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Home Latest property industry research and insights
June 8, 2026

Artificial Intelligence and the Future of Office

Colin Mackay, Research & Investment Strategy Manager, Cromwell Property Group

Navigating the narrative

Artificial intelligence (AI) has rapidly become a central theme in economic and market discourse. Commentary is polarised, with extreme views often dominating. On one end, AI is framed as a transformative productivity breakthrough. On the other, it is an existential threat to white-collar work and society as we know it. The impacts of AI adoption remain highly uncertain, and a healthy dose of scepticism should be reserved for those confidently claiming prescience.

Regardless, it is important to assess the potential outcomes and consider how the outlook for the office sector may shift if the technology becomes more powerful, widespread, and integrated. Answering this requires separating signal from noise, grounding analysis in historical precedent, and focusing on the mechanisms through which technological change affects occupier behaviour.

In our view, AI is more likely to reshape the composition of office demand than to compromise it. For investors, the path forward will involve selecting markets and asset types which occupiers continue to favour.

“Consider thou what the invention could do to my poor subjects. It would assuredly bring to them ruin by depriving them of employment.”

Queen Elizabeth I, 1580s, in relation to the knitting machine.

Source: Why Nations Fail, Acemoglu, Robinson (2012)

 

Lessons from history

Technological advancement has been the driving force behind many of humanity’s biggest transformations, from mechanisation and electrification to computers and the internet. And through history, commentators have predicted the end of employment.

 

In reality, while labour displacement occurred through each technological transition, new forms of activity were also created. The pool of jobs expanded as previously inconceivable industries and occupations emerged over time, and productivity gains drove significant economic growth and higher living standards.

AI may be the modern driver of a similar dynamic. This time, the scarce resource isn’t physical output, but cognitive power: the capacity to analyse, synthesise, and solve problems. By reducing the cost of cognition-intensive tasks, AI may enable firms to undertake more analysis, pursue more opportunities, run more experiments, and serve more clients. As with earlier productivity-enhancing technologies, the effect may be expansionary rather than labour-saving.

Chart of Global Real GDP per Capita
Importantly, technology-driven transformations have often been disruptive at the micro level – affecting individual workers and firms – but constructive at the macro level. History suggests that while the composition of employment changes through technological advancement, the quantity increases. For office markets, the implication is that the primary risk is not the disappearance of work, but the reconfiguration of which industries and roles drive demand.

“The number of jobs lost to more efficient machines is only part of the problem. What worries many job experts is more that automation may prevent the economy from creating enough new jobs.”

Time Magazine, 1961

Source: Why Are There Still So Many Jobs? The History and Future of Workplace Automation

Signal or hallucination?

But is this time different? Recent headlines have linked AI to significant job cuts across technology firms such as Wisetech, Block, and Atlassian. However, these corporate announcements require context.

While workforce reductions appear significant, they follow a period of rapid hiring during the pandemic and post-pandemic recovery. In these high-profile cases, employment levels remain materially above pre-2020 baselines even after announced cuts, suggesting the contractions may reflect a ‘normalisation’ of headcount rather than AI impacts.

 

Chart of Tech Firm Headcounts for Atlassian, Block and Wisetech

 

Broader evidence of an AI-led employment contraction is limited. At the aggregate level, labour markets remain resilient with little indication of structural unemployment1. In the US, AI does appear to be having a negative impact on the employment outcomes of young people, particularly those entering the workforce2, in occupations most exposed to AI automation. However, occupations that are augmented by AI continue to record employment growth across demographics3. Overall, AI is currently more visible in narrative than in measurable labour market outcomes.

“Intelligent machines are replacing human beings in countless tasks, forcing millions of blue and white collar workers into unemployment lines.”

Jeremy Rifkin, 1995

Source: The End of Work

Base case: augmentation over automation

In our view, the most plausible base case is that AI functions predominantly as an augmentative technology rather than a wholesale substitute for human labour. Central to this conclusion are the incentives and constraints that shape real world economic behaviour.

Firms optimise for growth, not just cost

Businesses optimise not only for cost minimisation but for output quality, growth, resilience, and competitive position. AI can reduce the cost of specific tasks, but its economic value is often highest when combined with human judgement, oversight, and contextual understanding. In practice, this favours a complementary relationship where workers become more productive, decisions improve in quality, and the scope of activity expands.

This will not be a universal experience. Some businesses, particularly those under margin pressure, may use AI primarily to reduce headcount and extract cost rather than to expand. But that response often says as much about the condition of those businesses as it does about the technology itself. Businesses don’t shrink to greatness, and contraction by weaker operators may ultimately create room for stronger firms to invest, grow, and take share.

Automation thresholds will increase

Recent academic research highlights the importance of task quality in shaping how firms deploy automation4. AI is likely to be adopted first in tasks where it can meet existing output quality at low risk. As these lower-value or more routine tasks are automated, human effort is freed up and reallocated toward activities that are more judgement-intensive, relationship-driven or context-specific.

This reallocation improves the quality of the remaining human-led tasks: more time and focus = better output. The quality threshold AI must then reach is increased, making it harder for further automation to occur5. This self-reinforcing augmentation loop sees people focusing more and more on higher value activities, in turn increasing the value of their labour.

Full delegation introduces risks

While AI can enhance productivity across a range of tasks, the case for fully delegating long, complex, or high-stakes work remains less compelling. Microsoft research finds that as task length and complexity increase, AI output quality deteriorates and document contents can become corrupted6. Errors compound across steps, objectives can drift over time, and inconsistencies can be difficult to detect.

Similar issues are evident in software development and cybersecurity. AI-assisted coding tools can accelerate development, but fully delegated code generation has been shown to contain more security vulnerabilities than human-written code7.

These dynamics reinforce the ongoing importance of human oversight and limit the extent to which full automation can be deployed. While the technology will likely improve, it will take time and resources. Productivity gains are therefore likely to be uneven and may be slower to materialise than implied by some of the more optimistic claims.

High unemployment will not be allowed to persist

At a macro level, there are social, economic, and political limits to how long high unemployment can persist without response. South Korea (late 90s) and Spain (early 2010s) are useful modern examples: in both cases, severe labour market deterioration was accompanied by social strain, political pressure and, ultimately, policy adjustment.

Elevated unemployment and the dislocation that accompanies it tend to provoke institutional adaptation aimed at restoring labour market stability. For that reason, the more plausible outcome is slower, more adaptive adjustment rather than a sustained period of mass unemployment.

 

Downside case: weaker demand but no sectoral collapse

A more pessimistic scenario could arise if the pace of AI-driven disruption materially outstrips the economy’s capacity to adapt. Even in that case, however, the implications for office demand are unlikely to be linear.

A reduction in labour input doesn’t necessarily require a one-for-one fall in employment. Given society’s limited tolerance for sustained unemployment, weaker labour demand would more likely be absorbed through changes in working patterns than through mass job losses. One potential mechanism is a reduction in average working hours, such as the adoption of a four-day work week. This would adjust overall labour supply while avoiding a commensurate decline in employment.

For office markets, fewer hours worked wouldn’t necessarily translate into a proportional reduction in space demand. Offices, like stadiums, are typically configured to accommodate peak occupancy (e.g. anchor days) rather than average utilisation. And in a future where the human-centric elements of work such as collaboration, innovation, and culture-building become more important than the routine, having sufficient fit-for-purpose space will be far more important than maximising workplace density.

Supply dynamics would also act as a moderating force. Elevated construction costs, tighter financing conditions and feasibility constraints are already limiting new development, reducing the risk that weaker demand outcomes translate into structural oversupply. At the same time, ongoing population growth should continue to support aggregate economic activity and space needs over time, even if AI reduces labour intensity in some functions. Over time, the withdrawal or conversion of obsolete stock would provide further stabilisation.

The chart below puts potential downside scenarios into context and illustrates that desirable stock (i.e. prime) should be relatively resilient even in the event of a severe reduction in demand. Flight-to-quality and the withdrawal of secondary assets from the market could, over time, wholly absorb a contraction in excess of 30%. Under such a scenario, investment outperformance would become increasingly dependent on asset selection and the alignment of building attributes and tenant experience with occupier needs.

 

“Most, if not all professional tasks…will be fully automated by an AI in the next 12-18 months.”

Mustafa Suleyman, Microsoft AI Chief Executive, 2026

Source: Interview with the Financial Times via Youtube

Implications for office markets

Employment and demand mix

Under our base case, the office-using workforce continues to grow in aggregate as productivity gains support economic expansion and population growth underpins underlying demand.

AI adoption is likely to be slower in parts of the economy where compliance, accountability and implementation constraints are more significant (e.g. government). The effects may also be slower to emerge in industries such as construction and manufacturing, where office-based roles are more closely tied to physical operations.

By contrast, back-office processing functions that are more standardised and repeatable face greater automation pressure. Even if these roles are materially disrupted, the impact on the broader Australian office market should be limited given the diversity of the domestic demand base. In some offshore markets, where these functions account for a larger share of demand, the effects could be more pronounced. In Metro Manila for example, the Business Process Outsourcing sector accounted for 64% of leasing demand in 20258.

Smaller occupiers, more fragmentation

We believe AI may shift occupier demand toward smaller businesses and drive a more fragmented tenant base. Lower start-up costs and the emergence of new business models may encourage new entrants, while existing small and medium-sized enterprises are, in our opinion, more likely than large corporates to use productivity gains to support growth rather than bank the savings through cost-outs. That tendency partly reflects the more dynamic and multi-functional nature of roles within smaller organisations, which makes them less amenable to automation than the more process-oriented roles in larger firms.

