Capital Resets as Scarcity Cycle Approaches Peak in 2026

As the new year begins to take shape, predictions are emerging about where the smart money will be flowing in 2026. Investors and researchers are seeing a positive albeit choppy year ahead, with different asset classes and regions moving at different speeds. CBRE is forecasting that 2026 will be guided by the theme “There Is No Alternative”, and that supply constraints will dominate the investment landscape. CBRE head of research Sameer Chopra told The Urban Developer that a flight from quality is coming, as tenants and buyers are forced to take what’s put on their plate. “You might need three or six floors, and you want it contiguous. And typically you might want a view, or near a Metro station. You have certain requirements. But those options have completely dried up,” Chopra said. The long life-cycle of commercial assets, and a sluggish pipeline in recent years, is starting to bite. “Demand is there. Demand is already there. We’re seeing positive net absorption. Foot traffic in Sydney, Brisbane, Perth and Adelaide is running at 90 per cent of pre-Covid levels. In Melbourne it is around 70 per cent and in Canberra, slightly lower.” CBRE is predicting new supply from 2025 to 2030 at 46 per cent under the 2015-2025 level. Hotels (41 per cent) and shopping centres (48 per cent) are also thin in the pipeline, which will support values and rents. A 25 per cent uptick in office investment volumes and 10 per cent in the hotel sector should follow on. In shopping centres, income growth will contribute the most to yield. Brisbane and Canberra offices will generate the highest growth in returns, and Sydney and Melbourne shopping centres will outperform. Construction costs will continue to hamper development for the rest of the decade. That will contribute to growth of net effective rents in the low digits in 2026 (outside of premium precincts). But investors in development projects can’t rely on the looming supply-demand mismatch. ▲ A slow-boiling, deep investment thematic around office undersupply will emerge in 2026. “You’ll need to make sure that you can still command very high rents. Even in a secondary location or B-grade asset, it’ll need a lick of paint … you need to get price and rent to be 30 per cent or higher than where the markets are sitting right now,” Chopra said. Both transactions and leasing activity will grow by 5 to 10 per cent in 2026, according to CBRE, and by 2028 cap rates will tighten by between 25 and 40 basis points. Across all asset classes, expect about 10 per cent growth in total returns for owners. Property investment as a whole should see about 10 per cent growth to $33 billion in 2026, and the same again to $37 billion in 2027. Research from MSCI also indicates growth in volumes and values . MSCI head of research Ben Martin-Henry said that the full-year 2025 results of the Wholesale Monthly Property Fund Index showed “the year marked a turning point for the market, with the return of sustained capital growth signalling a shift from repricing toward recovery”. Offices marked two consecutive quarters of positive valuation growth to close the year, “welcome news for investors after close to 30 per cent of value was erased during the downturn”, Martin-Henry said. “Recovery is likely to be uneven, with asset quality and location playing a far greater role than in past cycles.” Retail-focused funds led the final quarter, returning 3.4 per cent, and the year overall, returning 9.4 per cent. Income return of 5.8 per cent, rather than capital growth of 3.5 per cent, was the largest driver. 2026 values and allocations revealed Sentiment reports largely back up the data, with the Australian Property Institute releasing the first edition of its new Property Market Outlook series. API chief economist Sherman Chan told The Urban Developer that property valuers are reporting sentiment is at 7.1/10, indicating positive support for valuations and prices. ▲ Valuers are seeing the most strength in Western Australian markets as 2026 gets under way. “While we call it a sentiment score, it’s about the trends valuers are observing, not just how they’re feeling,” Chan said. While researchers and investors are cautiously interested in offices, valuers are neutral on the commercial sector, with a score of 5/10. But only 17.5 per cent of valuers think supply is playing a role in office valuations, falling to 15.5 per cent for the quarter ahead. “The office sector is facing a mix of different challenges. Confidence is a key one. Corporate policy on working from home or returning to the office … all of these things are affecting demand. “It does beg the question of what will be the role of offices in the future.” However, consumer confidence was seen by 83.2 per cent of retail valuers as a primary supporter of retail valuations, with sentiment for the sector sitting slightly positive at 5.4/10. In industrial, shoppers are again a key factor behind sentiment of 7.1/10, with demand for e-commerce sheds cited by 72.7 per cent of valuers. In residential, where sentiment is positive at 7.3/10, construction costs were unsurprisingly the driver of valuations. Interest rates were a strong influence in all asset classes. ▲ Construction costs and interest rates will hamper development and shape investment decisions in 2026. “There are some underlying economic factors underlying every state, whether your state is booming or not … the use of AI as well,” Chan said. However, Chan said that Western Australia, Queensland, and South Australia are standouts, with sentiment above 8/10 in all three, while NSW at 6.5/10 and Victoria at 5.8/10 are lagging but still positive. Meanwhile, a survey from the Asian Association for Investors in Non-listed Real Estate Vehicles provides some insight into what global capital flows into Australia might look like in the year ahead. Institutional investors and multi-managers with over $US1 trillion of property assets under management reported their intentions for the year ahead to ANREV. Funds are underweight property, with their combined 8.1 per cent allocation in real estate far behind the 10.1 per cent target. A downturn in valuations across the region means that income yield will be more important, and re-pricing in Australia in particular has made it a juicy target. Australian residential is the top priority for international investors, according to 40 per cent of respondents. The interest in residential reflects a long-term trend. An ANREV index of regional real estate funds has residential at 18 per cent of allocations, compared to just 3 per cent in 2016. That’s countered by the fall in retail, now at 7 per cent and down from nearly 40 per cent in 2017. Australian logistics is a priority for 34 per cent of investors, with Sydney and Melbourne the standouts, and PBSA also on the menu. The Sydney office market is also a potential drawcard for international investors, with Japanese funds particularly interested in Australia at the moment. ▲ The savviest investors are preparing for robots and data centres over a 10-year development cycle. Strategies will be flexible and targeted, investors say, rather than following broad market trends. That could indicate more joint ventures and private deals for 2026. While data centres are the buzziest item around, investors are still coming to grips with them. Currently, management of data centre deals is split between real estate and infrastructure teams, with the assets sharing characteristics of both. CBRE’s Chopra says that smart investors are preparing for higher power usage and competition, particularly as the energy demand from data centres rockets. “If you scroll forward five or 10 years, you’ll probably be needing to power some robots, some EVs. You want to make sure that power is taken into account regardless of which sector you’re in.”

Capital Resets as Scarcity Cycle Approaches Peak in 2026

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