commercial real estate market in 2025 is generally positive, with 57% of investors expressing optimism. While 29% remain neutral, reflecting a degree of caution, 11% expressed concerns about the market's outlook, highlighting some lingering uncertainty.

Long-term confidence is similarly strong, with 92% of respondents indicating some level of confidence, ranging from moderate to extremely positive. This suggests that despite current market uncertainties, most investors remain confident in the sector's long-term stability and growth potential.

Key Opportunities in the Australian Real Estate Market in 2025

The Australian commercial real estate market in 2025 presents a diverse range of opportunities across key sectors. Industrial and logistics growth remains robust with developments in warehousing and specialised sectors like data centres driving expansion. Asset redevelopment and refurbishment offer strong value-add strategies as owners upgrade existing properties to better meet tenant needs. Infrastructure projects and government-backed initiatives continue to stimulate growth, particularly in regions undergoing significant capital investment.

Additionally, the evolving office market marked by a shift back to in-person work opens new avenues for adaptive workspace solutions. These trends highlight a dynamic market shaped by interest rate cuts, technological innovation, policy support, and changing work patterns.

Industrial & Logistics Growth

• Key Opportunities: Industrial developments and warehousing, including large commercial warehouses, are seen as significant opportunities amid evolving energy and EV trends. However, high construction costs and high land prices in some cities make it difficult to achieve a satisfactory return.
• Specialised Sectors: Investments in data centres and niche industrial sectors like cold storage are highlighted for their strong growth potential.

Asset Redevelopment & Refurbishments

• Value-Add Strategy: Refurbishments and redeveloping B-grade assets to enhance tenant experience emerge as robust value-add approaches.
• Cost-Effective Upgrades: Upgrading existing properties — for example, converting spaces for childcare or enhanced office environments — is viewed as a low-cost, high-return opportunity.

Infrastructure & Government-Driven Projects

• Growth Catalysts: Infrastructure investments and new projects, such as developments around a new airport, signal significant growth areas.
• Essential Support: Government backing is considered crucial to stimulate market expansion and drive job creation.

Office Market & Changing Work Patterns

• Return-to-Office Dynamics: The shift toward a return-to-office culture creates opportunities to reconfigure office spaces for modern, flexible work models.
• Smart Office Integration: High-end office spaces with integrated environmental and smart technology features are gaining traction.
• Adaptive Solutions: Enhanced tenant engagement and adaptive workspace solutions are critical as companies transition from remote to in-office environments.

Technology & Data in CRE

• Data Infrastructure Expansion: Specialised industrial properties, particularly data centres, are highlighted as key opportunities.
• Enhanced Digital Engagement: Leveraging digital platforms to improve tenant communication and operational efficiency is increasingly important.
  
  

Due to the rise in artificial intelligence, data centres are experiencing critical supply shortages in many markets around the world, with extremely high demand exceeding robust supply growth. JLL’s report notes that completions in 2025 are forecast to be above their 2021-24 peak, with growth in markets in the US, Europe, the Middle East and Asia Pacific.

“And yet shortages will still exist,” it says. “Such is the growing demand for data centres, boosted by AI requirements, that even this increase in supply will be only a fraction of what the market needs.”

National logistics and industrial leasing demand is anticipated to strengthen further, driven by an uptick in economic growth and further improvements in consumer spending.

Global occupier trends to watch in 2025, JLL

Key Challenges

When assessing the challenges landlords face in 2025, increased operating costs and interest rates emerge as the predominant issues, representing 32% and 30% of all mentions, respectively. Operating costs have been driven higher by rising energy prices, labour expenses, and ongoing supply chain disruptions, placing significant pressure on landlords as they grapple with day-to-day expense management even as overall inflation shows signs of easing. 

This comes at a time when Australian consumer confidence recently jumped to its highest level since May 2022 following the Reserve Bank of Australia’s decision to cut the cash rate to 4.1% in February 2025 — the first rate cut in over four years — which has provided some relief to borrowers. Despite these favourable moves, interest rates remain a major challenge, as reflected by nearly one-third of responses, with the RBA remaining cautious about further easing due to persistent inflation risks from a strong labour market. Regulatory changes are also a concern (15%), while tenant retention (10%) and vacancy rates (9%) pose moderate challenges. Tax and insurance costs, along with construction costs, are less frequently mentioned at 3% and 1%, respectively. This breakdown highlights the concentrated pressures in the market and provides key insights for stakeholders planning their strategies moving forward.

Top Asset Classes for Growth & Stability in 2025

This section focuses on the asset classes landlords and investors currently see as offering the best opportunities for growth or stability in their portfolio. As we move into 2025, the commercial real estate landscape in Australia is shaped by industrial and logistics demand, evolving office space requirements, shifts in retail dynamics, and increasing interest in alternative investments.

Industrial Warehousing & Logistics – A Dual Engine of Growth and Stability

Industrial real estate remains the dominant asset class for growth and stability, with strong demand for warehousing, logistics hubs, and storage facilities, driven by land-constrained markets and robust occupier demand. 

Landlords also cite that smaller industrial units, storage facilities, and business parks continue to see strong demand, and precincts with low vacancy and stable supply remain resilient. Some investors highlighted rising costs are limiting new developments, so strategic investment in existing industrial assets is crucial. Interest areas include:

• Warehouses and logistics hubs to support distribution and supply chain efficiency.
• Storage facilities and small industrial units catering to SMEs and urban commercial operations.
• Business parks and specialised industrial assets, such as data centres and cold storage, are gaining traction — particularly in high-growth regions like Southeast Queensland — driven by digital transformation, supply chain evolution, and evolving consumer habits.

