Chapter 4
Australian Market Comparisons
CBRE New Zealand Real Estate Market Outlook 2025
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Australian Market Comparisons
This section provides a comparison of the New Zealand and Australian real estate markets, highlighting key differences and similarities in market trends, investment returns, and rental growth.
By examining factors such as cap rates and rental performance across various sectors, the insights offer an understanding of how the New Zealand market stacks up against its Australian counterparts.
Read on for an in-depth analysis of these comparative market dynamics.
Indicative Cap Rates for Prime Assets in select locations
Australia & New Zealand Industrial Market Comparisons
We are witnessing a steady increase in the vacancy rate across all cities as demand normalises. Rental growth rates across all cities have been slowing since Q2 2023, from record high growth rates.
Australian super prime net face rents (supply-weighted average) reached a record y-o-y growth rate of 27% in 1Q23. Despite reduced growth rates over the past couple of years, rental growth has remained in double digit territory and only in 3Q24 fell to 9.0% (y-o-y). Slowing growth rate is expected to continue, however positive rental growth will remain in the medium term as supply constraints persist. We forecast net face rent growth in 2025 to equate to c4.0% nationally.
It is important to note, we expect to continue witnessing a bifurcation of rental growth performance in 2025. In some precincts we forecast limited-to-no growth over the next 12 months, and other pockets are forecasted to record further face rental growth (above 4.0%).
On an effective rent growth basis, there will be minimal growth in Australian industrial rents in 2025 as incentive levels continue to trend upwards. Average incentives for super prime grade assets currently stand at 17% (up from 13% a year ago).
In New Zealand, effective rents are expected to continue the trend of 2024 and fall back slightly in H1 2025 but improving leasing market conditions will drive renewed growth in the 3.0% to 4.0% range during 2026 to 2027. Following the economic recovery and the occupier market’s improvement, incentives will likely come back first in H2 2025 before net face rents go up in 2026.
Australian super prime net face rents (supply-weighted average) reached a record y-o-y growth rate of 27% in 1Q23. Despite reduced growth rates over the past couple of years, rental growth has remained in double digit territory and only in 3Q24 fell to 9.0% (y-o-y). Slowing growth rate is expected to continue, however positive rental growth will remain in the medium term as supply constraints persist. We forecast net face rent growth in 2025 to equate to c4.0% nationally.
It is important to note, we expect to continue witnessing a bifurcation of rental growth performance in 2025. In some precincts we forecast limited-to-no growth over the next 12 months, and other pockets are forecasted to record further face rental growth (above 4.0%).
On an effective rent growth basis, there will be minimal growth in Australian industrial rents in 2025 as incentive levels continue to trend upwards. Average incentives for super prime grade assets currently stand at 17% (up from 13% a year ago).
In New Zealand, effective rents are expected to continue the trend of 2024 and fall back slightly in H1 2025 but improving leasing market conditions will drive renewed growth in the 3.0% to 4.0% range during 2026 to 2027. Following the economic recovery and the occupier market’s improvement, incentives will likely come back first in H2 2025 before net face rents go up in 2026.
Australia & New Zealand Office Market Comparisons
Leasing volumes were soft in 2024 as the economic climate saw tenants delay decisions or renew in their current premises. Despite this, Australian CBD prime effective rents grew by 5.0%. Sydney (particularly the Core precinct) and Brisbane outperformed and only Perth saw negative effective rental growth in 2024.
We expect further rental growth in 2025. The large gap in rents between existing building and new development helps push up growth in stronger performing markets. Also, the major contractionary activity and sublease availability of the past few years appears to have passed. Finally, markets that have been relatively weak, like Melbourne, are witnessing centralisation into the CBD. This will underpin net absorption and help to drive rents higher.
Brisbane and Sydney are likely to be the outperformers once again in 2025.
New Zealand rents show bifurcation with Premium grade buildings outperforming Grade A. The vacancy differential will ensure that this trend will continue through 2025. As demand conditions improve, we expect growth in Grade A rents to strengthen towards the end of the year.
We expect further rental growth in 2025. The large gap in rents between existing building and new development helps push up growth in stronger performing markets. Also, the major contractionary activity and sublease availability of the past few years appears to have passed. Finally, markets that have been relatively weak, like Melbourne, are witnessing centralisation into the CBD. This will underpin net absorption and help to drive rents higher.
Brisbane and Sydney are likely to be the outperformers once again in 2025.
New Zealand rents show bifurcation with Premium grade buildings outperforming Grade A. The vacancy differential will ensure that this trend will continue through 2025. As demand conditions improve, we expect growth in Grade A rents to strengthen towards the end of the year.
Australia & New Zealand Retail Market Comparisons
Rents for shopping centres are forecast to grow at low-single rates through 2025, building on the growth experienced in 2024. Limited supply of new space and solid occupancy levels will help to maintain demand for shopping centre space.
Shopping centre rents in New Zealand were more resilient than in Australian cities during the Covid lockdowns and, assisted by CPI based rent review mechanism and good turnover growth in catchment dominant centres, have shown a healthy rebound in the past two years. The inflationary impetus will diminish in 2025 and, with retail sales under pressure in a challenging economic environment, stable rents are forecast in the coming year.
CBD rents are expected to continue their post-COVID recovery, growing by low-single digits across 2025. Melbourne will see the strongest turnaround with the completion of a number of key retail developments in and around Bourke Street Mall expected to spur a recovery in tenant demand.
Shopping centre occupancy has remained resilient, in the high 90% range. For CBD shops, vacancy rates have been elevated, ranging from 8.0% in Sydney to 25% in Perth, per CBRE. We expect vacancy to tighten off the back of lack of new supply in a strong retail environment.
Shopping centre rents in New Zealand were more resilient than in Australian cities during the Covid lockdowns and, assisted by CPI based rent review mechanism and good turnover growth in catchment dominant centres, have shown a healthy rebound in the past two years. The inflationary impetus will diminish in 2025 and, with retail sales under pressure in a challenging economic environment, stable rents are forecast in the coming year.
CBD rents are expected to continue their post-COVID recovery, growing by low-single digits across 2025. Melbourne will see the strongest turnaround with the completion of a number of key retail developments in and around Bourke Street Mall expected to spur a recovery in tenant demand.
Shopping centre occupancy has remained resilient, in the high 90% range. For CBD shops, vacancy rates have been elevated, ranging from 8.0% in Sydney to 25% in Perth, per CBRE. We expect vacancy to tighten off the back of lack of new supply in a strong retail environment.