Scarcity and Sentiment: How Tight Supply Is Fuelling a Property Boom

Australia’s commercial property market has entered a new era of optimism, with sentiment reaching its highest point in eight years. The excitement is reflected in the NAB Commercial Property Index, which jumped to +24 in early 2025, the best it's been since 2017. This growing positivity is catching the attention of both seasoned investors and newcomers, showing that the market is steadily on the rise.

Why is the Market Feeling Good?

A key driver of this renewed enthusiasm is the expectation of further interest rate cuts. The Reserve Bank’s decision to reduce rates twice so far this year, once in February and more recently just this month, immediately lowered borrowing costs, making commercial acquisitions more accessible to a broader range of investors. As market participants anticipate additional rate relief over the coming months, finance costs are expected to remain attractive, creating fertile ground for new deals.

At the same time, the fundamentals in certain sectors have never looked stronger. Industrial properties continue to attract intense demand as the rise of e-commerce places logistics and warehousing at the forefront of corporate supply chains. Meanwhile, recovering tourism and business travel is reigniting confidence in hospitality assets.

Less Supply, More Value

Supply constraints are also reinforcing positive sentiment. A slowdown in new developments, driven in part by higher construction costs and tighter lending criteria for large projects, has reduced the availability of prime commercial spaces. This scarcity is translating into higher rental yields and rising capital values in sought-after locations. Investors who secure well-located assets now stand to benefit from both rental income growth and capital appreciation as competition for quality stock intensifies.

The Results Are In

NAB’s survey results demonstrate that the twelve-month outlook for capital and rental growth jumped to its strongest level in over seven years, while the two-year outlook climbed to a thirteen-year high. These elevated projections indicate that the positive sentiment is not a fleeting phenomenon but rather reflects a deep-seated belief in the market’s resilience and capacity for sustained performance. For new investors, this dual-horizon confidence should offer reassurance that short-term gains can coexist with longer-term growth objectives.

Despite the overall upswing, nuances between asset classes remain important to understand. Industrial property leads the charge, underpinned by structural shifts in retail and manufacturing logistics. Investors are drawn to the stability and predictability of leases in this sector, making it a cornerstone of many portfolios. The hotel sector’s rebound is most pronounced in central business districts, where demand from international visitors and corporate events is driving a sharp recovery. Retail property has also seen a turnaround: renewed consumer spending and the experiential retail trend are boosting foot traffic in shopping precincts, lifting confidence among landlords and tenants alike. By contrast, office accommodation is improving more gradually. While many organisations are embracing hybrid work models, the appetite for high-quality, flexible office space is growing steadily, suggesting a cautious but positive path ahead for workplace assets.

Partner with experience

At MCommercial, we're here to guide you through the numbers and trends while keeping the focus on your specific investment goals. The current market landscape presents compelling opportunities that shouldn't be missed. With our expert knowledge and vast network, we'll help you conduct thorough research into various property sub-sectors and regions that suit your specific needs. Partnering with us ensures your investment goals are perfectly aligned with market realities. Reach out for a chat, we’re more than happy to be your trusted ally in unlocking the full potential of commercial property investment and help you make confident decisions and manage risks effectively.