Australia’s property markets have been impacted through 2026 by rising interest rates and an increasingly volatile global economy. More recently, significant changes to property investment introduced in the 2026-27 Budget mean that the sector is facing into considerable uncertainty. But in many ways, a strengthening property segment over recent years means that we are well positioned to absorb these challenges. Read the full report.
Executive Summary
- The global economy has been resilient despite an uncertain geopolitical backdrop. However, the Australian economy is likely to slow as increased volatility affects demand and the three rate hikes so far this year hit home.
- This expected slowdown in the economy should give the RBA comfort that inflation will head back to the 2-3% target. We think rates will therefore remain on hold over the next year, before a gentle easing cycle of two rate cuts in the second half of 2027.
- Australia’s housing market is rapidly cooling. Much of the responsibility for this is being placed at the feet of the 2026-27 Budget, but it should be noted that price growth was already materially slower on the back of the rate hikes between February and May.
- On the other hand, Commercial assets are pretty well positioned. Vacancies are declining and rents increasing across many asset types and geographies, which is providing valuable offset to any yield softening on the back of the rate hikes.
Major Trends Shaping the Property Market
Trend 1 : Budget 2026-27 rocks the housing market
The removal of negative gearing is already affecting the housing sector, but it is far from the only factor shaping the outlook of falling prices.
Trend 2: Higher interest rates are another headwind
Lower mortgage borrowing capacity is also weighing on housing prices, as well as putting some upward pressure on commercial yields.
Trend 3: Office sector continues to strengthen unevenly
Overall absorption of space continues to be a highlight, but the ‘flight to quality’ means secondary assets are still facing into a difficult market.
Trend 4: Australia is great at building Industrial assets
While we find building homes challenging, the supply of new Industrial property continues to fly. While this means rental growth has slowed right down, businesses are benefitting from a greater ability to expand or relocate as required.
Trend 5: Retail Property vacancies are generally improving.
Shopping centres anchored by supermarkets are outperforming, while CBD vacancies have finally returned to pre-COVID levels.
Figure 1. Monthly housing price growth
info-01
Challenges & Risks to Watch
- The likelihood of housing price declines over the year ahead poses a challenge for investors and developers alike. While higher interest rates and the removal of negative gearing have a mechanical impact on investor borrowing capacity, sentiment in the market is an additional intangible that will impact prices. Investors may remain on the sidelines on the expectation of lower prices in the near term, in turn potentially making presales (and therefore finance) more difficult to obtain for developers.
- While the base case is that of flat interest rates over the next year before two cuts in the second half of 2027, there is still some risk that rates will move higher over the near term. Domestic inflationary pressures, combined with events overseas including the Iran conflict and oil prices movements, therefore remain a key watch point.
- As noted above, Commercial property vacancies have generally been declining, supported by a resilient economy and household spending. But with retail spending and the economy more broadly expected to slow down this year, a weaker environment for businesses could see this rate of absorption slow down, hindering further uplift in the property space.
Future Outlook for Australia's Commercial Property Market
Australia’s property sector remains relatively well positioned to face into the environment of geopolitical uncertainty, higher interest rates and policy changes. Commercial assets are expected to ‘muddle through’ the next year or two as the negative impact of higher rates is somewhat offset by improving absorption, fewer vacancies and increasing rents. But Residential property is likely to experience a softer period, hindered by the combination of three rate hikes to date, and the removal of negative gearing. Housing prices are therefore forecast to decline over much of the next year in most locations. However, building new homes remains exceedingly difficult, and Australia’s underlying housing shortage should limit the scale of the price adjustment and put a floor under housing prices over the longer term.
Next steps
- Download the full version of ANZ Commercial Property Update – Q3 2026.
- Explore more of our Commercial Property banking services.
- Talk to one of our specialists by requesting a call back.