At a glance:
- Commercial property prices are forecasted to rise in most Australian cities.
- Investors may face challenges due to rising construction costs and more.
- Tax and borrowing power changes will impact the commercial property investment landscape.
Australia’s commercial property market is entering a period of transformation, with several factors poised to influence investment outcomes in 2025. With rising interest rates, fluctuating population dynamics, and evolving supply-demand conditions, commercial property investors need to be vigilant in their strategies. Understanding key drivers—such as economic headwinds, migration trends, and construction challenges—can help investors determine where to allocate capital.
This article explores what commercial property investors should expect in 2025, covering projected growth, risks, and opportunities across Australia’s market.
The Outlook for Commercial Property Investment in 2025
As Australian cities continue to experience population growth, underpinned by migration, demand for commercial property remains strong. However, factors such as rising interest rates, high inflation, and affordability challenges in the residential market are expected to influence the commercial real estate sector in 2025. Constrained supply and high construction costs are expected to continue driving property price increases across most capital cities. For commercial property investors, these conditions offer both opportunities and challenges.
The forecast for commercial property investments shows that constrained supply, migration-driven demand, and increased infrastructure investments will continue supporting price growth, particularly in major cities like Sydney, Brisbane, and Perth. However, the pace of growth is expected to vary by location and property type. Investors should work closely with a commercial real estate agent to identify prime opportunities while managing risks associated with higher borrowing costs and potential economic slowdowns.
Key Drivers of Commercial Property Growth
Several core factors will drive commercial property investment trends in 2025:
Population Growth and Migration
Australia’s strong migration program continues to fuel demand for both residential and commercial properties. As the population grows, businesses and services must expand, which drives demand for office spaces, retail, and industrial properties. The commercial real estate market in cities like Sydney and Brisbane is likely to see increased demand for prime office locations. This is driven by a rise in single-person households and changing business needs. Investors should focus on regions experiencing significant population influx, as these areas may offer the greatest growth potential.
Limited Supply and Construction Challenges
A shortage of new construction is expected to be a dominant force behind commercial property price increases. The scarcity of land, combined with slow approvals for new developments, has constrained supply across many markets. Furthermore, high construction costs, driven by labour shortages and expensive materials, continue to affect the commercial property sector. In cities like Perth and Adelaide, where supply is particularly tight, commercial property investors can expect a highly competitive market, with price gains outpacing other regions.
Infrastructure Investments
Government infrastructure projects, such as transportation and energy improvements, will also impact commercial property investments. Areas benefiting from new infrastructure projects often experience an increase in commercial real estate value due to improved accessibility and business activity. Investors should be mindful of where these infrastructure developments are planned or underway, as they present opportunities for capital appreciation in the medium to long term.
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Price Forecasts: Commercial Property Trends by City
Sydney: Sydney’s commercial property market is set to benefit from both population growth and constrained supply. By the end of FY25, Sydney property prices are expected to reach new highs. In particular, the city’s prime office spaces and retail locations are forecasted to experience strong demand, with prices rising between 6% and 8%. Commercial property investors in Sydney may find that high demand for office and retail space in the Central Business District (CBD) makes it a key area to target, though the city’s high prices may challenge affordability for some investors.
Brisbane: Brisbane’s commercial real estate market is expected to be one of the top performers in Australia. House prices are forecasted to grow between 6% and 8%, with commercial properties following a similar trajectory. The city’s population growth, supported by strong migration, is likely to drive demand for office and industrial properties. Brisbane’s relatively affordable commercial properties compared to Sydney and Melbourne make it an attractive investment destination. Commercial real estate agents can help investors identify opportunities in key growth areas such as South Brisbane and Fortitude Valley.
Perth: Perth is forecast to experience the strongest house price growth among Australian capital cities, and commercial property values are expected to follow suit. House prices in Perth are expected to rise between 8% and 10%, driven by a limited supply of new developments and strong economic fundamentals, including the mining sector. Commercial property investors should focus on industrial and logistics properties in Perth, which are expected to benefit from high demand due to the city’s role in supporting Australia’s resources industry.
