Premium Property Is Forecast to Outperform Other Assets in 2025 as Investment Activity Growth Hits 15% and the Market Focuses on Replacement Costs

CBRE’s 2025 Pacific Market Outlook explores key trends and themes predicted to underpin market activity and decision making

Premium property and precincts are expected to outperform other assets in 2025 across both rent growth and capital appreciation with Sydney’s CBD office sector, inner-market logistics, select residential and marque shopping centres forecast to deliver “pockets of exceptionalism” in the market.

That is one of the key forecasts in CBRE’s 2025 Pacific Market Outlook report, which highlights opportunities, risks and challenges for market activity and decision makers this year.

CBRE’s Head of Pacific Research Sameer Chopra noted, “We expect pockets of exceptionalism around premium assets where rent and capital value growth could comfortably exceed mid-teens in 2025.

“We see opportunities for investors to ride the coattails of the Government’s infrastructure spending on emerging precincts with residential, logistics and office assets close to Metro, airport, defence and hospital developments likely to outperform other assets.

“Outside of that, leasing activity is likely to be slow because of below trend economic growth and the Federal election cycle. Construction cost growth is likely to continue but at mid-single digits and development activity will continue to shrink,” Mr Chopra added.

Transaction volumes are forecast to rise by 15%, with the office sector expected to see the most growth. Over the longer term, CBRE expects cap rates will tighten by 60bps-100bps during this cycle with variation across asset classes.

Other forecasts include:

• Investment volumes are expected to continue to recover in 2025. Overall growth is forecast to be 15%, led by office 25% and 10% each for industrial, retail and hotels. This positive momentum is expected to continue into 2026 with 23% growth.

• Transaction evidence suggests pricing in 2024 was 30% below replacement costs. This should provide buyers with confidence and encourage a buy instead of build strategy.
  
• Immigration is likely to be a key contributor to economic growth by assisting in filling vacant roles and driving significant demand for real estate with 340,000 new migrants expected to arrive in Australia this year.

• Unemployment may rise slightly from the current low level of 4.0%. Job vacancy rates are returning to normalised 2019 levels, but the market remains tight in construction.

• Rents for CBD Prime Office in Adelaide, Auckland, Brisbane and Perth are forecast to be above 2019 levels during 2023. Sydney and Melbourne are still expected to lag for another one to two years. CBRE have adjusted supply growth assumptions to 1.1% pa (from 1.6% pa) to 2028. 

• Demand for high-quality industrial and logistics assets in core locations will remain strong. Rental trends are anticipated to vary, with some precincts experiencing limited growth while others witness further increases driven by persistently low vacancy rates. In select markets, occupiers are leveraging rising incentives and favourable conditions to secure improved lease terms, driving increased leasing activity this year.

• Retail sales are forecast to grow 3.0% each year over the next 10 years, assisted by population growth. Rents for shopping centres are expected to grow at low single-digit rates throughout 2025, with Perth and Sydney outperforming.

• CBRE forecast the future supply of apartments is likely to hover around 50,000 pa, supporting rent and capital value growth.