Smaller occupiers are also far less able to hand back space or sublease part of their footprint, reducing the likelihood of short-term speculative contractions. This theme was evident during the pandemic and post-pandemic recovery, when smaller occupiers accounted for a greater share of net office demand and were more likely to expand than contract.

Across office markets, this would support greater demand for smaller, more adaptable floorplates that are better suited to this size of tenant, along with assets that offer attractive shared amenity such as boardroom facilities and collaboration spaces. It may also increase the value of flexible leasing structures and speculatively fitted suites, given smaller occupiers are less likely to have the internal resources to plan and deliver bespoke fitouts.

 

 

Space use and workplace design

Densification has been gradually occurring for decades, and we don’t expect AI to materially reverse or accelerate this trend. The more meaningful shift is likely to be in workplace design, as floorplates evolve away from desk-heavy layouts toward more meeting rooms, collaboration spaces, and shared amenity to support in-person interaction for complex and valuable work.

This may increase the importance of technology integration and bandwidth capacity within buildings, as occupiers place greater value on seamless connectivity and the ability to support more data-intensive ways of working. Similarly, greater reliance on AI-enabled workflows is likely to elevate data security and control considerations for some occupiers, shaping preferences toward buildings with secure, resilient technology environments.

Quality and market polarisation

These shifts are likely to make office demand less homogeneous. Firms will adopt AI at different speeds, in different ways, and with different workplace requirements. Buildings that can accommodate varied and evolving occupier needs, both through physical adaptability and management flexibility, should attract a greater premium.

Location and quality preferences are also likely to strengthen rather than weaken. High-skill, knowledge-based work will continue to benefit from agglomeration, reinforcing the role of major CBDs. As the office becomes more focused on enabling high-value work outcomes, fit-for-purpose space and proximity to key stakeholders are likely to become higher priorities relative to rent minimisation.

We expect this to result in a wider divergence between prime and secondary assets, with higher-quality buildings better positioned to capture demand and lower-quality stock facing increasing pressure from functional obsolescence.

Investment implications

Asset selection to drive outperformance

AI is likely to widen the performance gap between winners and losers, making asset selection more important. The key question for investors is not whether office demand disappears, but which buildings and precincts remain aligned with the sectors, occupiers, and workplace functions most likely to grow. Assets best positioned to outperform are likely to be those with timeless characteristics: difficult-to-replicate location, natural light, relevant amenity, adaptable floorplates, and the capacity to accommodate evolving occupier needs.

Leasing advantage to shift toward diverse occupier pools

If AI supports stronger demand from smaller businesses and creates a more fragmented tenant base, leasing advantage is likely to shift toward assets that can cater to a broader mix of occupiers. Smaller floorplates, flexible suite sizes, and buildings that appeal to a more diverse range of industries, including less traditional office users, may therefore be better placed to capture demand. By contrast, large contiguous floorplates may become less attractive if demand is spread across a wider mix of smaller occupiers and anchor tenant commitments become less reliable.

Active management to become more valuable

Operating capability will matter more in a market defined by transition and evolving occupier requirements, where fitout decisions are harder to get right and responsiveness to tenant demand becomes a greater source of differentiation. Leasing strategy, repositioning, amenity upgrades, and selective refurbishment are all likely to become more important drivers of performance. In such an environment, landlords and managers with integrated capabilities across design, project management, leasing, and delivery should be better placed to respond quickly, shape fit-for-purpose solutions, and convert demand into stronger asset outcomes.

Secondary stock will need to compete harder on price

The principal risks are concentrated in undifferentiated secondary assets and buildings that cannot adapt to changing occupier requirements. Secondary stock can still offer compelling investment returns, but is likely to face greater pressure on tenant attraction and retention. As a result, these assets may need to compete more aggressively for tenants, and acquisition pricing will need to reflect the higher degree of risk to the income outlook.

Dislocation to create opportunity

Negative sentiment around AI and office demand may create a temporary dislocation between market pricing and underlying fundamentals. If asset values come under pressure from broader market pessimism about the demand outlook, while supply remains constrained and stock withdrawal continues, attractive entry opportunities may emerge for long-term investors able to distinguish between cyclical fear and structural impairment.

Evolution, not extinction

Artificial intelligence will reshape aspects of the economy and society. Historical precedent suggests that while disruption is inevitable, labour markets adapt to technological change and new forms of demand emerge.

For office markets, the outlook is best characterised as evolutionary rather than existential. Demand is likely to become more selective, fragmented, and quality-focused. Investment performance is likely to be driven less by broad sector exposure and more by asset selection and management capability.

In our view, the assets best placed to outperform are those aligned with the needs of a more diverse and dynamic occupier base: well-located buildings with strong amenity, adaptable floorplates, fit-for-purpose space, and the flexibility to cater to smaller tenants and evolving workplace requirements.

  1. Evaluating the Impact of AI on the Labor Market: Current State of Affairs. Gimbel, Kinder, Kendall & Lee (Oct-25)
  2. Young workers’ employment drops in occupations with high AI exposure. Atkinson & Yamco (Jan-26)
  3. Canaries in the Coal Mine? Six Facts about the Recent Employment Effects of Artificial Intelligence. Brynjolfsson, Chandar & Chen (Nov-25)
  4. O-Ring Automation. Gans & Goldfarb (Jan-26)
  5. You will comply with the AI. Ellis (Westpac) (Feb-26)
  6. LLMs Corrupt Your Documents When You Delegate. Laban, Schnabel & Neville (Apr-26)
  7. Human-Written vs. AI-Generated Code: A Large-Scale Study of Defects, Vulnerabilities, and Complexity. Cotroneo, Improta & Liguori (Aug-25)
  8. Metro Manila office market shows strong 2025 performance. JLL (Feb-26)

 

 

Disclaimer

This material is prepared for discussion only and should not be relied upon for any other purposes. It has been prepared on a good faith basis but its contents have not been formally verified and no Cromwell entity or person accepts any duty of care to any person in relation to the information it contains. It should not be considered to be investment advice, marketing material or a promotion or offer of any Cromwell fund, product or services. Any person that wishes to invest in any Cromwell fund, product or services should refer to the relevant information or legal documents produced in relation to such opportunity before making any investment or other decisions. This document reflects the views of its author as at June 2026.

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Home Latest property industry research and insights
May 25, 2026

20:20 Stock Stories: Sunland Group

SUCCESS STORY CASE STUDY

 

As Phoenix Funds marks its 20‑year anniversary, we are revisiting a selection of past investments that continue to offer relevant lessons for investors today. This case study on Sunland Group forms part of our 20:20 Stock Stories series — a retrospective look at listed businesses that illustrate enduring principles of long‑term investing. Sunland Group was an ASX‑listed property developer for much of its corporate life, and Phoenix initiated a position in the company in 2014, remaining invested until its delisting in 2023. While market cycles, sentiment and conditions have evolved over that period, the core themes highlighted by this investment — earnings volatility, management alignment and the importance of after‑tax returns — remain as pertinent today as they were at the time. It is these timeless insights that make the Sunland story worth revisiting and sharing with our investor community.

“Volatility creates opportunity for investors who are able to look through the peaks and troughs and focus on long‑term value.”
— Stuart Cartledge, Co‑founder and Managing Director, Phoenix Portfolios

The first key lesson for us:

Volatility of earnings creates opportunities for those able to look through the peaks and troughs.

Looking through the volatility

Sunland Group was established in 1983 by architect Dr Soheil Abedian as a Queensland based property development company and was responsible for many projects across the east coast of Australia, spanning both iconic towers such as Australia’s tallest building, Q1 on the Gold Coast and house and land projects in emerging suburbs.

Except for a failed offshore expansion, and the difficult period during the Global Financial Crisis, Sunland has been a highly profitable and well managed business. Its core “House and Land” business consistently delivered solid returns which is a highly valued attribute of any listed company.

The high-rise business created iconic towers that produced some large profits upon completion. However, by its very nature, this led to a volatile income stream – something that many share market investors are uncomfortable with.

The second key lesson for us:

An aligned management team is more likely to make sensible strategic long term decisions.

Alignment of interest

The founding Abedian family maintained a large stake in Sunland throughout its listed life, thereby maintaining a strong alignment of interest with minority shareholders. However, the share market did not value the company appropriately, and over the period from 2009 through to 2020, the stock traded at a significant discount to its book value. A low share price does however enable a financially astute management team to buy back their own stock, reduce the number of shares on issue, and increased the value per share of all remaining shares. Using a combination of retained profits and inventory selldowns, Sunland bought back and cancelled over 55% of its own shares. This is a low-risk way of adding value.

The combination of good capital allocation, an aligned management team and a compelling valuation was attractive to Phoenix and a position in the stock was initiated in August 2014. This position was ultimately held until the company delisted in October 2023.

The third key lesson for us:

The market does not fully value franking credits. After-tax returns can be materially enhanced by holding companies delivering abundant fully franked distributions.

Franking credits

The de-listing was not a bad news story!  Despite years of buying back stock at a discount, a strategic review was undertaken and announced to the market in October 2020 which essentially involved either completing projects, or selling them, and returning all capital to shareholders.  At the time of the announcement, the share price reflected around half of the capital value of the business.

However, given an extended period of profitability and a substantial franking credit balance, a significant portion of sales proceeds were delivered to shareholders as fully franked dividends.  For Australian superannuation investors and foundations, this form of distribution is extremely tax effective and therefore very important from an after-tax return perspective.