Melbourne: In contrast to other major cities, Melbourne’s commercial property market is forecast to experience slower growth, with house prices expected to increase by 0% to 2% and unit prices by 2% to 4%. The city’s commercial property sector may face challenges due to weaker demographic shifts and better supply compared to Sydney and Brisbane. However, Melbourne’s lower prices relative to other capital cities may present opportunities for investors seeking more affordable options. Investors should consult with a commercial real estate agent to navigate the market effectively and capitalize on areas with potential for future growth.
Adelaide: Adelaide’s commercial property market is set to experience moderate growth, with house prices forecasted to rise between 7% and 9% by the end of FY25. While affordability challenges may limit rapid price increases, Adelaide’s growing population and constrained supply will continue to support the commercial real estate market. Investors should focus on suburban office spaces and industrial properties, which are expected to see steady demand from businesses and service providers.
Risks to Commercial Property Investors
Despite the optimistic growth outlook, several risks could impact the commercial property investment landscape in 2025.
Rising Interest Rates
High interest rates continue to be a significant headwind for commercial property investors. With the Reserve Bank of Australia maintaining higher rates to combat inflation, borrowing costs have increased, making it more expensive for investors to finance new acquisitions. This could lead to a slowdown in demand, particularly for smaller investors with limited capital. However, a potential interest rate cut in mid-FY25 could provide a reprieve for investors, restoring borrowing power and boosting demand for commercial properties.
Affordability Challenges and Income Stagnation
Affordability remains a concern for many investors, particularly as wage growth lags behind the rising cost of living. Stagnant incomes could further dampen demand for commercial properties in certain areas, particularly those with already high prices. As a result, investors may need to look toward more affordable regional areas or secondary cities to find opportunities with better yield potential. Consulting with a commercial real estate agent can help investors navigate these challenges by identifying properties that offer strong cash flow and long-term value.
Rising Unemployment and Economic Slowdowns
Australia’s unemployment rate is expected to rise to 4.5% in FY25, with further job losses anticipated. A softening labour market could reduce demand for office spaces and retail properties, as businesses tighten their budgets and delay expansion plans. This could also result in an increase in distressed sales and vacancies, creating downward pressure on prices in some sectors of the commercial property market. Investors should be cautious and assess the economic conditions in their target markets to ensure they are making sound investment decisions.
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Opportunities for Commercial Property Investors
Despite the risks, there are several opportunities for commercial property investors in 2025.
Tax and Borrowing Power Incentives
Australia’s Stage 3 tax cuts, effective July 2024, will leave households with more disposable income, potentially increasing borrowing power. For commercial property investors, this may translate into higher demand for office spaces, retail outlets, and warehouses as businesses expand. Additionally, the expected interest rate cut in mid-FY25 could reduce financing costs, making it easier for investors to enter the market or expand their portfolios.
Regional Areas and Secondary Cities
While capital cities like Sydney and Brisbane are expected to lead price gains, regional areas and secondary cities may offer better value for commercial property investors. The affordability of commercial properties in areas like the Sunshine Coast and Gold Coast makes them attractive options for investors seeking higher yields. Regional areas near major cities are also expected to benefit from population spillover as people priced out of metropolitan areas seek more affordable housing and business opportunities.
Technology and Flexible Workspaces
The rise of remote work and digital transformation continues to reshape the commercial property sector. Investors should consider flexible workspaces and co-working office models, which are expected to remain popular with businesses seeking more adaptable lease options. Additionally, the growing e-commerce sector will drive demand for logistics and industrial properties, presenting opportunities for investors in warehousing and distribution hubs.
Final Thoughts: Commercial Property Investment Strategies for 2025
The Australian commercial property market in 2025 is likely to present a mixed bag of opportunities and challenges. While population growth, infrastructure development, and limited supply are expected to drive property prices higher, investors must be mindful of risks such as rising interest rates, unemployment, and affordability pressures. By working closely with a knowledgeable commercial real estate agent, investors can navigate these challenges and identify the best opportunities for long-term growth and stability.
Ultimately, investors who adopt a flexible and informed strategy, focusing on high-demand sectors like logistics, industrial, and flexible office spaces, are likely to see the most success. Whether investing in capital cities or exploring opportunities in regional areas, staying attuned to market trends and macroeconomic conditions will be key to maximising returns in 2025.