Commercial Property Market Update — August 2026

Glenclair Financial | National Australian Market Commentary

The short version

Australia's commercial property market has spent 2026 absorbing a rate shock and has held up better than most expected. Transaction volumes are up, retail is outperforming, industrial is stabilising at healthy levels, and office is quietly recording its best occupier demand since 2022, all against a cash rate that has gone up rather than down this year.

The dominant theme is divergence. The gap between prime and secondary assets has widened materially, and that gap is now showing up in valuations, lender appetite and LVR offers, not just in leasing outcomes. For borrowers and buyers, asset quality has stopped being a preference and become a financing precondition.

The rate environment

The RBA left the cash rate unchanged at 4.35% at its June meeting, following three consecutive increases since the start of the year. That reversed a meaningful portion of the easing delivered through 2025, and it caught a lot of borrowers who had structured facilities on the assumption of a continued downward path.

Inflation remains the constraint. Headline CPI was running at 3.8% annually as at the June month, with underlying inflation still above the RBA's 2–3% target band. Much of the recent impulse came from energy prices following conflict in the Middle East, and while oil has eased from its peak, energy and related commodity costs remain well above pre-conflict levels.

The next Board decision lands on 11 August 2026. All four major banks currently expect a hold, though economists remain genuinely divided on whether one more increase is needed before year-end, Westpac has been the notable outlier calling for further tightening. Commonwealth Bank's economics team expects the cash rate to sit at 4.35% for the remainder of 2026, with cuts not arriving until 2027.

What this means practically: nobody serious is forecasting relief this calendar year. Facilities maturing in the next 12 months should be planned around a 4.35% cash rate as the base case, not a hoped-for easing cycle.

Capital markets: volumes up, buyers local

Transaction volumes reached $19.0 billion in the first half of 2026, a 16% increase on the same period in 2025, according to CBRE's capital flows data. That is a striking result given the volatility of the period, and it points to a market that is becoming more resilient to shocks rather than seizing up when they arrive.

The composition tells the more interesting story:

Two transactions did a lot of the heavy lifting: Goodman Group's $2.65 billion industrial deal with Washington H. Soul Pattinson, and Lendlease's $1.2 billion sale of half-stakes in Sunshine Plaza and Macarthur Square to GPT.

Offshore capital pulled back, down 8% year-on-year to $4.0 billion, or just 21% of total volume. Domestic institutions and fund managers filled the gap. Global volatility tends to send investors home, and Australia has been a beneficiary of its own investors doing exactly that.

Also worth watching: changes to tax legislation announced in the May Federal Budget are expected to broaden the commercial investor base, encouraging private capital to rotate out of residential and into higher-yielding commercial assets. If that rotation materialises at scale, it lands squarely in the sub-$20 million bracket where most private buyers operate.

Office: the supply peak has passed

National office vacancy rose to 15.9% in the most recent Property Council reading, up from 15.2% six months earlier. CBD vacancy sat at 14.8% and non-CBD at 18.5%.

The headline reads badly. The underlying data reads better. The increase was supply-led, the final wave of completions from projects commenced three years ago, most of them substantially pre-committed. Meanwhile, national net absorption reached 135,279 sqm over the twelve months to January, the strongest occupier demand since 2022 and the fourth consecutive half-year of positive demand. Businesses are expanding again, not just consolidating.

CBD vacancy by market:

• Hobart 5.2%
• Canberra 10.2%
• Brisbane 11.8%
• Sydney 13.8%
• Darwin 14.7%
• Adelaide 15.5%
• Perth 16.9%
• Melbourne 19.0%

Brisbane and Perth look best positioned to tighten quickly as the supply pipeline thins, with Brisbane additionally supported by 2032 Olympics infrastructure. Sydney is stable but sharply segmented, premium and A-grade stock in the core is leasing and holding value while secondary stock struggles. Melbourne carries the longest recovery runway, with the bulk of its vacancy concentrated in secondary CBD towers and Docklands.

Notably, CBRE's Investor Intentions Survey had office as investors' preferred asset class entering 2026, the first time since 2019.

Financing read-through: lenders are now treating prime and secondary office as fundamentally different asset classes, and pricing that distinction into LVR offers. A well-tenanted A-grade asset with a long WALE and a credible covenant remains bankable on competitive terms. Secondary stock with short lease tails is increasingly a non-bank conversation.

Industrial: the reliable one

Gross take-up hit 1.8 million sqm in H1 2026, just over half of the total leasing recorded across all of 2025. National super-prime yields were broadly stable through Q2, with only marginal outward movement in selected markets as elevated bond yields continued to weigh on pricing.

Vacancy remains historically tight nationally, though the eastern seaboard has loosened as speculative supply lands. Sydney sits around 4.2% citywide, with prime stock accounting for roughly 85% of quarterly take-up. Prime rents edged up 0.4% over the quarter and 1.4% year-on-year. Incentives have widened to roughly 12.5–23% on existing stock and 20–25% on pre-leases, the clearest sign that landlords are working harder than they were two years ago.

