What’s driving Australian Commercial Property growth in 2026
Australia’s commercial property market entering 2026 is no longer defined by a single cycle. Instead, performance is fragmenting by sector, asset quality, and micro-location. The next phase will reward investors who understand where fundamentals are genuinely improving – and where pricing already reflects optimism.
Industrial & Logistics: Still the Strongest – but No Longer Cheap
Industrial and logistics assets remain the most resilient commercial sector, supported by structural demand rather than cyclical recovery.
What’s actually driving demand
- E-commerce penetration continues to grow (now ~18–20% of retail sales nationally)
- Supply chain re-shoring and last-mile logistics
- Data centres, cold storage, and automated warehousing requirements
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Where demand is strongest (examples)
- Sydney: Eastern Creek, Erskine Park, Alexandria
- Melbourne: Truganina, Derrimut, Laverton North
- Brisbane: Yatala, Wacol, Berrinba
The numbers that matter
- Vacancy rates in prime infill locations: <1.5%
- Prime industrial cap rates (2025): 4.75–5.25%
- Typical rental growth (2024–25): 4–7% p.a., slowing from prior years
Research from Cushman & Wakefield and CBRE shows demand remains strong, but pricing is now tight.
Key correction:
Industrial is low-risk, not high-upside from here. Much of the growth story is already priced in. Future returns will skew toward income stability, not outsized capital gains.
Retail Property: A Selective Recovery, Not a Broad Comeback
Retail’s improvement is real – but limited to specific formats and catchments.
What’s working
- Neighbourhood and sub-regional centres anchored by:
- Supermarkets
- Medical and allied health
- Services (childcare, gyms, government)
- Large-format retail (Bunnings, JB Hi-Fi Homemaker-style precincts)
What’s not
- Fashion-heavy discretionary malls
- Older centres in weak income-growth suburbs
- Assets requiring constant incentives to retain tenants
Indicative performance
| Retail Format | Cap Rates (Prime) | Vacancy |
| Neighbourhood centres | 5.75–6.25% | 2–4% |
| Large-format retail | 6.25–6.75% | 3–5% |
| Secondary malls | 7.5%+ | 8–12% |
Recent transactions tracked by Savills show yield compression only in dominant assets with strong household incomes and limited competition.
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Key correction:
Retail is not “back” – defensive retail is back. Everything else remains structurally challenged.
Office: Quality Matters More Than Location Alone
Office markets are now defined by asset relevance, not CBD postcodes.
Where demand is stabilising
- Sydney: Barangaroo, Martin Place, Circular Quay
- Brisbane: CBD core, Premium-grade riverfront assets
- Tenant preference: fewer offices, higher quality, ESG-aligned
Where risk remains
- B- and C-grade buildings
- Fringe CBDs with limited amenity
- Assets built pre-2000 without upgrade paths
Current indicators
- Premium office vacancy (Sydney/Brisbane): 8–10%
- Secondary office vacancy: 15–25%
- Effective rents often flat to negative once incentives are included
CBRE and Property Council data show the market has become two-speed – with conversion or repositioning often the only viable path for secondary stock.
Key correction:
This is not a cyclical downturn – it’s a structural reset for office.
Cap Rates: Compression Is Possible, Not Guaranteed
The original article assumes cap rate compression as a base case. A more realistic view is scenario-based.
Likely outcomes
- Prime industrial & retail: stable to modest compression (25–50bps)
- Secondary assets: flat or expanding
- Office: polarised by grade
Cap rates peaked in 2024–25, but future movement depends on:
- Inflation persistence
- Timing of rate cuts
- Offshore capital selectivity
Compression will be earned, not automatic.
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What This Means for Investors in 2026
The commercial market is no longer forgiving.
Likely outperformers
- Prime industrial in land-constrained suburbs
- Neighbourhood retail with essential-service tenants
- Premium-grade, ESG-compliant office
Likely underperformers
- Secondary office without conversion pathways
- Discretionary retail in average-income catchments
- Overpaid industrial assets with short WALEs
Final Takeaway
Australia’s commercial property market in 2026 is not about riding a cycle – it’s about asset selection, micro-location, and realism on pricing.
The winners won’t be those who follow headlines, but those who:
- Distinguish risk-adjusted returns from narrative strength
- Separate structural demand from crowded trades
Accept that “defensive” doesn’t always mean “cheap”
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