Capital Growth Returns to Commercial Property Markets

Commercial property markets have returned to positive capital growth after two years of adjustment, with national all-property returns reaching 7.4 per cent for the quarter ending December 2025.

Ray White Group, Head of Research, Vanessa Rader said the return of positive capital growth at 2.0 per cent marks a shift from the correction phase that dominated recent years.

“The December 2025 data represents more than incremental improvement, it marks the transition from yield adjustment to capital growth,” Ms Rader said.

Retail sector leads market recovery

The retail sector continues its leadership position, delivering total returns of 9.2 per cent driven by capital growth of 3.0 per cent alongside income returns of 6.0 per cent.

Sub-regional centres lead the sector at 10.9 per cent total returns with capital growth of 3.9 per cent, while regional centres recorded 10.5 per cent returns.

“The consistency of performance across all retail subcategories indicates the sector’s structural recovery is broad-based rather than concentrated in specific property types,” Ms Rader said.

Industrial maintains strong performance

Industrial assets recorded total returns of 8.6 per cent, with capital growth strengthening to 4.1 per cent alongside income returns of 4.3 per cent.

“Queensland industrial led with total returns of 10.8 per cent and capital growth of 5.7 per cent, driven by population influx and expanding logistics requirements,” Ms Rader said.

“Western Australia industrial posted exceptional returns of 10.0 per cent with capital growth of 4.2 per cent, reflecting resource sector strength and supply constraints that continue to attract east coast investors.”

Office markets show regional variations

Office markets remain under pressure from structural challenges, though notable regional variations reveal how fundamentals are driving dramatically different outcomes, Ms Rader said.

Total returns reached 5.9 per cent nationally, but capital growth remained subdued at just 0.4 per cent.

“Brisbane CBD office delivered the strongest performance with total returns of 10.6 per cent, driven by capital growth of 4.4 per cent,” Ms Rader said.

“The combination of vacancy below 11 per cent, pre-committed Olympic infrastructure activity, and limited new supply continues to support valuations in the Queensland capital.”

She said Melbourne CBD office remains the notable underperformer with total returns of just 3.8 per cent and capital growth declining by 1.6 per cent.

“Melbourne represents the clearest example of how vacancy and oversupply dynamics directly impact capital values,” Ms Rader said.

Quality assets outperform

Ms Rader said the return to positive capital growth validates the strategic positioning that many investors adopted during the downturn.

“Those who acquired quality assets at expanded cap rates are now seeing both strong income yields and emerging capital growth,” she said.

“However, capital growth isn’t returning uniformly across all assets. The data clearly demonstrates quality and positioning matter more than ever, with premium assets in strong sectors achieving meaningful capital appreciation while secondary assets in challenged sectors continue facing value pressure.”

She said that despite upward inflationary pressures on interest rates seen in 2026 potentially dampening urgency in the marketplace, capitalisation rates are likely to remain in their holding pattern.

“For investors seeking to position portfolios for the next growth phase, understanding which specific markets and property types are leading capital growth will likely be critical to generating superior returns,” Ms Rader said.

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