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Home Latest property industry research and insights
May 22, 2026

From Growth to Income: How the Federal Budget is reshaping investment priorities

This article contains general information and commentary only. It does not constitute investment advice or a recommendation. This document reflects the views of its author as at May 2026. These observations are based on current policy proposals and market conditions, which may change. 

For investors assessing portfolio allocation, the key takeaway from this Federal Budget is the broader policy shift rather than any single measure. To the extent proposed tax changes reduce the relative appeal of residential strategies that depend more heavily on tax advantages and capital growth, income-producing assets may warrant closer consideration. That may improve the relative appeal of quality commercial real estate, where returns are often supported by contracted cashflows, tenant covenants and leasing fundamentals, although the extent of that benefit will depend on how different components of return are ultimately taxed.

Portfolio strategies already shifting given macro backdrop

This reset is landing at a time when investors are already recalibrating around two dominant macro themes: 

Against that backdrop, proposed Budget measures introduce additional considerations for investors, and potentially tilt preferences toward assets that are more income-oriented. 

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What changed (and why it matters for property investors) 

Two measures were particularly salient for investors: 

 

1) Negative gearing changes (residential focus) 

Proposed reforms to negative gearing for established residential property may reduce the relative after-tax appeal of some residential strategies, particularly those that rely more heavily on tax settings to support returns. For investors, the key implication is comparative: if established residential after-tax outcomes become less attractive, some investors may place greater weight on other asset classes. In that context, commercial property may warrant closer consideration, particularly where return profiles are supported by income and leasing fundamentals rather than reliance on tax settings to enhance outcomes. 

2) Capital gains tax (CGT)  

Proposed changes to CGT may diminish the after-tax payoff from capital gains for some investors, which may increase the relative appeal of strategies supported by current income rather than purely back-ended appreciation. 

However, the implications for commercial property investors are more nuanced. While proposed changes to negative gearing are focused on residential property and do not directly affect the deductibility of income from commercial assets, commercial investors may be exposed to the changes in CGT. In addition, many private investors hold commercial property through discretionary trusts, where forthcoming tax changes may further influence after-tax outcomes. 

For property trusts in particular, part of the income distributed can be tax deferred, which reduces the cost base over time and can shift a portion of returns into capital gains. This means overall outcomes may still depend meaningfully on CGT treatment at disposal. 

As a result, while income-oriented strategies may become relatively more attractive, any reduction in the CGT discount could still weigh on total returns for some commercial property investors, depending on structure and the balance between income and capital growth.  

The impact won’t be uniform: two investors can hold the same asset and experience different net outcomes. Investors may wish to assess exposure at the structure level (individual, company, trust, SMSF, etc.) and seek advice where appropriate. 

Why commercial property looks relatively stronger  

Commercial real estate’s return profile is typically anchored by rental income (often with CPI or fixed escalations) – supported by: 

  • Lease terms and WALE (weighted average lease expiry) 
  • Tenant covenant quality and occupancy fundamentals 
  • Asset selection and active management (leasing, retention, capex discipline) 

In other words, while capital growth matters, many commercial property strategies are not primarily dependent on it.  

In that context, well‑selected commercial property may play a stronger role as a portfolio income stabiliser and diversifier, particularly where cashflows are supported by leasing fundamentals and supply constraints, noting that after-tax outcomes will still vary depending on investment structure and the treatment of capital gains over time, making it important for investors to consider how their investment structure influences after‑tax outcomes. These characteristics do not remove risks associated with commercial property, including tenant concentration, leasing risk, valuation movements and changes in financing conditions. 

 

Bottom line

The Budget doesn’t rewrite the investment case for commercial property, but it may be considered by market participants to improve its position within portfolios relative to strategies for established residential that are more reliant on tax settings and capital growth. Combined with macro conditions that elevate the value of dependable cashflows, the policy direction reinforces a simple point for investors: 

In a world where growth is less advantaged and uncertainty remains elevated, contracted income and real‑asset diversification matter more. 

 

Disclaimer

This material is prepared for discussion only and should not be relied upon for any other purposes. It has been prepared on a good faith basis but its contents have not been formally verified, and no Cromwell entity or person accepts any duty of care to any person in relation to the information it contains. It should not be considered to be investment advice, marketing material or a promotion or offer of any Cromwell fund, product or services. Any person that wishes to invest in any Cromwell fund, product or service should refer to the relevant information or legal documents produced in relation to such opportunity before making any investment or other decisions.  

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Home Latest property industry research and insights
April 28, 2026

March 2026 quarter ASX A-REIT market update

Stuart Cartledge, Managing Director, Phoenix Portfolios

 

Market Commentary

The S&P/ASX 300 A-REIT Accumulation Index lost 16.4% over the March quarter, meaningfully underperforming the broader equity market, with the S&P ASX 300 Index off 2.0%. Much of the pain in the property sector was felt in the month of March, as global conflict led to a rise in bond yields. The 10 Year Australian Government bond yield began the month marginally above 4.6%, however spent much of the month above 5.0%. The broader Australian equity market has been supported by its commodity exposure.

In February, most companies under coverage reported their half yearly results to 31 December 2025. Broadly speaking, results were solid, with good leasing outcomes and positive movement in direct property market liquidity. Solid updates across February were however old news come the end of March, with idiosyncratic factors overwhelmed by macroeconomics.

Within the property sector, fund managers were the weakest performers. This is unsurprising, as they are the most leveraged to the market itself. Global uncertainty may also lead to a slowdown in direct market transactions as potential buyers pause to reassess the market landscape. Goodman Group (GMG) lost 17.6%, holding up slightly better than some due to its exposure to the still in demand data centre subsector. Diversified, Australian-focussed fund managers Centuria Capital Group (CNI) and Charter Hall Group (CHC) were weaker, giving up 21.5% and 23.8% respectively. HMC Capital Limited (HMC) was weaker still, dropping 39.4% with much of the damage inflicted prior to March selloff amidst ongoing concerns over its earnings quality and ability to raise capital across its existing verticals.

Office property owners performed broadly in line with the index. Debate about the future of office usage rages on. After persevering through Covid restrictions, there are now concerns that development in AI may affect office usage in the future. Dexus (DXS) somewhat outperformed the weak index, losing 14.6%, while Growthpoint Properties Australasia (GOZ) gave up a similar 13.9%. Large capitalisation peer GPT Group (GPT) fell 16.4%, largely in line with the index. Centuria Office REIT (COF) was weaker, dropping 16.9%.

Shopping centre owners were predominantly outperformers in the quarter, with specialty sales growth and leasing spreads remaining robust in recent periods. Vicinity Centres (VCX) produced a strong result in the half year ended 31 December 2025 (reported in February) and as such only lost 6.2%. The defensive nature of smaller neighbourhood shopping centres also gained relevance in the period, with Region Group (RGN) only dropping 3.4% and Charter Hall Retail REIT (CQR) off 4.8%. Somewhat bucking the trend was Westfield shopping centre owner, Scentre Group (SCG), which collapsed 18.8% after its outlook for 2026 was weaker than many expected.

Residential property developers faced mixed performance in the March quarter. Home prices across the nation showed divergence. Sydney and Melbourne home prices moved marginally lower; however, the rest of the country performed well despite an increase in interest rates and global uncertainty. Dwelling prices in Adelaide rose 3.6%, Brisbane gained 4.8%, while in Perth prices accelerated 7.3% higher. In this environment, Peet Limited (PPC) gave up 3.0% and Finbar Group Limited (FRI) lost 6.5%. Large capitalisation peer Stockland (SGP) was weaker, falling 24.8%, correcting some of its previous outperformance and reflecting its differing geographic exposure.

Despite the unique challenges in the broader childcare and petrol station sectors, the specialist property owners in those segments outperformed over the quarter. Dexus Convenience Retail REIT (DXC) only lost 3.5% after announcing a buyback. Waypoint REIT (WPR) outperformed, off 6.2%. Arena REIT (ARF) finished the period 6.8% lower, while Charter Hall Social Infrastructure REIT (CQR) dropped 14.5%.

Market outlook

The listed property sector provides investors with the opportunity to gain exposure to high quality, institutionally managed, commercial real estate, with projections of solid prospective growth. While share market volatility may be uncomfortable at times, the offset is liquidity, enabling investors to rebalance portfolios without the risk of being trapped in illiquid vehicles.

Property, both listed and unlisted, represents a particularly interest rate sensitive sector. In recent years interest rates rose off generational lows, providing a headwind for real estate returns and valuations. Despite three cuts in the Reserve Bank of Australia’s target cash rate since February 2025, renewed inflationary concerns have put cash rate hikes back in focus, with the first hike in February 2026 and potentially more to come. Offsetting this, the February reporting season showed property capitalisation rates have stabilised and valuations have risen, along with positive rental growth. The tussle between bond rates and capitalisation rates is ever present, but the recent sell-off in listed property stocks provides a meaningful buffer to investors in listed securities.

The industrial sub-sector continues to show strong absorption of relatively high levels of supply, aided by the tailwinds of e-commerce growth, the potential onshoring of key manufacturing categories and the decision by many corporates to build some redundancy into supply chains to cope with current disruptions. All of these factors are contributing to ongoing demand for industrial space, albeit the previous period of market rents expanding rapidly has dissipated. Vacancy rates remain near historic lows of around 3% in many markets. While rental growth has recently cooled, construction costs remain elevated, making additions to supply difficult and thereby prolonging buoyant conditions.

