KPMG Commercial Property Market Update

Commercial property overview

All three core asset classes delivered positive returns in the latest data for the September quarter 2025, the first time since the June quarter 2023, and consistent with our expectations set earlier this year. KPMG remains optimistic about the long-term demand for commercial property, underpinned by the sector’s long-term stability characteristics.

The KPMG Commercial Property Uncertainty Index shows that uncertainty across the three sectors is now at low levels compared to their historical levels, reinforcing the view that confidence is returning to the market.

Key insights into Australia's commercial property market

The Office Sector
- Investor sentiment towards Australia’s office sector remains cautious, with vacancy rates remaining elevated.
- Market conditions continue to reflect volatility typical of a sector in transition. Core markets have shown face rental growth, and total returns have turned positive for the second consecutive quarter after a prolonged period of negative growth since June 2023. Total returns reached 4.4% in the September quarter 2025.
- But progress is uneven and tends to be concentrated in prime-grade assets, while secondary-grade stock continues to face persistent challenges.
The Retail Sector
- Retail conditions continue to improve reflecting robust fundamentals.
- Total returns are currently at 7.3% in the September quarter 2025, marking six consecutive quarters of increasing returns and representing the highest performance among the three major property sectors.
- Cap rates have remained mostly stable over the half-year, though market feedback suggests early signs of compression as confidence builds, particularly for the neighbourhood subsector.
The Industrial Sector
- Cap rates have remained stable at around 5.4% with minor fluctuations reflecting sustained investor sentiments. Early signs of moderate cap rate compression are evident in some core precincts.
- Total returns across all industrial markets have remained positive for four consecutive quarters, reaching 6.4% in the September quarter 2025 after a prolonged correction through late 2023 and much of 2024.
- Vacancy rose to 3.7% driven by elevated supply delivery but still well below pre-pandemic levels. Construction costs, which peaked during the pandemic, have eased but remain elevated and are showing signs of renewed upward pressure. As a result, the development pipeline is expected to moderate in 2026 as rising costs weigh on new project commencements.

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KPMG’s forecast of the complex commercial property market, highlighting current dynamics across different cities globally.

Commercial Property Market Update – December 2025

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Commercial Property Market Update – June 2025

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Commercial Property Market Update – July 2024

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KPMG’s team of specialist economists analyse the commercial property market, providing historic and forecast figures.

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