Sydney is on track to receive close to 750,000 sqm of new space in 2026, more than 450,000 sqm of it speculative. Melbourne generated almost 770,000 sqm of leasing in H1. Perth and Adelaide remain the tightest markets in the country, with Perth vacancy running near 1–2%.

Sydney prime yields are broadly unchanged: roughly 4.75–5.75% in the Outer West and 4.50–5.00% in South Sydney, depending on precinct and asset.

Financing read-through: industrial remains the cleanest credit category in the market. Owner-occupier demand is consistent, valuations are well-supported by comparable evidence, and lenders are comfortable. If a client is choosing between asset classes on financing terms alone, this is where the terms are.

Retail: the standout

Retail has been the genuine surprise of the cycle. It delivered the strongest total return of any commercial sector in 2025 at 9.2%, and it has carried that momentum into 2026, leading all sectors on transaction volume in both H1 2026 and FY26.

The fundamentals underneath are real. Household spending rose 4.6% year-on-year to February. Average EBIT margins across major retailers reached 8.9% in H1 2026, their strongest in several years. Retail leasing spreads rose 4.2% in 2025, feeding directly into income growth and capital values.

Regional shopping centres accounted for approximately $5.6 billion, or 43%, of FY26 retail volumes. Equivalent yields on regional centres have compressed from an average of 7.46% in FY23 to 5.84% in FY26 as institutional and wholesale capital returned. Partial-interest acquisitions have become a defining feature, around 36% of retail volume, with more than $4.6 billion in stakes above $200 million trading during FY26.

Rising rates will likely cap further yield compression in the near term. But income growth is doing the work now, and dominant centres with convenience-led, defensible income streams are well placed as supply tightens.

Finance conditions: what we're seeing on the ground

Serviceability, not appetite, is the binding constraint in 2026. Lenders want to write commercial business. Borrowing capacity is simply smaller than it was 18 months ago.

Indicative bank pricing sits around 6.5–7.5% p.a. for investment-grade files on major bank balance sheets. Strong owner-occupiers with clean financials are starting from around 6%.

Indicative LVRs:

• Standard metro commercial investment: 65–70%
• Specialised or single-purpose assets: 55–60%
• Owner-occupied with established trading history: up to 75–80%

Lease tail and tenant covenant strength move these caps more than almost anything else.

Private credit continues to expand into the space banks won't write or can't write quickly enough. Commercial first mortgages are pricing in the 9.5–13% p.a. range depending on tenancy, asset class, LVR and borrower profile; second mortgages behind a senior facility around 1.45–1.95% per month. Expensive money, but for a 30-day settlement or a bridge to a bank take-out, the arithmetic often works.

Three things are worth flagging to any client refinancing this year:

1. Valuation risk is live. Valuers have become materially more conservative on secondary stock, particularly secondary office. A refinance valuation coming in 10% under expectations can shift a covenant position and trigger re-pricing.
2. Every 10 percentage points of LVR reduction is typically worth 0.25–0.75 percentage points on the quoted rate. Equity contribution is the highest-leverage variable in the whole file.
3. Structure matters at application. Owner-occupier facilities attract higher LVRs, sharper pricing and longer terms than investment facilities on the identical building. Getting that framing right from the outset is worth real money.

Outlook for the second half

Expect more of the same, with sharper edges. CBRE anticipates a substantial pipeline of assets coming to market in H2. Capital values have broadly stabilised but remain exposed to further expansion if bond yields push higher. KPMG's read is that performance from here will be defined by the interaction between structural shifts, hybrid work, AI adoption, consumer behaviour, and the macro headwinds.

For clients, the practical implications are straightforward:

• If you're buying, secondary pricing has reset and the gap to prime is the widest it has been in this cycle. There is value there for buyers who can finance it, which is the catch.
• If you're refinancing, start earlier than you think you need to. Bank processing times have lengthened and valuation outcomes are less predictable than they were.
• If you're holding, lease tail is the single most valuable thing on your balance sheet right now. Extending a good tenant before a refinance is often worth more than any rate you could negotiate.

Talk to us

Commercial finance is assessed deal by deal, and the spread between the best and worst outcome on the same asset is wide. Glenclair Financial works across a full panel of bank and non-bank commercial lenders to match the file to the lenders most likely to write it on the terms you need.

Contact us for a confidential review of your position at info@glenclair.com.au.

Sources: Reserve Bank of Australia; Property Council of Australia Office Market Report; CBRE Australian Capital Flows and Industrial & Logistics Figures; JLL Research; Knight Frank; Cushman & Wakefield; KPMG Commercial Property Market Update; Commonwealth Bank Economics.