We remain cognisant of the structural changes occurring in the retail sector with the growing penetration of online sales and the greater importance of experiential offering inside malls. Recent performance of shopping centre owners has however been strong, with consumers showing resilience and share prices moving higher. Importantly, we are also now seeing positive re-leasing spreads in shopping centres, indicating strengthening demand from retail tenants. These outcomes are no doubt aided by minimal vacancy across retail portfolios.

The jury is still out on exactly how tenants will use office space moving forward, but demand for good quality, well located space remains solid and there is growing momentum from companies to get staff back into the office. Leasing activity is beginning to pick up, and transactional activity is also returning, with discounts to book values materially reduced. Incentives on new leases remain elevated. At this stage demand for office space appears to be highly variable depending on location, even within submarkets.

We expect to see limited further downside to asset values in some office markets but elsewhere expect market rent growth to drive valuations higher as capitalisation rates appear to have stabilised. Listed securities provide exposure to such growth, commonly with a buffer to underlying net asset values.

The content above is taken from the Cromwell Phoenix Property Securities Fund quarterly report. Sign up here to be the first to access the latest report and to gain a deeper insight into the Fund’s performance.

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Home Latest property industry research and insights
April 28, 2026

March 2026 direct property market update

Economy

At the start of 2026, Australia’s economic backdrop was relatively stable, albeit finely balanced. Growth was improving, supported by a resilient labour market and strong population-driven demand, while services inflation was proving stickier than expected. The prevailing expectation was for a gradual return to target inflation, with the economy navigating a soft landing under monetary policy settings which were only slightly restrictive.

This narrative shifted materially in early March as escalating conflict in the Middle East introduced a significant external shock in the form of the largest supply disruption in the history of the global oil market1. Oil prices rose sharply, lifting near-term inflation expectations and complicating the disinflation process at a point when the domestic economy was still operating with limited spare capacity2. In that environment, the key implication was not simply higher headline inflation, but that elevated input costs would prove more persistent and diffuse into underlying price pressures.

The response was swift, with the RBA hiking the cash rate by +25bps in March to 4.10%, a back-to-back increase following February’s move. Financial markets also adjusted quickly with cash rate expectations repricing higher and long-end bond yields rising to reflect a more persistent inflation profile and increased macro uncertainty. Today, markets expect a further +61bps in cash rate hikes over the course of 20263, while the Australian 10-year Government Bond yield is approximately +29bps higher than at end-February4.

Impacts are now becoming evident across the domestic economy. Consumer confidence deteriorated sharply in April, with the Westpac-Melbourne Institute survey (published post quarter-end) highlighting renewed pressure from both higher borrowing costs and rising fuel prices5. Housing market indicators have also softened, with auction clearance rates declining and price momentum easing6, consistent with tighter borrowing capacity and weaker sentiment.

The labour market continues to provide an important anchor, with unemployment at 4.3% and participation healthy7. While forward-looking indicators such as job ads suggest hiring intentions are moderating8 conditions remain robust by historical standards.

“While forward-looking indicators such as job ads suggest hiring intentions are moderating2 conditions remain robust by historical standards.”

Office9

Net demand across the major CBD markets was mixed over the first quarter of 2026. Sydney CBD recorded the strongest increase in occupied stock on a square metre and percentage basis, with support from Brisbane CBD, Adelaide CBD, and Perth CBD. The positive outcome in these markets was outweighed by demand contraction in Melbourne CBD and Canberra, resulting in overall occupied stock declining by -0.2%. Sydney’s strong quarter was underpinned by the Western Corridor precinct, with the key occupier move being ING’s relocation from the Core precinct into One Shelley, taking up approximately 11,000 square metres over a 10-year lease. Canberra’s poor quarterly result was driven by the completion of a new development in Barton, which triggered downsizing from a government department as it moved from the Civic precinct. Positively, the majority of Canberra’s precincts recorded net demand expansion over the quarter.

 

 

The national CBD vacancy rate nudged +0.1% higher, however the composition of movements below the headline figure was relatively positive. The vacancy rate increase was nearly entirely driven by Melbourne CBD, specifically the Docklands precinct where several tenants contracted and a major development reached completion partially leased. Canberra was the only other market which saw vacancy increase (+0.1%). Conditions in Sydney CBD continued to tighten from the combination of solid demand and no supply completions, while the Brisbane, Perth, and Adelaide CBDs improved slightly. Vacancy across Prime stock remains lower than Secondary, reflecting more resilient demand.

 

 

National CBD prime net face rent growth accelerated to +2.1% for the quarter and +6.5% year-on-year. This was the strongest quarterly growth recorded since before the pandemic, and the strongest annual growth in over eight years. Strength over the quarter was broad-based, with every major market except Perth CBD – which was flat – delivering growth of at least +1.7%. Prime incentives fell in Sydney CBD and Perth CBD, supporting an acceleration of rent growth on an effective basis. While incentives were largely unchanged across the other markets, strong face rent growth ensured effective rent growth outpaced the long-term average in every market for the first time since 2018.

 

 

The first quarter of the year is typically a slow one for transaction activity and Q1 2026 was no exception. National office transaction volume was well below the pace of the previous quarter, largely due to a lack of activity across the major CBDs. A 20% stake in Sydney CBD’s Salesforce Tower changed hands, providing some pricing evidence for Premium assets. Most notable across the quarter was strong non-CBD transaction volume, which reached its highest dollar total since the market’s 2022 peak, and comprised its greatest proportion of overall transaction volume on record. This segment of the market was buoyed by several transactions across North Sydney and the Melbourne Fringe, headlined by 100 Mount Street. Prime average equivalent yields compressed slightly in Sydney CBD and Brisbane CBD while a slight expansion was recorded in Canberra.

“High-frequency indicators, including bank spending trackers, suggest a sharp reallocation towards fuel and other essentials (e.g. utilities) at the expense of discretionary categories such as eating out.”

Retail9

Household spending growth across retail-aligned categories such as groceries, clothing, restaurants, and recreation improved over January and February according to official ABS data. However, this momentum was superseded in March, when the escalation in the Middle East and associated fuel supply shock disrupted spending patterns. High-frequency indicators, including bank spending trackers, suggest a sharp reallocation towards fuel and other essentials (e.g. utilities) at the expense of discretionary categories such as eating out. Cuts to the fuel excise will relieve some of the strain on household wallets, but discretionary spending will likely continue to face pressure while non-discretionary costs remain elevated. Shopping centre vacancy rates (last reported in December) are low, which should provide a buffer against softer demand conditions.

Supply remains very constrained, largely limited to Neighbourhood and Large Format centres in population growth corridors. Lack of supply is supporting higher net rents, which grew by +1.4% over the quarter and +1.9% over the year across the core centre types (GLA-weighted basis). While rent growth accelerated across every centre type, Regionals was the top-performer. Growth across the retail sector was broad-based, with all markets delivering similar results.

 

Retail transaction volumes eased from last quarter’s elevated levels but remained above the long-term Q1 average. Large Format and Sub-Regional centres recorded the highest volumes, supported by a greater number of deals. The two headline deals of the quarter were both Sub-Regional portfolio acquisitions by Charter Hall’s Convenience Retail Fund.

Average equivalent yields were unchanged across every market and centre type.

Industrial9

Occupier take-up (gross demand) softened compared to last quarter, which was revised materially higher to be the second-strongest quarter on record. Demand came in slightly below the five-year quarterly average, but comfortably above the first quarter average of the last five years. The solid result was underpinned by Manufacturing take-up, with healthy support from smaller industrial industries such as Construction, Professional Services, and Agriculture. It was the strongest quarter for Construction demand on record, driven by several leasing deals across Melbourne.

 

From a geographical perspective, Melbourne recorded the most overall demand on an absolute basis, while Brisbane was the top-performer on a percentage basis relative to trend. Melbourne and Brisbane combined accounted for the six largest leasing deals over the quarter.

Just under 700,000 square metres of supply was delivered over the quarter. Sydney saw the most space completed, primarily driven by large projects in the Outer Central West submarket. Perth also saw an uplift in completions, underpinned by a large project in Rockingham. The future supply pipeline continues to moderate as feasibility pressures constrain project commencements.

The national industrial vacancy rate was unchanged over the quarter, with slight declines in Sydney and Melbourne offsetting increases across the smaller markets. Perth and Adelaide continue to have the lowest vacancy rates nationally.

Prime net rent growth accelerated slightly over the quarter, averaging +1.1% nationally. Adelaide was again the top-performing market, as all of its submarkets recorded quarterly growth in excess of +3%. Adelaide’s Outer South was the top-performing submarket nationally, with quarterly growth of more than +4.5%. There was solid performance at a submarket level within Sydney, Melbourne, and Brisbane, while Perth rents were unchanged. Adelaide’s outperformance widened on an effective basis as incentives remained largely unchanged, in contrast to the larger East Coast markets which generally saw incentives increase.

Industrial transaction volume softened over the quarter, primarily driven by weaker activity in Sydney and an absence of portfolio deals. In Melbourne, dollar volume was solid owing to a large development site transaction, however there was a material reduction in the number of deals completed. As highlighted last quarter, industry feedback indicates the uncertain state-level policy environment is impacting transaction activity.

Average prime yields were unchanged across every submarket.

