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Pacific Real Estate Market Outlook 2026

January 27, 2026 20 Minute Read

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CBRE’s Pacific Market Outlook Report provides insights into commercial real estate in Australia and New Zealand, including trends, opportunities, and challenges. This coming year sees reduced property choice driven by fewer new developments entering the supply pipeline.


Sustainably high cost of construction is likely to materially dampen future supply. In fact, economic rents for most assets have risen by 40% to 90% and sit 20% to 30% above market rents. We continue to have faith in our long-held view of a
“rent-a-demic” as vacancy tightens again.  


Except for assets located in premium precincts, we expect net effective rents should grow by low single digits. Leasing activity is likely to pick up through 2026 to take advantage of attractive incentives and supply shortfall.  


Both Australia and New Zealand are likely to experience economic growth (+2.0%), albeit below trend. We see interest rates on hold in both markets.  


Transaction volumes should continue to grow in 2026, rising by ~5-10%, with faster growth in Office. Over 2026-28, we see cap rates tightening by 25bps to 40bps depending upon asset class. 

Economic & Investment Outlook 

Economic Outlook  

Australia’s economy is forecast to grow 2.0% in 2026, supported by immigration, infrastructure, and care sectors, with interest rates likely on hold. Unemployment may edge up to 4.6%. New Zealand’s economy is expected to grow 2.3% and inflation recede to 1.8%. Tourism related services are a welcome boost to consumption pressure. Both countries’ strong population growth will underpin real estate demand, while monetary policy divergence shapes investment conditions. 

Investment Outlook 

Investment volumes are forecast to grow 5–10% in 2026, led by Office and Industrial sectors, with cap rates tightening 25–40 bps through 2028. Total returns of ~10% p.a. are expected for nearly half of prime assets, driven by income for retail and capital growth for apartments. Pricing remains 30% below replacement cost, favouring a buy-over-build strategy amid stable credit margins and strong lender appetite. 
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Themes

  1. New development supply is likely to fall by 20%-50% of historical levels for the rest of the decade.  

  2. Construction cost growth could re-accelerate to mid-single digits.  

  3. Industrial and Residential precincts sitting alongside Infrastructure investment in metro rail, roads, airport and defence further outperform. 
  4. Occupiers and investors start to formalise view on the rate of impact of AI, autonomous driving, eCommerce, GLPs and robotics on Australian real estate. Local employment impacts are more likely in 2030s.
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Industrial & Logistics

Industrial & Logistics markets remain structurally tight despite elevated development activity. Vacancy is forecast to peak at 3.6% in 2H26, still below equilibrium. Effective rents will turn positive in 2026 as incentives stabilise, widening the gap between super prime and secondary assets. Rising e-commerce and hyperscale data centre demand intensify competition for land, while construction and land costs continue to escalate, compressing developer margins.  

Key Takeaways 

  1. Structural Tightness Persists 

    Despite elevated development activity, Australia’s industrial market remains undersupplied. Vacancy is forecast to peak at ~3.6% in 2H26, still below the long-term equilibrium of 4%, reinforcing a structurally tight leasing environment. 

  2. Effective Rent Growth Returns 

    Effective rents are expected to turn positive in 2026 as incentives stabilise and begin to unwind. This will widen the rental gap between super prime and secondary assets, favouring modern, high-spec facilities. 

  3. E-Commerce & Q-Commerce Acceleration 

    Online retail penetration continues to rise, with Quick Commerce (Q-Commerce) driving demand for micro-fulfilment centres and last-mile logistics facilities in metro areas, reshaping industrial location strategies. 

  4. Data Centres Intensify Land Competition 

    Hyperscale and AI-driven data centre development is competing for industrial land, pushing up values and reinforcing scarcity. Australia’s live capacity is forecast to rise from 1.3 GW to 1.8 GW by 2028, yet demand could exceed supply by up to 1.2 GW. 

  5. Rising Costs Compress Margins 

    Land and construction costs have surged 62–77% in key precincts over the past four years, driven by infrastructure investment and supply constraints. This margin compression makes efficient development strategies critical.

For detailed insights, refer to our full report.

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Office

Australia’s CBD office market is positioned for strong recovery, with total returns forecast to exceed historical averages, led by Brisbane and Canberra. Net effective rents are expected to grow +3.3% in 2026, supported by limited new supply—three of the next five years will see no new Sydney completions. Economic rents now exceed market rents by 20–35%, reinforcing pricing power for premium assets amid tightening cap rates and falling vacancies. 

Key Takeaways 

  1. Strong Recovery in Returns 

    Total returns for CBD office assets are forecast to exceed historical averages over the next three years, led by Brisbane and Canberra, supported by improving net effective rents and modest cap rate tightening. 

  2. Limited New Supply 

    New CBD office supply will be sharply constrained—three of the next five years will see no new Sydney completions, and most other cities will have four years with no new supply. This scarcity will drive rental growth. 

  3. Net Effective Rent Growth 

    CBRE forecasts +3.3% NER growth in 2026, with Brisbane (+7.3%) and Sydney (+6.6%) leading the pack. Melbourne’s recovery is expected from 2027 as incentives decline from current peaks. 