JLL's The Australian Economy and Commercial Real Estate Sector Report states that the "national quarterly gross take-up increased each consecutive quarter over 2024 to reach 897,700 sqm in Q4 2024. This was a 3.0% quarter-on-quarter increase, with Q4 2024 demand 18.1% above the 10-year quarterly average. This uptick was driven by an increase in occupier demand for ‘large-box’ facilities. Warehouses below 10,000 sqm continued to account for the majority of occupier moves, with 48 of the 79 major occupier moves recorded in this size cohort."

Investor focus remains on high-demand, low-vacancy precincts where rental growth is resilient. With land and construction costs rising, acquiring and modernising existing industrial assets has become a priority to attract tenants and sustain returns.

As digitisation accelerates, demand for digital-ready facilities like data centres and edge hubs is rising, complementing traditional logistics spaces. A strategic, integrated approach strengthens market resilience and positions industrial assets for growth.

Core Market Trends Causing Impacts on Tenant Demand

Success in 2025 will require agile leasing strategies. While the majority of tenant demand shifts are driven by economic conditions, there is also a meaningful impact from evolving work practices and sustainability considerations. Landlords may need to focus on flexible leasing strategies and energy-efficient upgrades to meet tenant expectations.

Factors Most Influencing Investment Decisions for 2025

Investors are weighing multiple factors when making decisions for 2025. The primary drivers include:

Market Trends: Landlords and investors are closely watching broader market signals. In today’s economic climate, promising opportunities exist across asset classes — from technology equities benefiting from digital transformation to alternative investments in real estate and infrastructure. Recent macro developments — such as Australia’s improved consumer confidence and the Reserve Bank’s rate cut — signal a supportive environment for growth and help shape overall market sentiment.

Regulatory Changes: Investors are closely watching Australia's stricter sustainability standards and enhanced energy efficiency requirements for commercial buildings. Updates to the National Construction Code (NCC) and initiatives like the Trajectory for Low Energy Buildings aim for zero-energy, carbon-ready buildings, with changes coming in 2025. This is driving investors to reassess asset quality and compliance, potentially requiring capital upgrades while creating opportunities for properties already meeting these standards. Additionally, mandatory sustainability and climate reporting (ASRS) took effect on January 1, requiring the first group of applicable organisations to disclose their environmental impact. These mandatory climate-related disclosures aim to improve transparency and align with global reporting standards.

Tenant Demand: A strong focus on tenant demand is evident, as robust leasing performance remains a marker of long‑term stability. With rising costs and economic uncertainty prompting tenants to seek cost‑efficient solutions, flexible lease terms and quality tenant profiles have become essential. This is particularly true for asset classes where sustained occupancy drives cash flow.

Access to Capital: The current financing environment is influencing investment decisions. Lower interest rates have made capital more accessible, enabling investors to consider acquisitions or hold assets with a longer‑term view. This favourable credit environment supports investments in high‑quality assets even as economic uncertainties linger.

Business Outlook

Primary Portfolio Goals for 2025

35% aim to maximise revenue growth, making it the most common priority. Investors are focused on increasing rental yields, optimising lease structures, and ensuring long-term asset appreciation.

32% are prioritising operational efficiency, reflecting a strong emphasis on cost reduction and technology-driven property management to improve margins.

19% seek to expand their portfolios with selective acquisitions.

14% are focused on increasing tenant retention, highlighting the importance of stable occupancy, competitive leasing terms, and enhanced tenant relationships.

Technology in Commercial Real Estate

65% of landlords cite that operational efficiency is the key focus in 2025, with an aim to increase the property manager to tenancy management ratio, boosting margins and reducing costs. To achieve this, landlords should embrace cloud-based property management software where AI, automation and analytics are embedded to streamline operations.

Core Technology Tools in Property Management Strategies

• Property management software is the most critical tool (29%), streamlining key event tracking, tenant communication, maintenance, and property reporting. Modern platforms are aiding performance through AI & automation embedded throughout workflows, helping landlords automate tasks, reduce costs, and improve asset management.
• Accounting software (26%) plays a key role in financial management and oversight, particularly when integrated via two-way data syncs with property management software.
• Excel & spreadsheets remain common (21%), though they tend to lack scalability and integration.
• 10% utilise data analytics tools support market insights and rental optimisation, while additional tenant communication tools further enhance tenant engagement.

Sustainability Upgrades and ESG Initiatives 

Sustainability Upgrade Plans for 2025

Sustainability is not yet a priority for most, but regulatory changes and tenant expectations will require future adoption. Energy efficiency offers building owners and tenants a cost-effective way to lower energy bills, reduce operating costs and emissions, increase property value, and attract higher rental returns. To support this, the government is collaborating with state and territory bodies to promote energy-efficient upgrades, emissions reduction, and investment in better buildings and equipment. Early adopters of sustainability upgrades can gain a competitive edge through cost savings, asset value growth, and regulatory compliance. Investors should evaluate which upgrades offer the best ROI while preparing for future environmental regulations that may impact non-compliant properties.

• 61% do not plan sustainability upgrades in 2025, likely due to cost, regulatory uncertainty, or other investment priorities.
• 31% are making minor upgrades, focusing on energy efficiency, waste reduction, and water management.
• 8% are committing to significant upgrades, investing in green building initiatives, carbon reduction, and renewable energy adoption.

ESG Initiatives in 2025

• 28% cited investment in renewables like solar to cut energy costs and carbon footprints. 22% implement energy-efficient systems to improve sustainability, while 13% are focused on governance improvements, such as compliance, transparency, and risk management in property operations.
• 11% state waste reduction and recycling for compliance and impact reduction as a priority, and 8% adopt water conservation as part of ESG strategies.
• Few prioritise social sustainability, indicating it remains a lower focus.