Footnotes

  1. Oil Market Report, IEA (Mar-26)
  2. Statement on Monetary Policy, RBA (Feb-26)
  3. RBA Rate Tracker, ASX (as at market close 13th April 2026)
  4. TMBMKAU-10Y, MarketWatch (14th April 2026)
  5. Consumer Sentiment Bulletin, Westpac-Melbourne Institute (Apr-26)
  6. Economic stress scares off Australian homebuyers as auction clearances fall, The Guardian (13th April 2026)
  7. Labour Force, Australia, February 2026, ABS (Mar-26)
  8. Australian Job Ads, ANZ-Indeed (Apr-26)
  9. Cromwell analysis of JLL data (Mar-26)

 

 

Important Notice

This correspondence has been prepared by Cromwell Funds Management Limited ABN 63 114 782 777 AFSL 333214 (CFM), Cromwell Real Estate Partners Limited ABN 23 152 674 792 AFSL 418476 (CREP) and Cromwell Property Securities Limited ABN 11 079 147 809 AFSL 238052 (CPSL), all of which are wholly owned subsidiaries of Cromwell Corporation Limited ABN 44 001 056 980.  Cromwell Property Group comprises Cromwell Corporation Limited ABN 44 001 056 980 and Cromwell Diversified Property Trust ARSN 102 982 598, the responsible entity of which is CPSL.

This correspondence is not intended to provide investment or financial advice or to act as any sort of offer or disclosure document. It has been prepared without taking into account any investor’s objectives, financial situation or needs. It is provided for general information purposes only. Any potential investor should make their own independent enquiries, and talk to their professional advisers, before making investment decisions.  In making an investment decision in relation to any fund, it is important that you read the disclosure documents issued by that fund. The disclosure documents for the funds are available from www.cromwell.com.au or by calling Cromwell’s Investor Services Team on 1300 268 078.

None of CFM, CREP, CPSL or its related bodies corporate or their respective officers, employees, agents or advisors (Cromwell Property Group Members) make any representation or warranty, express or implied, as to the accuracy, completeness, timeliness or reliability of the contents of this webpage. To the maximum extent permitted by law, none of the Cromwell Property Group Members accept any liability (including, without limitation, any liability arising from fault or negligence) for any loss, damage, cost or expense whatsoever arising from the reliance on or use of this webpage or its contents or otherwise arising in connection with it.

This webpage may contain forward-looking statements, guidance, forecasts, estimates, prospects, intentions, projections or statements in relation to future matters (Forward Statements). Forward Statements can generally be identified by the use of forward looking words such as anticipate, estimates, will, should, could, may, expects, plans, forecast, target or similar expressions. Forward Statements including indications, guidance or outlook on future revenues, distributions or financial position and performance or return or growth in underlying investments are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Forward Statements are subject to known and unknown risks, uncertainties, contingencies and other factors which may cause actual results, performance or achievements to differ materially from those expressed or implied by the Forward Statements. No independent third party has reviewed the reasonableness of any such statements or assumptions. None of the Cromwell Property Group Members represent or warrant, assure or guarantee that such Forward Statements will be achieved or will prove to be correct or gives any warranty, express or implied, as to the accuracy, completeness, likelihood of achievement or reasonableness of any Forward Statement contained in this webpage. Cromwell Property Group Members assume no obligation to release updates or revisions to Forward Statements made as of the date of this webpage to reflect any changes that occur after the date of this webpage. Past performance is not a guarantee of future performance.

The distribution and use of this webpage, including any related advertisement or other offering material, in jurisdictions outside of Australia may be restricted by law and any person who resides outside Australia or who receives this webpage outside of Australia should seek advice about it and observe any applicable legal restrictions.

CFM, CREP and CPSL do not receive any fees for the general advice given in this correspondence.

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Home Latest property industry research and insights
April 28, 2026

Higher Interest Rates and the Implications for Unlisted Property

Recent geopolitical developments, particularly disruption to the Strait of Hormuz, have driven a sharp repricing of interest rate expectations. Financial markets now anticipate an additional 64bps of cash rate hikes this year1, while the Australian 10-year Government Bond Yield has increased by 34bps since late February2. For commercial property investors, the key question is how these changes translate into asset values, income, and risk.

The relationship between interest rates and cap rates is often simplified – higher interest rates lead to higher cap rates, and therefore lower values. While directionally correct, this framing overlooks a critical point: property markets are not driven by interest rates alone, but by how those rates reshape the broader cost and availability of capital, and supply and demand levers. It is within these interactions that both risks and opportunities emerge.

Key takeaways

  • Rates matter, but capital conditions matter more: what investors demand (and how much capital is available) ultimately drives pricing, rather than a fixed spread to bond yields.
  • Outcomes aren’t uniform: the impact of higher interest rates varies across assets, capital structures, and investment strategies.
  • Dislocation creates opportunity: where tenant demand remains resilient and supply constraints limit new competition, attractive entry points can emerge.

Required return: the anchor for property pricing

At a fundamental level, property yields are anchored to the risk-free rate, typically represented by long-term government bond yields. Investors require a premium above this base rate to compensate for the additional risks inherent in property, such as illiquidity, leasing risk, and asset-specific factors.

In simplified terms, cap rates can be understood as the sum of the risk-free rate and a risk premium. When bond yields rise, the required (or target) return also increases, placing upward pressure on cap rates and downward pressure on values. This relationship isn’t unique to property – all asset classes are priced relative to the risk-free rate and face similar value adjustments.

However, this relationship is not mechanical, and the risk premium embedded in cap rates is not fixed. It expands and contracts depending on market conditions, rent growth expectations, investor sentiment, and capital flows, and may move sharply or gradually, immediately or with a lag. The chart below highlights this variability in the spread between bond yields and property cap rates over time, using Prime Brisbane CBD Office as an example.

 

 

Importantly, it shows that the current spread is consistent with the long-term historical range, despite the recent increase in bond yields. The decade leading into the pandemic exhibited a wider yield spread, however this period was defined by below-trend economic growth and unprecedented monetary intervention.

Quantitative easing suppressed government bond yields3 to anomalously low levels, and pricing relationships observed during this period are unlikely to represent a sustainable long-term baseline. The chart also shows that periods of negative spread can occur when robust rent growth is expected.

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Cost of debt: asset and vehicle-level impacts

While required returns determine what assets should be worth, the cost of debt plays an important role in both the ongoing performance of leveraged assets and the prices buyers are able to pay.

For existing investments, higher interest rates – to the extent they are unhedged – increase borrowing costs, reducing net income and, in some cases, distributable earnings. The degree of impact varies materially depending on capital structure, hedging, and refinancing profiles, with assets exposed to near-term repricing more directly affected.

For new transactions, higher borrowing costs reduce the level of leverage that can be supported by a given income stream. Additionally, as the spread between asset yield and the cost of debt compresses, the benefit of leverage diminishes and equity returns decline.
In practical terms, higher funding costs reduce many buyers’ maximum bids, unless they are willing to accept lower returns. This effect is often reinforced by more conservative lending conditions. As interest rates rise, interest coverage ratios compress, and lenders may respond by reducing leverage, tightening covenants, and adopting a more selective approach to capital deployment. This further constrains the availability of capital, amplifying the impact of higher borrowing costs on both transaction activity and pricing.

However, the impact is not uniform. Investors with greater certainty over funding costs, or those less exposed to near-term repricing risk, may be better positioned to transact in this environment.

Liquidity: how markets actually reprice

Changes in required returns and borrowing costs are not reflected in property values immediately or uniformly. Instead, they emerge through transaction activity, which typically slows as financial conditions tighten.

As borrowing costs rise and lending conditions tighten, fewer buyers are able or willing to transact at prior pricing levels. This reduces competitive tension and leads to lower transaction volumes.

In this environment, transactions often occur between the most motivated sellers and well-capitalised or opportunistic buyers. Observed pricing can be influenced by the specific circumstances of those participants, rather than reflecting a broad cross-section of the market.

This helps explain why property markets often adjust in stages. Valuations are typically based on a body of transaction evidence, with individual transactions assessed for relevance and representativeness. In periods of low activity, isolated trades – particularly those involving motivated or forced sellers – may not be viewed as reflective of broader market conditions. As a result, a sufficient weight of evidence is often required before pricing benchmarks are reset. Importantly, this is not a sign of market dysfunction, but a feature of how private markets absorb new information.

Income stability vs valuation volatility: a temporary divergence

 

One of the defining characteristics of real estate is the relative stability of its income profile. Lease structures provide contractual cash flow, and rental adjustments typically occur gradually. Valuations, by contrast, can adjust more quickly through changes in required returns. This can create a divergence, where asset values decline due to higher cap rates even as underlying income remains stable or continues to grow. For long-term investors, this distinction is critical – valuation adjustments can create opportunities to acquire quality assets with robust fundamentals at more attractive pricing. It also reinforces the need to look beyond headline yields and focus on risk-adjusted returns across the entire investment hold period.

From adjustment to opportunity

Periods of rising interest rates are often accompanied by uncertainty and volatility. However, they can also present compelling opportunities for investors.

As highlighted in our previous article, the balance of supply and demand is the biggest driver of unlisted property performance over the long-term. The supply outlook for most property sectors was already significantly constrained heading into 2026, and recent inflationary pressures and interest rate changes linked to the Middle East conflict are likely to further limit new project commencements. For well-located existing assets with resilient tenant demand, this dynamic supports the medium-term outlook.

Risk-off sentiment and attractive entry pricing also create a more constructive environment for capital deployment. For investors with a long-term perspective and a disciplined approach to asset selection, dislocations between fundamentals and sentiment may enable the acquisition of quality assets below fair value.

