Commercial Property Market: Growth Expectations Fall as Uncertainty Soars

Australia’s property markets entered Q2 2026 amid heightened global uncertainty, higher interest rates and shifting supply‑demand dynamics across both residential and commercial sectors. While strong underlying demand continues to support several property segments, rising funding costs and geopolitical risks are reshaping expectations for growth and valuations through the remainder of 2026. Read the full report.

Executive Summary

• Global geopolitical tensions have lifted energy prices, contributing to higher inflation and renewed interest rate tightening in early 2026. ANZ Research expect one further rate hike in May 2026.
• Housing markets remain undersupplied, supporting prices in Perth, Brisbane and Adelaide despite rising rates. But declining borrowing capacity and weaker confidence have seen the Sydney and Melbourne markets soften, and this will gradually impact other markets as well.
• Office markets continue to improve, albeit unevenly, characterised by differing supply outlooks and a persistent flight‑to‑quality.
• Industrial rental growth has slowed materially as a wave of new supply reaches the market.
• Retail property remains resilient, supported by non‑discretionary spending and improving CBD occupancy.

Major Trends Shaping the Property Market

Figure 1: Change in housing prices since 2020.

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Trend 1: Interest rates re-emerge as a headwind

Higher funding costs are reducing borrowing capacity, softening housing demand, placing upward pressure on commercial property yields and weighing on valuations.

Trend 2: Persistent housing undersupply

New housing completions remain well below long-term demand requirements. There are signs of improvement in approvals and commencements, but there is a long way to go.

Trend 3: Two-speed residential market

Perth, Brisbane and Adelaide continue to record strong price growth, while Sydney and Melbourne show increasing sensitivity to rate rises.

Trend 4: Office flight-to-quality endures

Prime office assets continue to absorb demand as secondary stock experiences ongoing net vacancy.

Trend 5: Industrial market rebalancing

Strong demand from e-commerce persists, but elevated new supply is moderating rental growth and increasing incentives.

Trend 6: Retail recovery consolidates

CBD retail vacancy has fallen sharply from COVID peaks, while neighbourhood and regional assets remain solid defensive performers.

Risks to Watch for Property Investors and Developers

• Further increases in interest rates or prolonged higher-for-longer settings.
• Construction cost volatility linked to energy prices and global supply chains.
• Housing affordability constraints as borrowing capacity declines.
• Rising interest rates driving yield softening risk for commercial property valuations.
• Office oversupply in select markets, particularly Melbourne and Canberra.
• Softening in consumer confidence potentially impacting retail property demand.

Future Outlook for Australia's Commercial Property Market

Higher interest rates and global uncertainty mean the outlook for the remainder of 2026 is one of slower growth and increased dispersion across property markets. Residential supply constraints will continue to support prices in selected regions, while higher rates cap upside elsewhere. Commercial property performance will increasingly depend on asset quality, location and sector‑specific supply conditions. But while these conditions provide a challenge, strong fundamentals in various segments and locations provide a platform for measured optimism into the next phase of the cycle.

Next steps

• Download the full version of ANZ Commercial Property Update – Q2 2026.
• Explore more of our Commercial Property banking services.
• Talk to one of our specialists by requesting a call back.