Knight Frank has released its Australian Horizon 2025 report, detailing seven key predictions for the commercial property market in the coming year.
The report, authored by Chief Economist Ben Burston, provides a comprehensive outlook on investment opportunities and market dynamics across the office, industrial, retail, and Build-to-Rent (BTR) sectors.
“The Horizon report sets out our views on Australian real estate for the year ahead,” said Mr Burston. “Our central thesis is that core assets in the Australian market now represent good value for investors, with strong prospects for cyclical recovery starting in 2025 and long-term growth.”
Top predictions for 2025
1. Australian property poised for recovery The commercial property market is set to turn the corner, with core assets leading the recovery.
“Investors acquiring assets now, after values have adjusted down but not yet commenced the recovery, will be well-placed to see strong returns in years to come,” said Mr Burston. Sydney’s core industrial and CBD office assets are predicted to lead this growth.
2. Interest rates to shape the market The strength of the market rebound hinges on how the Reserve Bank of Australia adjusts its interest rate policy.
“Investors will need to be tuned into the evolving debate on neutral rates and ensure their strategy is resilient to multiple scenarios for the level of long-term interest rates,” he said.
3. Investors ready to strike After years of uncertainty, investors are expected to return to the market with revised strategies.
“This will drive broader interest and higher liquidity across all asset classes in 2025,” Mr Burston noted. The office market, living sectors, and retail are all set to benefit as investors re-engage.
4. High office vacancy While vacancy rates remain elevated, new office developments are slowing.
“The slowdown in commencements is now clearly impacting the pipeline, particularly in Sydney and Brisbane.”
This is expected to drive up face rents on new developments and aid the Sydney market recovery.
5. Diverging industrial rents
High levels of new supply in industrial markets will lead to a divergence in rental performance.
“We expect more divergence in rental performance between the markets more impacted by higher supply levels, such as Sydney’s Outer West and West Melbourne, and less impacted markets such as South Sydney and East Melbourne.”
6. Retail’s revival The retail sector is experiencing its strongest investor demand since 2015, driven by improving asset performance and rising real incomes.
“With investor sentiment having shifted, a lack of available stock relative to the level of demand will tilt the balance toward a recovery in capital values,” said Mr Burston.
7. Build-to-Rent’s potential hinges on mid-market success The BTR sector is poised for growth, but its success depends on policy changes and community acceptance.
“The perceived success of schemes targeting the middle of the rental range will be important in widening awareness and understanding of BTR.”
Optimism for 2025
Mr Burston highlighted that 2025 presents a window of opportunity for investors, with capital values expected to start rising in the second half of the year.
“Now is the time to buy, and this optimal window will extend into 2025,” he said.
