After several years of decline, Australia’s commercial real estate sector is showing clear signs of recovery, with all major unlisted property fund types delivering capital growth in the third quarter of 2025. This shift suggests that institutional money could return to these large-scale funds, though the speed and consistency of the recovery remain uncertain.
The tide has turned for the $97 billion unlisted property fund market tracked by MSCI’s benchmark index, which covers office buildings, shopping centres, warehouses and mixed-use developments. Recent data shows the first overall increase in asset values since 2022, a key change following previous value losses caused by rising interest rates, economic uncertainty and the lasting impact of the pandemic.
Each of the four main asset categories - office, industrial, retail and diversified - saw gains in the quarter, with the broader index posting 0.89% growth in Q3. Though these gains are modest, they contrast sharply with the nearly 20% decline recorded from 2022 to early 2024. Analysts indicate that these small improvements suggest a gradual recovery, although not all sectors are rebounding at the same pace.
Office funds, which suffered the most with losses exceeding 30% from their peak, have now recorded a slight gain, delivering a Q3 capital return of 0.52%. Meanwhile, sectors focused on income, such as convenience retail, are gathering strength. These areas are attracting renewed investor interest by offering better yield performance and more stable capital values.
This shift is already influencing capital allocation. As fund managers grow more confident, organisations such as Charter Hall have introduced new growth-oriented strategies based on rising investor optimism. Expectations are increasing that both Australian and international investors will see unlisted property funds as a stronger alternative to equities, thanks to the long-term returns they can provide.
