Retail supported by consumer spending; newer office stock attracts tenants
Australia’s commercial property market has remained largely undeterred by higher borrowing costs, a new report has found, with parts of the office and retail sectors showing signs of recovery despite the Reserve Bank of Australia’s two rate rises in 2026.
According to Raine & Horne’s latest Commercial Insights report, the shift from expected cuts to tighter policy has changed pricing talks rather than stalled activity, as investors rework yield requirements and negotiate harder on assets.
“In a short timeframe, we have moved from expectations of rate cuts to rate hikes,” said Angus Raine, chairman at Raine & Horne Group. “Higher borrowing costs are, understandably, playing a role shaping buying decisions. In particular, investors are focusing on sustainable yields, and realistic asset pricing. This is definitely a shout-out to vendors to meet the market.”
Raine (pictured right) also pointed to a preference for income stability, arguing that sharemarket volatility has increased interest in commercial property supported by long lease terms and steadier cash flows. “We continue to see commercial property deliver attractive yields coupled with solid cash flows, which make this asset class attractive to investors,” he said.
On supply, the report said industrial availability remains constrained in several regions after some commercial sites were converted to residential use in recent years, while land suitable for new industrial estates is limited.
The imbalance, the report added, is pushing industrial prices higher, particularly near central business districts, transport links and infrastructure hubs, and said there is limited evidence of a near-term shift.
Sydney’s Inner West was cited as an example of low supply meeting strong demand, with the completion of the metro rail line and other proposed transport links expected to influence business location decisions.
“On one hand, we know that small business confidence is being impacted by conflict in the Middle East,” Raine said. “However, the longer-term picture is that improved infrastructure can support business efficiency and productivity, helping to lower costs.
“The completion of the metro rail line through Sydney’s Inner West is making the area particularly attractive for commercial property as it offers exceptional transport links, and a nearby supply of workers. Similarly, the announcement of a high-speed rail link between Sydney and Newcastle, is expected to drive the commercial property market across the lower Hunter and beyond.
“The catch is that demand vastly outweighs supply in many of these areas. This is reflected in strong sales results and rapid sale times, with Raine & Horne commercial property experts reporting a backlog of cashed up buyers waiting for a suitable property to become available. The smart money knows that this is the time to buy to reap long-term rewards.”
Household spending has remained firm despite cost pressures, citing Australian Bureau of Statistics data showing spending up 4.6% in January 2026 compared with January 2025. The report noted unemployment at 4.3% (seasonally adjusted), which it said supports businesses reliant on consumer demand and, in turn, parts of the retail property market.
“The commercial property market relies on a robust economy, and to date, we are seeing consumer spending relatively undeterred by a cost of living squeeze,” said Chris Nicholl (pictured right), chief executive of Raine & Horne.
“Even if households do rein in spending as a result of higher prices at the bowser, we believe segments of the retail property market will still perform well, particularly small neighbourhood centres that focus on discretionary spending.”
In offices, the report described a two-speed leasing market as employers encourage staff back into workplaces, with demand stronger for new or refurbished buildings than for older stock. It said owners of secondary assets may face longer vacancies without capital spending on upgrades, including flexible fit-outs and sustainability measures that can reduce operating costs.
Raine & Horne said current conditions may support portfolio diversification through commercial property, including for self-managed super funds and small-to-medium enterprises seeking to purchase premises, while vendors could find demand from both investors and owner-occupiers in tightly held submarkets.
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