Transaction volumes for Australia’s commercial real estate market reached $19.6 billion for the first half of the year, marking a 19 per cent increase on the same period last year and is broadly in line with long-term averages.
The MSCI Australia Capital Trends report indicated that while volumes in the second quarter of 2025 softened to $10.3 billion, reflecting a 7 per cent year-on-year decline, the reported volumes do not account for the nearly $10 billion in pending transactions.
Longer settlement timelines and the billions of dollars in pending deals suggest that actual market activity is more robust than settled volumes indicate.
MSCI head of private assets research, Asia-Pacific, Ben Martin-Henry said while the numbers slipped in the second quarter, the broader trend is still one of “steady recovery”.
“The presence of nearly $10 billion in pending deals and two RBA rate cuts this year underscore renewed investor engagement, even if geopolitical and macro uncertainty persist,” Martin-Henry.
The two cuts to interest rates by the Reserve Bank of Australia (RBA) this year are likely to bring down the cost of capital and may help stimulate further deal flows, he said.
“The macro narrative may remain murky, but the micro signals are clear. Deal momentum is building, foreign capital is returning and risk appetite is expanding selectively,” Martin-Henry said.
“With pending transactions and cross-border interest strengthening, Australia’s commercial property market is positioned for a solid finish to 2025.”
Across the different sectors, industrial real estate remained a core allocation target but the data from the first half also indicated a clear pivot back to office real estate.
Office accounted for 29 per cent of overseas deployment so far this year, followed by data centres at 22 per cent. Industrial and commercial residential both came in at 17 per cent, the report said.
“The shift in sectoral focus reflects both opportunistic repositioning and strategic diversification as investors reassess relative value across asset classes,” the report said.
Domestic investors tended to concentrate heavily on the retail sector, which remains largely out of favour with offshore capital.
Retail accounted for 41 per cent of domestic investment year-to-date, while foreign investors made minimal allocations to the sector.
In terms of regions, Sydney remains the dominant destination for capital, claiming the top four most-invested market segments and appearing in half of the top 10 overall.
“Investors continue to prioritise core sectors in Australia’s most institutionally held and globally recognised market,” the report said.
Sydney’s office market leads all segments, underpinned by several high-value transactions involving offshore capital. Of the $3.2 billion deployed into Sydney office assets year to date, 79 per cent originated from foreign investors, underscoring sustained international conviction in the asset class.
However, just $1.1 billion was transacted in Q2 2025, highlighting that even Australia’s premier office market is not immune to deal flow volatility. Sydney retail ranks second with $2.3 billion invested year to date, though Q2 activity slowed markedly, mirroring the pattern seen in the office sector.