As markets recalibrate, the focus shifts from navigating volatility to selectively capturing value. In that transition, the foundational drivers of unlisted property performance – income, asset quality, and long-term space market fundamentals – remain central to long-term investment outcomes.

1. ASX, as at market close 2nd April 2026
2. MarketWatch, as at market close from 27th February 2026 to 7th April 2026
3. Why Are Long-term Bond Yields So Low?, RBA (May-19)

This document has been prepared by Cromwell Funds Management Limited ABN 63 114 782 777, AFSL 333214 (CFM) and Cromwell Property Securities Limited ABN 11 079 147 809, AFSL 238052 (CPSL), both of which are wholly owned subsidiaries of Cromwell Corporation Limited ABN 44 001 056 980; and Cromwell Real Estate Partners Limited ACN 152 674 792 (CREP) as trustee for the Cromwell Creek Street Investment Trust. All statistics, data and financial information are prepared as at 31 December 2025 unless otherwise indicated. All dollar figures shown are in Australian dollars unless otherwise indicated. While every effort is made to provide accurate and complete information, Cromwell does not warrant or represent that the information is free of errors or omissions or is suitable for your intended use and personal circumstances. Subject to any terms implied by law that cannot be excluded, Cromwell accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omission or misrepresentation in the document. This document is not intended to provide investment or financial advice or to act as any sort of offer or disclosure document. It has been prepared without taking into account any investor’s objectives, financial situation or needs. Any potential investor should make their own independent enquiries, and talk to their professional advisers, before making investment decisions. Past performance is not a reliable indicator of future performance. In particular, distributions and capital growth are not guaranteed. Various unlisted funds are referred to in this document. At the date of this document, the funds are not offered outside of Australia and, in some cases, New Zealand. Neither CFM nor CPSL receive any fees for the general advice given in this document. Cromwell Property Group (Cromwell) comprises Cromwell Corporation Limited ABN 44 001 056 980 (CCL or the Company) and the Cromwell Diversified Property Trust ARSN 102 982 598 (DPT or the Trust), the responsible entity of which is CPSL.

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Home Latest property industry research and insights
January 22, 2026

December 2025 quarter ASX A-REIT market update

Stuart Cartledge, Managing Director, Phoenix Portfolios

 

Market Commentary

The S&P/ASX 300 A-REIT Accumulation Index lost 1.2% over the December quarter, marginally underperforming the broader equity market, with the S&P ASX 300 Index off 0.9%.

With property transaction markets open once more, property fund managers were strong performers in the period. Centuria Capital Group (CNI) was busy expanding its agricultural real estate business. Firstly, its unlisted Centuria Agricultural Fund (CAF) secured the purchase of Australia’s largest hydroponic greenhouse for $168 million. It then acquired agricultural property business Arrow Funds Management adding a further $444 million of agricultural funds to its platform. It finished the quarter up 31.2%. HMC Capital Limited (HMC) showed some signs of stabilisation amongst what has been a challenging year, gaining 24.5% over the quarter, but remaining down 58.6% for the full year. Charter Hall Group (CHC) also showed good momentum, upgrading operating earnings per security (OEPS) guidance by 5.5%, supported by heightened investment activity within its property investment and funds management platform. CHC finished the period 8.6% higher. Somewhat bucking the trend was Goodman Group (GMG) which disappointed some market participants by not upgrading its own earnings guidance and providing no details on new funds management products at its quarterly update. This was somewhat rectified in December, with the announcement of a $14 billion data centre partnership with CPP Investments. GMG closed the quarter down 5.0%.

Retail property owners performed well in the period. Ongoing solid rent growth, supporting by an increasing population and limited new supply is restoring the negotiating power of shopping centre owners. Regional mall owner Scentre Group (SCG) gained ground, adding 2.9%, whilst competitor Vicinity Centres (VCX) rose 1.6%. SCG-managed Carindale Property Trust (CDP) gained 5.6%, as the Lendlease Group (LLC) fund that owns a stake in the Westfield Carindale Shopping Centre appears to be on a trajectory to wind up. Owners of smaller neighbourhood shopping centres also outperformed, with Region Group (RGN) up 1.2% and Charter Hall Retail REIT (CQR) eking out a 0.1% gain.

Office property owners displayed some weakness in the quarter as bifurcation in the rent growth and values of office properties across jurisdictions and class appears to be widening. The cores of the Sydney and Brisbane CBDs appear to be recovering, with investor interest in those areas reemerging. Suburban and secondary locations are finding it more difficult to attract robust bidding and are seeing persistent elevated incentives. Smaller office property owners Centuria Office REIT (COF) and GDI Property Group (GDI) underperformed the market, losing 2.1% and 2.9% respectively. Mirvac Group (MGR) was a laggard, dropping 7.6%, while large cap competitor, Dexus (DXS) only gave up 0.8%.

Long weighted average lease expiry (WALE) property owners were amongst the weakest in the period. This property is particularly sensitive to longer term interest rates. With the Australian 10 Year Government Bond yield increasing from approximately 4.3% to 4.8% over the quarter, it is unsurprising that this property underperformed. Childcare property owners were weakest, facing higher interest rates and negative sentiment towards the sector. Charter Hall Social Infrastructure REIT (CQE) gave up 7.9%, while Arena REIT (ARF) lost 7.0%. It is worth noting that direct market transactions for this type of property appear to remain robust. Owners of petrol station properties fared somewhat better, but still underperformed, with Waypoint REIT (WPR) and Dexus Convenience Retail REIT (DXC) off 4.0% and 4.3% respectively.

Australia’s residential housing market is at an interesting juncture, with chronic undersupply running into ever increasing affordability concerns. Across the period, it appears as if house price momentum has stalled in Sydney and Melbourne, however, continues to march on in Brisbane, Perth and Adelaide. After producing solid returns earlier in the year, residential property developers lost some ground in the period. Peet Limited (PPC) announced the conclusion of its strategic review, with more of an “evolution” than a “revolution” in strategy. It was down 1.0% over the period. Perth-focused Finbar Group Limited (FRI) gave up 4.0%, however has restocked its project pipeline for the coming years. Large cap developer, Stockland (SGP) dropped 4.9%, easing after strong performance earlier in the year.

Market outlook

The listed property provides investors with the opportunity to gain exposure to high quality, institutionally managed, commercial real estate, with projections of solid prospective growth. While share market volatility may be uncomfortable at times, the offset is liquidity, enabling investors to rebalance portfolios without the risk of being trapped in illiquid vehicles.

Property, both listed and unlisted, is a particularly interest rate sensitive sector. In recent years interest rates rose off generational lows, providing a headwind for real estate returns and valuations. The Reserve Bank of Australia has now reduced its Cash Rate Target three times since February 2025, providing a more supportive environment for real estate securities. The August reporting season reflected this, with companies under coverage providing solid updates, valuation growth and an expectation of liquidity returning to the property transaction market. Long term valuations are driven by “normalised” interest costs, meaning the impact of short term hedges maturing is mostly immaterial.

The industrial sub-sector continues to show strong absorption of relatively high levels of supply, aided by the tailwinds of e-commerce growth, the potential onshoring of key manufacturing categories and the decision by many corporates to build some redundancy into supply chains to cope with current disruptions. All of these factors are contributing to ongoing demand for industrial space, albeit the previous period of market rents expanding rapidly appears to have dissipated. Vacancy rates remain near historic lows of around 3% in many markets. While rental growth has recently cooled, construction costs remain elevated, making additions to supply difficult and thereby prolonging conditions.

We remain cognisant of the structural changes occurring in the retail sector with the growing penetration of online sales and the greater importance of experiential offering inside malls. Recent performance of shopping centre owners has however been strong, with consumers showing resilience and share prices moving higher, with some trading at meaningful premiums to net tangible asset backing. Importantly, we are also now seeing positive re-leasing spreads in shopping centres, indicating strengthening demand from retail tenants. These outcomes are no doubt aided by minimal vacancy across retail portfolios.

The jury is still out on exactly how tenants will use office space moving forward, but demand for good quality, well located space remains solid and there is growing momentum from companies to get staff back into the office. Leasing activity is beginning to pick up, and transactional activity is also returning, with discounts to book values materially reduced. Incentives on new leases remain elevated. At this stage demand for office space appears to be highly variable depending on location, even within submarkets.

We expect to see limited further downside to asset values in office markets but elsewhere expect market rent growth to drive valuations higher as capitalisation rates appear to have stabilised. Listed securities provides exposure to such growth.

The content above is taken from the Cromwell Phoenix Property Securities Fund quarterly report. Sign up here to be the first to access the latest report and to gain a deeper insight into the Fund’s performance.

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Home Latest property industry research and insights
January 22, 2026

December 2025 direct property market update

Economy

As was often the case over 2025, geopolitics continue to cloud the economic outlook, with the U.S. military operation in Venezuela on 3 January the latest example. Financial markets have largely been unaffected to date, reflecting Venezuela accounting for less than 1 per cent of global oil production (despite holding the world’s largest reserves)1. However, the longer-term implications remain unclear, and subsequent comments regarding the future of Greenland’s sovereignty have added to uncertainty. While the direct implications for Australian real estate are limited, second-round effects could emerge through lower global growth, heightened market volatility, exchange rate movements, and any resulting shift in the inflation outlook – particularly if the U.S. dollar’s safe haven status were to diminish.

