Parramatta Blog

For the first time in over two years, Australia's major office property funds have returned to positive territory, signalling a potential turning point for a sector that has faced steep challenges since the pandemic-driven shift to hybrid work. In the March quarter of 2025, office funds holding more than $34 billion in assets recorded a total return of 1.1%, according to the MSCI/Mercer Australia Core Wholesale Monthly Property Fund Index.

This marks the first positive result for these funds since mid-2022, following a long period of falling valuations, weakened leasing demand, and widespread investor uncertainty. Although capital growth remained slightly negative at -0.06%, this was offset by stronger income returns, reflecting improving fundamentals in premium office markets.

The rebound was led by Investa’s $6 billion Commercial Property Fund, which posted a 2.7% return, supported by a portfolio of high-quality CBD towers in Sydney, Melbourne, and Canberra. Investa’s CEO, Peter Menegazzo, expressed optimism about the sector’s trajectory, citing rising occupancy momentum, improved leasing activity, constrained new supply, and growing market expectations of interest rate cuts.

The broader commercial property market also showed signs of recovery, with all four major fund types — office, industrial, retail, and diversified — delivering positive returns for the first time since Q3 2022. Retail funds led in capital growth, but the office sector’s bounce back has prompted speculation it could overtake industrial as the top performer later this year.

Renewed investor confidence has been bolstered by a wave of significant office transactions in late 2024, including Mitsui Fudosan’s $1.3 billion stake in 55 Pitt Street and Brookfield’s $460 million sale of 388 George Street. These deals suggest that the worst of the value declines may be over, even as geopolitical uncertainty and cautious capital deployment continue to weigh on deal flow in early 2025.

Looking ahead, a potential interest rate cutting cycle — prompted by broader economic conditions — may further support pricing recovery and investment activity across the sector. For now, the return to positive returns offers a welcome signal that Australia's premium office market may finally be stabilising after years of disruption.