  4. Economic vs Market Rent Gap 

    Economic rents for premium office have risen 60% since 2020, driven by higher construction costs and incentives. Market rents remain 20–35% below economic rents, reinforcing pricing power for premium assets. 

  5. Occupier Optimism 

    Office occupier surveys indicate growing confidence, with 33% of tenants planning to expand footprint over the next three years. Rent remains a small share of operating costs, enabling continued investment in employee experience. 

For detailed insights, refer to our full report.
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Retail

Australia’s retail sector remains resilient, supported by strong consumer spending and food-led growth. Shopping centre rents are forecast to rise mid-single digits in 2026, with Perth outperforming. Vacancy rates remain low (sub-5%) amid limited new supply, as development costs and land prices constrain new builds. Large Format Retail and neighbourhood centres dominate the pipeline, while metro centres near major cities deliver superior occupancy and returns.

Key Takeaways

  1. Retail Resilience

    Australia’s retail sector remains robust, supported by strong consumer spending and food-led growth. Food is emerging as the engine room for shopping centres, driving visitation and cross-spend.

  2. Vacancy Rates Stay Low

    Shopping centre vacancy rates remain sub-5%, reflecting resilient occupancy and limited new supply. Metro centres near major cities outperform with vacancy averaging 0.9%.

  3. Rental Growth Outlook

    Shopping centre rents are forecast to grow at mid-single digits in 2026, with Perth expected to deliver high single-digit growth. CBD retail rents continue their post-COVID recovery.

  4. Development Pipeline Shifts

    New retail supply is dominated by Large Format Retail (42%) and Neighbourhood centres (38%), aimed at supporting population growth. Regional and CBD projects are mostly refurbishments and extensions.

  5. Rising Build Costs Stall New Projects

    Construction costs have surged ~30% over five years, and land prices have outpaced rents, widening the cost-to-rent gap. This disconnect has stalled new development, reinforcing scarcity and supporting rental growth.

For detailed insights, refer to our full report.

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Living

Australia’s Living sector faces a structural supply shortfall, with apartment completions forecast at ~60,000 annually, well below long-run demand of 75–85k. Vacancy is expected to fall to 1.1% by 2030, reinforcing strong fundamentals. Rents are projected to grow +24% and capital values +28% over 2025–2030. Student accommodation and senior living remain underpenetrated, creating significant investment opportunities amid demographic shifts and affordability pressures.

Key Takeaways

  1. Persistent Supply Shortfall

    Apartment supply is forecast to hover around 60,000 units annually, well below long-run demand of 75–85k. This structural gap will keep vacancy rates tight and support rental growth.

  2. Vacancy to Fall Further

    Capital city vacancy is expected to decline from 1.8% in 2025 to 1.1% by 2030, reinforcing strong fundamentals for residential investment.

  3. Strong Rent & Value Growth

    CBRE projects +24% rent growth and +28% capital value growth for apartments between 2025–2030, driven by demand-supply imbalance and demographic trends.

  4. Student Accommodation Opportunity

    Purpose-built student accommodation (PBSA) penetration is set to rise to ~8% of university students, but unmet demand remains high at ~180,000 beds across major precincts.

  5. Senior Living Underpenetrated

    Only 11% of Australians over 65 live in purpose-built senior living communities. Homes in newer land lease communities are already trading at premiums, signalling strong growth potential.

For detailed insights, refer to our full report.

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Hotels

Australia’s hotel sector is positioned for growth, supported by tourism recovery, population gains, and major events like the Brisbane Olympics. Investment appetite remains strong, with yields expected to tighten modestly. Development activity is constrained by high construction costs, favouring refurbishment and repositioning strategies. Premium assets in gateway cities and leisure destinations are likely to outperform amid rising occupancy and ADR trends.

Key Takeaways

  1. Tourism Recovery Driving Demand

    Hotel performance is rebounding strongly, supported by international tourism recovery, domestic travel, and major events like the Brisbane Olympics.

  2. Investment Appetite Remains Strong

    Investor interest in hotels is robust, with yields expected to tighten modestly as capital seeks exposure to leisure and hospitality assets.

  3. Development Challenges

    High construction costs and land price escalation are constraining new hotel development, making refurbishments and repositioning strategies more attractive.

  4. Gateway Cities & Leisure Destinations Outperform

    Premium assets in Sydney, Melbourne, and key leisure markets are expected to lead performance, benefitting from strong occupancy and ADR growth.

  5. Structural Tailwinds

    Population growth, infrastructure investment, and evolving consumer preferences for experiential travel will underpin long-term demand for hotel assets.

For detailed insights, refer to our full report.
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Risk 

Real estate risks centre on potential increases in property taxes and persistent construction and regulatory cost inflation, which continue to challenge new development viability. Energy costs, labour shortages and natural‑disaster‑related pressures may elevate expenses further, while occupier demand could soften as businesses weigh technology impacts. Governments may also lift land or stamp duties to manage fiscal pressures.

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