On the inflation front, CPI continued to print higher than expected over the final months of 2025. This data saw cash rate expectations shift, with the market pricing 45bps of hikes in 2026 as at 2 January2. The most recent CPI data, released 7 January, showed the pace of annual inflation slowing from 3.8% (October) to 3.4% (November)3, an outcome which was below market expectations (3.6%). While the moderation was welcome and slightly tempered both market expectations for rate hikes and long-term bond yields, it was largely driven by volatile categories such as electricity and holiday travel. Underlying price pressures remain, and the RBA will likely want to see several periods of downwards trend before considering the prospect of rate cuts.

 

 

Beyond inflation, cooling house prices and auction clearance rates may provide some confidence that current monetary policy settings are restrictive, but it is the labour market which will carry the greatest weight in the RBA’s deliberations. The unemployment rate has been steady at around 4.3% for the past six months4, but job vacancies, underemployment, and hours worked indicators do suggest conditions are slowly becoming less tight. Both the Labour Force (22 January) and CPI (28 January) data releases will be critical in guiding whether the RBA is likely to remain on hold or hike at its next meeting in early February – economists are currently split, with two of the major banks expecting no change and two expecting a 25bps increase to the cash rate.

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Office5

Net demand was positive for the eighth consecutive quarter, with occupied space increasing by nearly 44,000 square metres across the major CBD markets in the final three months of 2025. Sydney CBD recorded the strongest increase in net demand for the third consecutive quarter on a square metre basis. Australia’s largest office market benefitted from strong A-grade net absorption, with large financial and professional services occupiers leasing space across several buildings in the Midtown precinct. On a percentage basis, Adelaide CBD was the top-performing market with occupied stock increasing by 1.0%, also driven by large occupiers. Canberra was the only major market to record a contraction of occupied stock over the quarter, due to the consolidation of a federal government department’s office footprint. The rankings and performance of the major CBD markets in the final quarter were consistent with the results recorded on an annual basis over 2025.

The national CBD vacancy rate was unchanged over the quarter as new supply completions offset higher net demand. Adelaide CBD vacancy decreased from 15.7% to 14.9% reflecting the strong leasing performance over the quarter and an unchanged total stock level. Brisbane CBD saw the biggest increase in vacancy rate (+1.0%), as a partially vacant new Premium building reached completion. While Brisbane CBD vacancy has increased over the last two quarters, it has not been due to shrinking demand but rather the biggest calendar year of supply since 2012. Positively, no supply is expected to be added to the Brisbane CBD market in 2026, which in our opinion will put downwards pressure on vacancy and be supportive of rental growth.

 

National CBD prime net face rent growth accelerated to +1.5% for the quarter and +6.3% for the calendar year, the strongest pace of annual growth in eight years. Brisbane CBD led the way with quarterly growth of +2.6%, duly supported by Canberra and Sydney CBD. On an annual basis, the pace of growth accelerated in every major market except the Perth and Adelaide CBDs. Prime incentives were largely unchanged over the quarter, Brisbane CBD the exception with a decrease of 80bps. This improvement drove a strong outcome in Australia’s top-performing office market, with Brisbane CBD annual prime net effective rent growth hitting double digits for the 10th consecutive quarter. Prime rent growth continues to outperform rent growth across lower quality assets.

National office transaction volume exceeded $4 billion over the final three months of 2025, representing the strongest quarter of dealmaking since interest rate hikes put the brakes on real estate liquidity in 2022. Activity was headlined by Commonwealth Superannuation Corporation taking full control of Grosvenor Place (Sydney CBD), and GPT’s subsequent acquisition of 50% of the asset. Brisbane and Canberra also recorded transaction volume greater than the 10-year average, with Brisbane’s figures driven by a recovery in the number of deals. Average prime yields were unchanged in every major market except Melbourne CBD, which saw a small expansion over the quarter.

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Retail5

Improving household wealth and income have continued to flow through to consumption despite consumer sentiment remaining in pessimistic territory. Household Spending Indicator data for October, the most current at time of writing, showed the strongest monthly growth in spending since early 2024 and the strongest annual growth since late 2023. The Clothing and footwear category was the top performer over the month, a positive for Regional shopping centres which have a higher weighting to discretionary consumption. Non-discretionary consumption delivered stronger growth on an annual basis, with spending in the grocery sub-category increasing +7.0% year-on-year6.

A positive demand environment combined with limited new supply led to improvement in retail vacancy rates. Neighbourhoods was the only centre type to record an increase in stock level over the quarter, as four new developments reached completion. Regionals vacancy declined to its lowest level in over ten years, with conditions improving the most along the East Coast. Neighbourhoods vacancy declined to its lowest level in nine years, led by South-East Queensland and Perth. It was a mixed bag for Sub-Regionals, with the vacancy rate over the last six months increasing in Melbourne by 120bps but decreasing in Perth by 190bps.

Net rents were relatively unchanged over the quarter. Sydney and Melbourne Regionals both recorded rising rents for the second consecutive quarter, albeit muted growth of just +0.2%. South-East Queensland remains the top-performing Regional shopping centre market on an annual basis despite being flat over the last three months. It was a similar story in Neighbourhoods, with Sydney recording quarterly growth of +0.2% and Melbourne net rents increasing by +0.3%. No markets recorded net rent growth for Sub-Regional centres.

Retail transaction volume strengthened over the quarter, totalling over $3.5 billion. Regional shopping centres dominated activity, comprising the three largest deals and nearly $1.9 billion of volume. Like last quarter, the largest deal was a 25% stake in the country’s second-largest shopping centre, Westfield Chermside in Brisbane. It was an active quarter for Sub-Regional and Large Format centres as well, with both centre types exceeding their average quarterly volume of the past five and ten years.

There were signs of retail yield compression across the quarter, consistent with stronger deal volume and investor interest. Regional average equivalent yields compressed by 12-13bps in Perth, Adelaide, and Melbourne. For Sub-Regionals, only the lowest (Sydney) and highest (Perth) yield markets were unchanged, with South-East Queensland, Adelaide, and Melbourne all recording compression of 12-19bps. It was a similar story in Neighbourhood centres with South-East Queensland, Melbourne, and Perth yields compressing 7-13bps.

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Industrial5

Occupier take-up (gross demand) softened compared to last quarter but remained well above the pre-COVID average. Retail & Wholesale Trade recorded the biggest decrease on a percentage basis, largely due to a slowdown in leasing activity from wholesalers. Manufacturing demand was resilient, exceeding 150,000 square metres, while smaller occupier industries such as Construction, Utilities, and Public Administration continued to record elevated demand relative to trend. From a geographical perspective, Melbourne recorded the most gross take-up at nearly 290,000 square metres. However, it was Perth that was the top-performer, recording its strongest quarter of demand since mid-2015. Perth’s strong outcome was driven by pre-leasing activity at new developments.

While demand is moderating, so too is supply. Just over 540,000 square metres of stock was added to the market in the final quarter, 11% less than the quarterly average over the last five years. Completions for 2025 totalled 2.3 million square metres, the lowest level of supply in a calendar year since 2021. There is currently 2.2 million square metres of supply under construction and due for completion in 2026, with a further 1 million square metres having plans approved or submitted and also scheduled for completion this year. A consistent trend over 2025 was the delay or postponement of projects due to construction and feasibility constraints, and this dynamic looks set to continue.

Prime net rent growth improved slightly on last quarter, averaging +1.0% nationally. Adelaide was the top-performing market as the majority of its precincts recorded rent growth of approximately +3.0% for the quarter. Rent growth was solid in Brisbane but largely flat across Sydney, Melbourne and Perth. Across the East Coast, market rent growth continues to normalise as vacancy rates move back towards long-term averages. Average prime incentives decreased by 250bps in every Perth precinct and were largely unchanged across the other markets, supporting effective rents.

Industrial transaction volume was weak in the final quarter of 2025, driven by a lack of large portfolio deals and limited transaction activity in the two largest markets (Sydney and Melbourne). For the first time in five years, Brisbane was the highest volume market in dollar terms, underpinned by the Southern precinct.

Average prime yields compressed by 12bps across most precincts in Sydney, which maintained its position as Australia’s tightest market. Most Adelaide precincts also recorded compression, ranging from 13-25bps. At the other end of the spectrum, Melbourne yields expanded by 25bps in each of its three major precincts. Anecdotally, confidence and pricing have been impacted by an uncertain policy environment.

Outlook

While the S&P500 has risen to record highs, trade policy uncertainty remains a headwind for stronger investor confidence. The Supreme Court is set to rule imminently on the legality of Trump imposing tariffs using IEEPA powers. Jobs growth and company earnings could benefit from the removal of the tariffs. However, the administration has indicated that other legislative instruments (such as the 1962 Trade Act) will be used to maintain the status quo if the current arrangement is struck down. Geopolitics more broadly will be closely watched, as the implications of the Venezuela operation become clearer. Trump also appears to be laying the groundwork for Greenland negotiations, which could result in the US gaining greater access to the territory’s natural resources (e.g. rare earth minerals). Meanwhile, protests have intensified in Iran, adding another layer of geopolitical risk for markets.

While Australia is not immune from global ructions, it is relatively insulated. The RBA has delivered a “soft landing” to date, but inflation remains elevated and needs to be addressed before expectations become unanchored from the 2-3% target range. This can be achieved with tweaks to monetary policy – rather than wholesale changes – as economic data evolves.

