The cycle that is quietly turning positive

Performance turns, and leadership emerges

The past year marks the first time since the tightening cycle began that all major unlisted property sectors have returned to positive territory. 

Retail and industrial led the charge, delivering 8.3% and 7.5% respectively in the year to Q3 2025, while office, long seen as the cycle’s laggard, recorded its first positive annual return since mid-2023 at 3.2%. Diversified portfolios followed, returning 5.5%.

This broadening lift matters. It shows the recovery is not confined to logistics or convenience retail; momentum is spreading across the capital stack, supported by improving income fundamentals and stabilising valuations.

Just as importantly, asset owners are staying invested. Transaction volumes fell 26% YoY to $8.5bn, reflecting not distress, but conviction. Vendors are holding through the turn rather than exiting into uncertainty, a dynamic typical of the early phase of a recovery when confidence rebuilds faster than liquidity.

Taken together, the signals suggest a market finding its feet rather than bouncing on sentiment alone. Valuations are settling, income is improving, and transaction discipline is still high; a combination that has often favoured allocators who build positions gradually rather than waiting for full clarity. 

A recovery driven by scarcity and selectivity

Industrial and retail continue to anchor returns, supported by structural demand and constrained development pipelines. Neighbourhood and super-regional centres led retail value growth; prime industrial assets outpaced secondary once again.

Office is stabilising too, but selectively. Premium CBD assets saw values rise 1.7%, reflecting tenant preference for best-in-class space, amenities, transport links, and ESG credentials. Lower-quality stock remains challenged, reinforcing that capital will not lift all boats at once.

This is a flight-to-quality cycle, not a rising tide. Investors with sharper filters, geography, grade, tenant profile, and capex needs are being rewarded first.

Supply discipline sets the stage

Unlike previous cycles, this recovery is not being met with a wall of new supply. There are no major Sydney CBD office completions in FY26, and industrial development remains largely pre-committed rather than speculative.

That supply discipline, driven by financing costs, construction constraints, and capital conservatism, positions core markets for improving occupancy and rental tension as demand rebalances.

In short, the pipeline has already corrected, giving landlords leverage before leasing demand has fully normalised. That is a constructive backdrop for income stability and reinvestment returns.

Fundamentals, not euphoria

Public markets are beginning to reflect the turn. AREITs returned 4.1% over the year, while Australian equities gained 10.6%.

But unlike previous reflation phases driven by sentiment or liquidity, this one is underwritten by income, not hype. Rental growth is re-emerging, refinancing conditions are improving, and capital partners are selectively returning to deals, particularly where quality, location and execution edge are clear.

Early-cycle confidence is forming, grounded in fundamentals rather than FOMO.

Positioning for the next phase

If the first half of this recovery has been about resilience, the next phase is about positioning and here, Studley’s long-range perspective is instructive. Having observed only two comparable turning points in 25 years at Dexus - post-1994 and post-GFC - he notes that both periods ultimately rewarded those who leaned in before the recovery became consensus.

Studley often reminds investors that cycles don’t announce themselves; they unfold in real time. 

On the chart above, his timestamps aren’t just recessions and policy shifts; they include cultural markers like “Taylor Swift learns guitar” and the “Eras Tour.” It’s a commentary and a reminder rolled into one: cycles turn quietly, and only look obvious in hindsight.

Rather than rushing to chase momentum, Studley’s view centres on patient, targeted allocation aligned with structural forces already in motion. Outperformance in real assets rarely comes from dramatic pivots, but from clarity of thesis, discipline in execution, and being early without being reckless.

His three-part framework remains deeply relevant:

1) Position with scarcity

Assets in supply-constrained markets such as CBD offices in core cities, dominant retail centres, and living sectors, stand to benefit first as demand normalises. 

These are the places where, as Studley notes, “each one has a growing undersupply” and where even modest economic improvement can have outsized pricing effects.

2) Prioritise quality

Quality has always been the first beneficiary when cycles turn. Best-in-class locations, strong tenant appeal, and high amenity levels command a premium because they deliver certainty — something Studley frequently emphasised across cycles. 

In his words, secondary assets will have their moment, but later.

3) Execute value-add selectively

With build costs and capital still disciplined, shorter-duration development and repositioning opportunities, particularly in industrial and government-supported living sectors, offer attractive, manageable pathways to alpha. Studley often pointed to these “first places to look for profit,” where execution risk is balanced by demand certainty.

Turning insight into allocation

Australia’s real estate market is transitioning from reset to re-acceleration. The ingredients are now visible:

• Higher income yields anchoring returns
• Stabilising valuations signalling floor-finding
• Tight supply pipelines are creating pricing power
• Post-inflation rent momentum emerging across sectors
• Capital is slowly rotating back as conviction builds

None of this reflects speculative excess. Instead, it suggests fundamentals reasserting themselves, precisely the kind of environment Studley has highlighted as fertile ground for disciplined investors throughout his career.

And in a moment where noise still competes with data, his final reminder feels almost like a compass for the next phase:

“Observation, analysis, insight, communication, and influence — will always matter.”

For more detailed insights Livewire readers can download a copy of Dexus' Australian Real Asset Review (Q4 2025) below.