Real Estate Debt Capital Markets Survey 2025: Australia
Australia’s real estate debt capital markets are entering a period of recalibration in 2025. After several years of conservative bank lending and rapid private credit expansion, the competitive balance is shifting once again. Banks are reasserting their presence, margins are tightening, and borrower conditions are improving — yet construction risk, regulatory scrutiny and economic uncertainty continue to temper enthusiasm.
The result is a market defined not by exuberance, but by disciplined competition.
According to Kalpi Prasad, Managing Director at Renown Lending, the current cycle reflects a structural reset rather than a simple recovery.
“Banks returning to the market is restoring competitive tension, but lenders are far more risk-aware than in previous upcycles. Due diligence standards have risen significantly, particularly in construction and mid-tier developments.”
This report outlines the major forces shaping Australia’s 2025 debt capital markets: bank resurgence, private credit evolution, construction risk management, and the interest rate environment.
1. Market Overview
1.1 Lending Landscape
Australia’s debt capital markets recorded strong activity in the 12 months to June 2025, with total debt issuance reaching $199.3 billion — an 11.4% increase year-on-year. Growth has been supported by a broad mix of corporate bonds, government securities and structured debt instruments.
The re-engagement of major banks has intensified competition across commercial real estate and construction finance. Supported by stabilising inflation, improved liquidity and expectations of policy easing earlier in the year, traditional lenders have re-entered segments previously dominated by non-bank providers.
For borrowers, this has meant:
Improved pricing
More flexible covenant structures
Extended interest-only periods
Greater appetite for mid-tier and regional developments
However, for lenders, margin compression is becoming a central challenge. Competitive pricing must now be balanced against disciplined risk management.
1.2 Bank Lending Resurgence
The repositioning of Australian banks has been facilitated by:
Easing APRA capital pressures
Stabilised funding costs
Lower bond yield volatility
Improved macroeconomic visibility
This has translated into increased construction finance approvals and renewed appetite for commercial real estate exposure.
Yet competitive dynamics introduce risk. Pricing-driven competition can lead to covenant relaxation or risk underestimation if not carefully managed.
As Prasad notes:
“Competitive pricing is returning, but the difference in 2025 is heightened scrutiny. Credit committees are demanding stronger feasibility analysis, tighter contingency buffers and greater transparency from developers.”
2. Private Credit: Expansion and Evolution
2.1 Growth and Market Share
Private credit remains a core component of Australia’s commercial lending ecosystem. Assets under management reached $148.6 billion in 2024 — up from $57.1 billion a decade earlier — underscoring the structural rise of non-bank funding.
Private lenders have been particularly active in:
Build-to-rent developments
Co-living and alternative asset classes
Transitional and bridging finance
Projects requiring bespoke structuring
Their speed, flexibility and willingness to operate outside conventional banking frameworks continue to attract developers.
Private credit now accounts for approximately 17% of commercial real estate lending nationally.
However, as banks regain market share, private lenders are being pushed toward niche opportunities and institutional capital partnerships to sustain growth.
2.2 Regulatory Scrutiny Intensifies
With scale has come increased oversight concerns. In recent industry surveys, 67% of respondents expressed apprehension about regulatory gaps in private credit.
Calls for clearer reporting standards and greater oversight from ASIC and APRA are growing, particularly as retail and SMSF investors increase exposure to private lending vehicles.
Should regulatory reform accelerate, the sector may bifurcate into:
Institutional-grade lenders operating under enhanced frameworks
Smaller private lenders focused on specialised or higher-yield segments
Transparency and governance standards are likely to become differentiating factors.
3. Construction Sector: Heightened Due Diligence
3.1 Risk Management in Focus
Construction remains the most scrutinised sector within real estate lending.
Labour shortages, volatile material costs and ongoing insolvencies have driven a marked increase in lender caution. Average due diligence timelines have reportedly increased by more than 50% since 2022.
Lenders are now placing greater emphasis on:
Developer track record
Fixed-price contract strength
Contractor solvency
Independent cost assessments
Contingency planning
Legal and valuation teams are being engaged earlier in transaction lifecycles, reflecting a shift toward proactive risk identification.
3.2 Builder Reputation and iCIRT Ratings
The introduction of iCIRT (Independent Construction Industry Rating Tool) in New South Wales has further professionalised credit assessment standards.
Minimum iCIRT ratings are increasingly required for construction finance approval, particularly among institutional lenders. Builder solvency, governance standards and project history are now central metrics in credit committees.
This development is strengthening risk mitigation frameworks while raising entry barriers for less established developers.
4. Interest Rate Environment and Liquidity Conditions
The Reserve Bank of Australia has maintained the cash rate at 3.85% throughout 2025, diverging from earlier market expectations of imminent rate cuts.
While inflation has moderated, wage growth and global uncertainty have led policymakers to adopt a measured approach.
Despite the hold, competitive lending conditions persist. Many lenders are pricing forward expectations into loan structures, leading to:
Competitive fixed-rate offerings
Increased refinancing activity
Strategic borrower repositioning
Broader economic indicators remain mixed. Consumer confidence is subdued and retail conditions are soft. However, industrial and residential property segments continue to attract capital, supported by migration flows, infrastructure investment and constrained housing supply.
5. Market Outlook
Australia’s debt capital markets in 2025 reflect cautious optimism.
Bank dominance is strengthening in mainstream segments, while private credit continues to support transitional and opportunistic projects. Construction remains a concentrated risk zone, demanding enhanced diligence and reputational scrutiny.
For borrowers, competition among lenders is creating favourable funding conditions — but access to capital increasingly depends on transparency, operational discipline and reputational strength.
For lenders, success will depend on balancing pricing competitiveness with structured risk frameworks and sector-specific expertise.
As the market recalibrates, the interplay between banks, private credit providers, regulators and developers will shape the next phase of Australia’s real estate finance cycle.