The commercial property market continues to stabilise, with improving sentiment evident in both capital flows and leasing fundamentals. Construction remains prohibitively expensive in most circumstances, crimping development pipelines and supporting the valuation and rent growth outlook for existing assets. Office appears to have reached an inflection point, with valuations improving and institutional and offshore capital becoming more acquisitive, particularly for prime assets. A similar, more progressed story is playing out in retail, as shopping centres at either end of the leisure-convenience spectrum record tightening yields. We see industrial performance becoming more precinct-specific, as greater variance in space market fundamentals emerges across markets and asset types.

 

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Footnotes

  1. Venezuela to continue supplying oil to US ‘indefinitely’, White House says, The Guardian (8 January 2026)

  2. ASX (Jan-26)

  3. CPI Nov-25, ABS (Jan-26)

  4. Labour Force Nov-25, ABS (Dec-25)

  5. Cromwell analysis of JLL data (Dec-25)

  6. Monthly Household Spending Indicator Oct-25, ABS (Dec-25)

 

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Home Latest property industry research and insights
November 27, 2025

Tracking the office recovery – five charts that tell the story

Colin Mackay, Research & Investment Strategy Manager, Cromwell Property Group

After a 19-year premiership drought, the Broncos have returned to the top of the rugby league totem pole. Another redemption story, not as long in the making, is underway in commercial real estate. Office was out of favour through the pandemic, weighed down by rising interest rates, subdued liquidity, and concerns that remote work would irreparably damage demand for space. Now, conditions are improving and sentiment is becoming more positive – and the proof is in the total return pudding. Below are five charts that highlight the recovery occurring in the office sector.

1. Asset prices appear to have bottomed

Office asset values across Australia fell -18% from late 2022 to the end of 2024. The devaluation cycle appears to have concluded, with appreciation of +1.2% recorded over the first half of 20251 . The downturn has created a compelling entry point for investors – office is currently providing a larger yield premium over the Australian 10-year Government Bond compared to the 30-year average.

The downturn has created a compelling entry point for investors – office is currently providing a larger yield premium over the Australian 10-year Government Bond compared to the 30-year average.

2. Investment performance is improving

Stable yields and ongoing income growth have contributed to an improvement in total return. Performance has been positive for the last two quarters, leading to the strongest rolling annual total return since early 2023.

3. Tenant demand now exceeds pre-pandemic levels

The income growth side of the ledger has been driven by strengthening tenant demand. Remote work did have a significant impact on occupied space in 2020, however demand has been increasing for nearly five years now. The recovery is even more impressive when split by asset quality – prime grade assets have recorded demand growth of +11% over the last five years, while demand for space in secondary assets contracted by -9%.

4. Rents are growing in most markets

Stronger tenant demand has flowed through to rents. Over the last five years, rents have increased in every major CBD market except Melbourne. Consequently, annual national CBD rent growth has been outpacing inflation since September 2024. Additionally, prime incentives are significantly higher than the long-term average in every major market, suggesting there is scope for them to fall if leasing conditions remain favourable. Decreasing incentives would provide a tailwind for income growth.

5. Future supply risk is lower than average

Construction is prohibitively expensive and new developments are very rarely “stacking up” in the current environment. With few projects breaking ground, the supply of CBD office space is expected to increase by only +0.3% p.a. to 2030, well below the long-term average annual rate of +1.1% and significantly lagging white collar jobs growth. A constrained supply pipeline should put downwards pressure on vacancy rates, supporting the sustainability of the recovery and the outlook for rent growth.

Heading in the right direction

While the turnaround of a real estate sector doesn’t happen overnight, multiple metrics show office is improving. For some, fear of catching a falling knife is turning into fear of missing out on the recovery upswing. With dual levers of stronger demand and weaker supply boding well for a tightening of vacancy and continued rent growth, office has every chance of topping the investment return table over the coming year.

 

 

  1. Cromwell analysis of MSCI data (Jun-25)

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Home Latest property industry research and insights
October 30, 2025

September 2025 quarter ASX A-REIT market update

Stuart Cartledge, Managing Director, Phoenix Portfolios

 

Market Commentary

The S&P/ASX 300 A-REIT Accumulation Index rose 4.8% over the September quarter, marginally underperforming the broader equity market, with the S&P ASX 300 Index returning 5.0%.

Most companies under coverage reported full financial year results to 30 June 2025 during the period. Broadly speaking results were solid. Headwinds of higher interest rates and subsequent asset devaluation appear to be a thing of the past, with forecast finance costs stabilising and valuations growing in line with rent growth. This is resulting in expectations of growth in funds from operations (FFO) and dividends per security moving forward.

The benchmark was dragged lower by Industrial heavyweight Goodman Group (GMG), giving up recent gains due to underwhelming forward guidance presented at its full year result. It closed the quarter 4.3% lower. Alternatively, the more conducive local market environment helped other property fund managers. Both Charter Hall Group (CHC) and Centuria Capital Group (CNI) reported that many of their investment channels are opening, most notably property syndicates sold to retail investors. CHC posted a solid result, with full year funds under management growth driven by capital expenditure and development activity. Moreover, forecast earnings per security growth of 10.6% exceeded expectations. CHC finished the quarter 18.6% higher. Similarly, CNI shook off concerns of a more challenging real estate cycle, with their largest property syndicate yet receiving strong demand. CNI also guided to earnings per security growth of 10%. The company’s share price jumped 31.2% higher in the September quarter.

Owners of shopping centres performed strongly over the period. After facing a more challenging backdrop, shopping centres are now operating in a supportive environment, with lower interest rates translating into consumer confidence and increased spending. Both Scentre Group (SCG) and Vicinity Centres (VCX) showed specialty sales growth that improved through every quarter of the financial year. Both also indicated strong outcomes continued into July and August. SCG gained 17.1%, while VCX rose 4.5%. Both now trade at a premium to net tangible asset backing, a scenario that seemed highly implausible not long ago. Similarly, owners of smaller neighbourhood shopping centres performed well, lifted by similar drivers. Region Group (RGN) added 8.6% and Charter Hall Retail REIT (CQR) finished the period 9.2% higher.

Office property owners mostly performed well in the quarter however performance was somewhat divergent amongst peers. It appears as if capitalisation rates have stabilised, face rents are growing slowly, and incentives have begun to decline. Despite this, most new office leases still require incentives of more than 40% of net rent to be paid, with demand highly varied, even within submarkets. Cromwell Property Group (CMW) led the way, up 36.0%, with a new large shareholder on the register. GPT Group (GPT) and Growthpoint Properties Australia (GOZ) both performed well, gaining 11.0% and 10.3% respectively. Dexus also outperformed the broader market adding 8.0%, in what was a reasonably tumultuous period for its funds management business. Mirvac Group (MGR) lagged the pack but still added 3.2% over the quarter.

Ongoing house price growth around the country supported residential property developers during the period. Perth-based developers performed particularly well, with Finbar Group (FRI) rising 25.7% and Peet Limited (PPC) up 20.6% as financial results and forward outlook for the companies remained strong. Stockland also rose sharply, gaining 14.2%, presenting a rosy outlook for ongoing growth. Aspen Group (APZ) also continued its move higher, benefitting from major index inclusion. It finished the quarter 18.5% higher.

Market outlook

The listed property sector is in good shape and provides investors with the opportunity to gain exposure to high quality, institutionally managed, commercial real estate, with projections of solid prospective growth. While share market volatility may be uncomfortable at times, the offset is liquidity, enabling investors to rebalance portfolios without the risk of being trapped in illiquid vehicles.

Property, both listed and unlisted, is a particularly interest rate sensitive sector. In recent years interest rates rose off generational lows, providing a headwind for real estate returns and valuations. The Reserve Bank of Australia has now reduced its Cash Rate Target three times since February 2025, providing a more supportive environment for real estate securities. The August reporting season reflected this, with companies under coverage providing solid updates, valuation growth and an expectation of liquidity returning to the property transaction market. Long term valuations are driven by “normalised” interest costs, meaning the impact of short-term hedges maturing is mostly immaterial.

The industrial sub-sector continues to show strong absorption of relatively high levels of supply, aided by the tailwinds of e-commerce growth, the potential onshoring of key manufacturing categories and the decision by many corporates to build some redundancy into supply chains to cope with current disruptions. All of these factors are contributing to ongoing demand for industrial space, albeit the previous period of market rents expanding rapidly appears to have dissipated. Vacancy rates remain near historic lows of around 2% in many markets. While rental growth has recently cooled, construction costs remain elevated, making additions to supply difficult and thereby prolonging conditions.

We remain cognisant of the structural changes occurring in the Retail sector with the growing penetration of online sales and the greater importance of experiential offering inside malls. Recent performance of shopping centre owners has however been strong, with consumers showing resilience and share prices moving higher, with some trading at meaningful premiums to net tangible asset backing. Importantly, we are also now seeing positive re-leasing spreads in shopping centres, indicating strengthening demand from retail tenants. These outcomes are no doubt aided by minimal vacancy across retail portfolios.

The jury is still out on exactly how tenants will use office space moving forward, but demand for good quality, well located space remains solid and there is growing momentum from companies to get staff back into the office. Leasing activity is beginning to pick up, and transactional activity is also returning, with discounts to book values materially reduced. Incentives on new leases remain elevated. At this stage demand for office space appears to be highly variable depending on location, even within submarkets.

We expect to see limited further downside to asset values in office markets but elsewhere expect market rent growth to drive valuations higher as capitalisation rates appear to have stabilised. Listed securities provides exposure to such growth.

The content above is taken from the Cromwell Phoenix Property Securities Fund quarterly report. Sign up here to be the first to access the latest report and to gain a deeper insight into the Fund’s performance.

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