Colliers Research expects the office sector to likely lead forward looking returns in the upcoming cycle. This is attributed to current valuations being deeply discounted, with capital values approximately 20 per cent lower than their peak levels.

Colliers Research data from Q4 2024 has highlighted a stabilisation of yields in the Sydney CBD office market with no further softening reported for the first time since September 2022 (based on current market conditions and sentiment).

Peak to trough average office values saw declines of between 20 per cent to 25 per cent, with Q1 2025 primed for the first quarterly growth (+1.5 per cent) in average prime grade capital values since September 2022, with secondary grade assets to lag by at least three months.  

“The onset of yield stabilisation and a continuance of rental growth driven by resilient demand fundamentals is expected to underpin a turning point in office values in 2025,” Colliers Head of Office Capital Markets, Adam Woodward said.

“The ongoing ‘flight-to-quality’ trend continues to drive stronger demand and sharper yields for new and high-quality assets, leaving older-generation assets less competitive. This is also spurred on by a higher emphasis on new ESG credentials and stronger rental growth for the next generation. We project the Premium to A-grade delta to increase from $6,800/sqm at the end of 2024 to $10,000/sqm by the end of 2027.”

 Amid a global recovery, Australia’s office market has emerged as a standout destination for global capital, as investors place increased emphasis on risk and seek to align their strategies with resilient occupier markets. This trend was evident throughout 2024 when comparing transaction volumes to 10-year average annual volumes.

 “Australia’s attractiveness as an office destination in 2025 is aligned to a number of factors, including robust long-term demand drivers, the adoption of new working practices and demand-led prime office precincts. On top of this, APAC markets have shown greater resilience in comparison to the US and Europe, positioning Australian cities as attractive locations for office investment,” Mr Woodward said