Capital deployment expected to accelerate next year as investor confidence returns
Investors are positioning themselves for increased deal activity across Australian commercial property in 2026, with significant capital ready for deployment following cautious trading in 2025, according to property advisor Savills Australia.
Confidence mounts
"Lower interest rates and steady growth will reignite confidence across capital markets in 2026," said Paul Roberts (pictured top left), chief executive of Savills Australia and New Zealand. "Investors are already repositioning portfolios, freeing up capital for development, or recycling into growth sectors.
"Opportunities will lie in prime assets, value-add strategies, and sectors aligned with structural demand, as investors focus on long-term positioning."
Industrial assets are expected to remain favourable to investors, particularly data centres responding to artificial intelligence infrastructure requirements. Logistics, advanced manufacturing and cold storage facilities are anticipated to see sustained transaction levels.
Savills said residential sectors including build-to-rent accommodation will attract institutional capital seeking steady returns supported by demographic trends. Retail properties should benefit from steady consumer demand and limited new stock additions.
The coming year is likely to be shaped by redemption events from major investment funds including Lendlease, Dexus, GPT and Charter Hall. These fund withdrawals will compel portfolio adjustments and asset sales, releasing capital for acquisition activity. Competition for quality assets in prime locations is expected to intensify.
Dry powder
According to Macquarie Bank, substantial capital remains undeployed by investors.
Global fundraising has slowed considerably to US$133 billion by September 2025, falling more than 50% below 2022 levels. This constraint will limit investment managers' ability to raise fresh funds, forcing reliance on internal capital recycling.
Data centre investment will continue expanding as companies pursue artificial intelligence capacity and data localisation strategies. "The global race for data centre capacity will further accelerate," said Katy Dean (pictured top right), head of research at Savills Australia and New Zealand.
"AI is unlocking record levels of capital, as hyperscalers commit billions to new infrastructure – driving a rush for sites with land and energy security. Australia has become a strategic node, but balancing this growth with net-zero and grid-efficiency goals is the challenge."
Alternative property sectors including childcare facilities and life sciences real estate are forecast to expand, supported by regulatory tailwinds and structural demand patterns. Hospitality assets may benefit from increased international tourism and renewed corporate travel.
Economic expansion
The International Monetary Fund projects advanced economies will expand by 1.6% in 2026, with global property investment volumes forecast to increase by 23%. The Reserve Bank of Australia anticipates GDP growth of approximately 2%.
Investors holding substantial amounts of uninvested funds face declining returns on cash holdings. "Many investors are sitting on significant dry powder," Robert said. "This pool of undeployed capital provides a hedge against the inflation and currency risk, and positions investors to capitalise on the new asset price cycle."
Asset sales are likely to accelerate in the first half of 2026 as investment managers navigate redemption windows. Secondary sales, joint ventures and recapitalisation structures will be employed to manage fund withdrawals.
Foreign investors have also demonstrated renewed appetite for Australian property. Cross-border investment reached $7.1 billion in the third quarter of 2025, according to MSCI, more than double the previous year and accounting for more than one-half of quarterly transactions.
"Global confidence in Australian commercial property has clearly rebounded - particularly for offshore capital seeking greater exposure to Australia's gateway cities," said Roberts.
ESG considerations
Regulatory requirements around climate reporting and energy efficiency are increasing demands on property owners. Environmental, social and governance compliance is transitioning from voluntary to mandatory. Assets meeting these requirements are becoming more attractive to tenants and investors.
"Yield compression in core assets has spurred investors to pursue refurbishment, redevelopment, and opportunistic strategies to unlock income growth or reposition for ESG compliance," Dean said. "Retail and office assets must demonstrate ESG readiness to attract capital, with tenants and investors prioritising all-electric, net zero-ready buildings."
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