Australia’s commercial property market has staged a recovery in sales activity, with transactions rising 21 per cent in the first half of 2026, but four interest rate increases and a slowing economy are threatening to derail the rebound.
The latest realcommercial.com.au Commercial Property Update September 2026, reveals that both the number and total value of commercial property transactions increased by 21 per cent compared with the corresponding period last year, following several years of subdued activity.
However, the recovery is facing a more difficult financing environment after the Reserve Bank lifted the official cash rate to 4.60 per cent in September, its fourth increase this year.
Realcommercial.com.au Senior Economist Anne Flaherty said higher borrowing costs were weighing on investor demand and placing upward pressure on commercial property yields.
The report also reveals that searches to buy commercial property on realcommercial.com.au have slowed throughout 2026, suggesting buyers are becoming increasingly cautious despite the improvement in completed transactions.
The changing conditions come as Australia’s business population continues to expand, potentially providing an important counterweight to weaker investment demand.
According to the report, the number of businesses operating nationally increased by 85,130, or 3.1 per cent, during the 2025–26 financial year, supporting underlying demand for office, industrial and retail premises.
Ms Flaherty said the growth in business numbers was helping to offset some of the economic pressures facing the sector, with more businesses creating a greater need for commercial premises.
The report also identifies a potential shift in investor behaviour following changes to residential property taxation announced in the May federal budget.
Commercial property retains access to existing negative gearing arrangements, potentially making the sector more attractive to investors reconsidering their residential property portfolios.
However, Ms Flaherty cautioned that it remained uncertain whether the changes would encourage residential investors to diversify into commercial property.
“Resilience in the sector will depend increasingly on the balance between higher financing costs and underlying demand from businesses and investors,” Ms Flaherty said.
Industrial property leads the recovery
Industrial property has been one of the strongest performers, with the total value of transactions increasing 27 per cent over the 12 months to June 2026.
The sector has outperformed other commercial property categories in recent years, supported by comparatively strong investor demand.
That demand has helped push industrial property yields lower, although Ms Flaherty’s analysis suggests further compression could be limited by rising interest rates.
Perth recorded the largest annual decline in industrial gross yields among the capital cities, falling 45 basis points to 4.4 per cent.
Adelaide followed with a 36-basis-point reduction to 4.4 per cent, while Brisbane yields fell 29 basis points to 4.8 per cent.
Sydney’s industrial gross yield stood at 4.1 per cent in September, the lowest of the five capital cities examined.
Ms Flaherty said the combination of stronger demand and lower yields had characterised industrial property investment over the past year, although increasing financing costs were likely to slow further yield compression.
The report also found that industrial and warehouse properties were among the few commercial categories recording an increase in for-sale listings during the September quarter, rising 4 per cent compared with the same period last year.
Office vacancies continue to challenge investors
The office sector is experiencing a more uneven recovery, with transaction volumes across both CBD and suburban markets remaining well below pre-pandemic levels.
While suburban office investment has shown greater resilience, CBD properties continue to face uncertainty around vacancies, tenant demand and longer-term occupancy trends.
According to Property Council of Australia figures included in the report, every capital city CBD recorded an office vacancy rate above 10 per cent in July 2026.
Melbourne had the highest vacancy rate among the markets examined at 18.9 per cent, followed by Adelaide at 16.3 per cent.
Sydney’s CBD vacancy rate was 13.3 per cent, while Brisbane recorded 10.2 per cent.
Despite these vacancies, gross office yields remained at or below 5.5 per cent in most of the capital cities examined, with Brisbane the exception at 6.6 per cent.
Ms Flaherty’s analysis suggests those returns may be insufficient to compensate some investors for the combination of vacancy risk and higher borrowing costs, contributing to subdued transaction activity.
The report found that office vacancy rates had improved in Sydney, Brisbane and Perth during the first half of 2026, while Melbourne’s vacancy rate remained relatively steady.
However, the continuing gap between vacancy risk and investment returns is likely to remain a challenge for office transactions.
Retail offers higher yields
Retail property is presenting a different investment proposition, with gross yields exceeding those of office and industrial assets across all five capital cities analysed.
Perth recorded the highest capital-city retail gross yield at 7.4 per cent in September, followed by Brisbane at 7.2 per cent and Sydney at 6.4 per cent.
Melbourne’s retail yield was 5.7 per cent, while Adelaide recorded 5.5 per cent.
Sales volumes across retail centres and individual shops have also recovered over the past 12 months, although higher financing costs remain a potential constraint on further activity.
The report shows retail yields have increased in most capital cities over the past year, with Brisbane and Adelaide the notable exceptions.
While higher yields may appeal to income-focused investors, the findings also highlight the importance of assessing individual assets against tenant demand, vacancy exposure and financing costs.
Listings fall as buyers become more selective
The changing investment environment is also reflected in commercial property listings and online search activity.
For-sale listings on realcommercial.com.au declined 7 per cent in the September quarter compared with the same period last year, driven largely by fewer office and retail properties coming to market.
Office listings fell 14 per cent year-on-year, while retail listings declined 9 per cent.
Industrial and warehouse listings moved in the opposite direction, increasing 4 per cent, while medical and consulting properties recorded an 8 per cent rise.
For-lease listings were unchanged overall compared with the September quarter of 2025, although activity varied between property categories.
Industrial and warehouse leasing listings increased 5 per cent, while office listings declined 6 per cent.
Search behaviour also highlights changing requirements among prospective commercial property buyers and tenants.
“Coworking” ranked as the most searched keyword for office and industrial property purchases during the six months to September, and was the second most searched term for retail purchases.
It was also the leading keyword in office and industrial leasing searches, pointing to continued interest in flexible workspace arrangements.
For commercial agents, the findings highlight a market where transaction activity has improved but conditions vary considerably between asset classes, with financing costs, rental demand and vacancy risks increasingly influencing investment decisions.
Ms Flaherty’s report warns that the stronger sales activity recorded during the first half of 2026 could lose momentum following September’s interest rate increase, with another rise anticipated later this year or early in 2027.
While business growth and potential investor diversification could provide support, the strength of the commercial property recovery will depend on whether underlying demand can withstand a more expensive borrowing environment.