Industrial remains the sector of choice, with AI-driven demand buoying data centres and robust transactional activity expected across logistics, advanced manufacturing and cold storage. Living sectors such as build-to-rent (BTR) will be high on investors' wish lists, with defensive income streams anchored by demographic tailwinds. The retail sector will also continue rebounding thanks to resilient consumer spending and constrained supply.

Savills says 2026 will be a pivotal year for liquidity-driven opportunities, fuelled by fund redemption events among major institutions like Lendlease and Dexus. These will prompt portfolio rebalancing and selective asset disposals, unlock liquidity and drive deal momentum. Competitive bidding for prime assets in core locations will intensify, while ESG readiness is fast becoming the key metric for performance.

The 2026 outlook points to an environment defined by conviction, not caution according to Savills. The ASX 200 REIT Index now sits 50% above its Q3 2022 low, with Industrial, Retail, and Diversified REITs leading the rally.

“Lower interest rates and steady growth will reignite confidence across capital markets in 2026. 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,” said Paul Roberts, Chief Executive Officer at Savills Australia & New Zealand.

2026 – Savills’ Sectors to Watch

The Spotlight on 2026 report identifies sectors set to outperform as funds recycle capital into growth and core-plus strategies.

AI Power Play to Continue. The convergence of AI adoption, sovereign computing and data localisation is driving a multi-decade tailwind for digital infrastructure. Savills predicts data centre investment will remain strong but warns competition for land and grid capacity will intensify.

Living Sectors Scale Up. BTR, student and senior living sectors will expand, driven by demographic shifts and institutional capital seeking defensive income streams. Hospitality assets will benefit from record tourism inflows and revived business travel.

Retail Revival. Limited new supply and stronger consumer demand to drive rental growth and capital appreciation. Daily-needs, convenience, and food and beverage formats will lead occupancy gains, with rising café and restaurant spending supporting long-term growth.

Prime Office on the Rebound. Prime office assets in Sydney and Melbourne will see improving liquidity and early signs of yield compression, reflecting renewed confidence. The flight to quality will accelerate, with ESG-enabled, amenity-rich offices dominating leasing and pricing trends.

Alternatives Bringing Opportunity. Savills tips that alternatives such as childcare and life sciences will gain market share, supported by structural demand and regulatory alignment.

“The global race for data centre capacity will further accelerate. 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,” said Katy Dean, Head of Research at Savills Australia & New Zealand.

Capital Markets: Investment to Recover into 2026

Savills says that 2026 will mark a shift from the uncertainty of 2025, which was characterised by rapid shifts in trade policy, geopolitical tensions, and volatile inflation and interest rate expectations. These conditions have kept many owners on the sidelines, creating a market dominated by off-market deals, partnerships and recapitalisations.

While some uncertainty remains, Savills expects less impact on investment activity as markets adapt to ongoing instability. The International Monetary Fund (IMF) projects advanced economy growth of 1.6% in 2026, with global investment volumes forecast to grow by 23% in 2026. Meanwhile, the Reserve Bank of Australia (RBA) expects Australia’s GDP to strengthen to around 2%.

Lower interest rates, persistent inflation, and currency debasement will make holding cash increasingly unattractive, adding pressure to deploy capital into real assets like property.

“Many investors are sitting on significant dry powder. 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,” said Mr Roberts.

Institutional Redemptions on the Rise

Savills anticipates a surge in institutional redemption activity from mid-2026. Major managers, including GPT, Lendlease, Dexus, Investa, Charter Hall, and Goodman Group, are expected to hit liquidity windows through 2026-27, according to Macquarie Bank. These events will unlock deal flow as funds rebalance portfolios and divest non-core assets.

Most managers are likely to use secondary sales, joint ventures, or recapitalisations to meet redemptions. With global fundraising still subdued - sitting at US $133 billion to September 2025, more than 50% below its 2022 peak - the ability to recycle capital internally remains limited.

“2026 will be the year for liquidity-driven opportunities. Redemption windows and muted fundraising will force managers to rely on asset sales early in the year, creating a concentrated window for buyers to secure quality assets at attractive pricing. Expect discounts to narrow as dry powder deployment accelerates and confidence strengthens by mid-2026,” said Mr Roberts.

Structural factors could also shape future redemption risk, including superannuation fund consolidation, shifts from pooled funds into direct mandates, and Australian super funds prioritising offshore deployment.

According to Savills, competition for assets could be heightened by offshore players tapping into the Australian market, as cross-border transactions increase. According to MSCI, cross-border investment into Australian commercial real estate surged to AU$7.1 billion in Q3 2025, more than double the level recorded a year ago and bringing year-to-date volumes to AU$16.4 billion.

“Overseas investors have been very active this year and responsible for more than half of all Q3 transactions, well above the five-year average of 37%. Global confidence in Australian commercial property has clearly rebounded - particularly for offshore capital seeking greater exposure to Australia’s gateway cities,” Mr Roberts added.

Prime and Core-Plus Assets on Top as ESG Moves from Reputation to Regulation

Savills predicts competition for prime assets in core locations to heat up in 2026, driven by investor conviction and capital discipline. Precincts near infrastructure, ports, and transport hubs will command the highest premiums. Land scarcity, zoning limits, and approval bottlenecks will also cap new supply - underpinning rental and capital growth for well-positioned owners.

Sustainability is also shifting from optional to obligatory. Mandatory climate-related reporting and energy efficiency upgrades are becoming standard. ESG-compliant assets will attract strong demand, while secondary assets will require selective repositioning, conversion, or retrofitting to remain competitive.

“Yield compression in core assets has spurred investors to pursue refurbishment, redevelopment, and opportunistic strategies to unlock income growth or reposition for ESG compliance. Retail and office assets must demonstrate ESG readiness to attract capital, with tenants and investors prioritising all-electric, net zero-ready buildings,” said Ms Dean.

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