Australia’s resilient labour market and rising demand for digital-linked real estate have shaped PGIM’s 2026 outlook, despite regional softening.
Australia stands out as a relative outlier across the region for labour market resilience, strong demand for physical assets linked to digital infrastructure, and the evolving role of private capital in commercial real estate, according to PGIM’s 2026 real estate outlook.
Across the broader Pan-Asia Pacific region, prime real estate returns are expected to improve through at least 2027, supported by a pickup in rental growth that is forecast to remain resilient over the period.
PGIM cautioned that logistics faces the greatest risk of downgrades amid ongoing trade uncertainty, with city-level outcomes diverging sharply.
These variations largely reflect a late-cycle recovery in China and Hong Kong, alongside late-cycle softening in Japan as the market adjusts to higher bond yields.
Differences in interest rates and employment conditions have weighed on the outlook, including some softening in bond yields. However, yields are still expected to remain above post-GFC levels throughout the forecast horizon.
Occupier demand presented a more mixed picture, driven by diverging demographic profiles and immigration trends across the region.
While most Asia-Pacific cities are expected to see total employment decline, Australian capital cities are bucking the trend, a dynamic that should help underpin net absorption.
Region-wide, net absorption is easing back toward its long-term average. For major cities, this signals occupier demand below the levels seen over the past decade.
“Whilst the overall weaker employment outlook plays its part, the rise of remote work, ecommerce and warehouse robotics are also hitting occupier demand for space,” the outlook says.
PGIM noted that despite the slowdown in net absorption, the rental outlook is being supported by a persistent lack of new supply in Brisbane, followed by Melbourne and Sydney.
“If real rental growth is stronger and/or the costs of construction fall, then new supply will come to market… But a shrinking supply pipeline has been a characteristic across the region for the past 20 years.”
The firm also pointed to early signs of recovery in suburban retail, in contrast to the ongoing structural challenges facing older office stock.
“In-store spending growth has started to grow alongside rental growth in suburban retail. This is despite ongoing growth in online retail.
“This is creating a more positive environment for physical retailers. Combined with what is, for most cities, a still weak retail development pipeline, suburban retail rental growth is expected to post its strongest rate in over 15 years.”
Meanwhile, power and grid constraints are reshaping the economics and feasibility of data centre development across APAC, with significant implications for Australia.
“Data centres rental growth is set to persist as supply continues to struggle.
“Challenges on new supply will continue as access to power becomes more constrained. The risk that supply will continue to lag market demand remains high – for both colocation and hyperscale. It remains that rental growth forecasts will likely be revised upwards.”
The outlook also highlighted a shifting commercial real estate credit landscape, as banks retreat and non-bank lenders step in to fill the gap.
“Regulatory pressures and risk-weighted capital constraints have reduced bank appetite for development loans. Despite the recent uptick, Australia’s four major banks continue to reduce their share of authorised-deposit taking institutions (ADIs) development lending.”
As demand for senior’s housing accelerates, Australia and Japan stand out for reporting the strongest increases in homeowner equity.
“The most significant increase in the number of 65+ population over the next five years will be in Singapore, Hong Kong, Seoul, Melbourne and Brisbane.”
Student housing opportunities remained closely tied to international student flows, PGIM observed. While global mobility is expected to continue rising, some countries are imposing tougher entry requirements or caps, including Australia.
“Across Asia Pacific, cities with large universities that are highly rated by international students, screen well for potential student housing.”
