What Business Owners and Investors Need to Know
It’s been a busy year for anyone keeping an eye on property. Four interest rate rises since February, ongoing uncertainty overseas and a softening economy have left plenty of people wondering where things are heading. The good news for those interested in commercial property is that this part of the market is holding up considerably better than the headlines might suggest. Here’s a plain-English look at what’s happening across the different sectors, and what it could mean for you.
The Big Picture
The Australian economy is slowing. Higher interest rates are biting, consumer confidence is sitting near pandemic-era lows, and household spending has flattened out over the past six months. Economic growth is expected to come in at around 1% this year, and possibly lower given the latest rate rise, with unemployment likely to drift a little higher but remain relatively low by historical standards.
The cash rate now sits at 4.60% following the latest increase, and there remains genuine uncertainty about where rates go from here. Inflation has proven stickier than many expected, and while a slowing economy should eventually help bring it under control, the Reserve Bank has shown it is prepared to act if price pressures persist. Some economists believe rates are close to their peak, while others see the risk of further rises. For borrowers and investors, the sensible approach is to plan for rates staying higher for longer and to build some buffer into any decision.
For commercial property, the rate rises have so far had a relatively mild impact. Yields may soften and some valuations could come under pressure through the rest of the year, but rents are slowly rising across most asset types and locations, which helps cushion any softening in values.
Office: Turning the Corner
The office market has had a tough few years, but there are now clear signs it has found its floor. After values in Sydney and Melbourne fell by more than 20% between 2022 and 2024, they’ve since recovered, with Sydney up around 13%, Melbourne around 7% and Brisbane around 14% over the past two years. Businesses are increasingly comfortable with staff coming back into the office, and investors are following.
The key theme is quality. Tenants are gravitating towards premium and A-grade buildings with better amenities, flexible floor plates and stronger energy ratings, while older, secondary buildings continue to lose tenants. Brisbane, Adelaide and Perth are all performing well, with limited new supply in the pipeline helping vacancies tighten. Melbourne remains the weaker market, with vacancies rising again this year and more new supply arriving through the rest of 2026, although a gap in new projects across 2027 and 2028 could give it room to recover. Canberra is also softening as government tenants consolidate their space.
For investors, the lesson is simple: in the office sector, the quality of the building and the strength of the tenant matter more than ever.
Industrial: Strong Demand, More Choice for Tenants
Warehouses, logistics facilities and industrial land remain in strong demand, driven by online shopping, mining, agriculture, major infrastructure projects and, increasingly, data centres. The difference compared with a few years ago is that Australia is now building industrial property at record levels, with construction activity exceeding $22 billion over the year to March.
That extra supply has taken the heat out of rents. Advertised rents are still rising at around 3.7% a year nationally, but that’s a far cry from the 20 to 30% jumps seen between 2022 and 2024. Landlords are also offering bigger incentives to secure tenants, so once those are factored in, effective rental growth is closer to 1%, with mild declines in Sydney and Brisbane. Adelaide is the standout performer.
For business owners, this is genuinely good news. If you’ve been looking to relocate, expand or buy your own premises, there’s more choice available today than there has been for years. For investors, the sector’s fundamentals remain sound, but expectations around rental growth should be more measured.
Retail: Neighbourhood Centres Lead the Way
Despite the pressure on household budgets, retail property has held up well. Neighbourhood shopping centres anchored by supermarkets continue to be the star performers, with Melbourne recording its lowest vacancy rate in two decades at just 2.5%, closely followed by Canberra and Adelaide. Rental growth is modest at around 1 to 2% a year, but demand for these assets remains very strong because of the stability that major anchor tenants provide.
CBD retail is also recovering, with national vacancy rates back to pre-COVID levels. Sydney and Melbourne achieved this largely by cutting rents, which are still well below where they were before the pandemic. Perth, Adelaide and Brisbane still carry higher vacancies, but they’re improving as more workers return to city offices and resilient spending. The big watch point for retail is household spending, which will determine how much further these markets can improve.
What This Means for You
If you’re a business owner paying rent, now may be a good time to think about whether owning your premises makes sense, whether in your own name, through a company or trust, or within your self-managed super fund. If you’re an investor, commercial property continues to offer attractive features, including longer leases, tenants who often cover outgoings, and steady income backed by improving rents in many sectors.
With interest rates uncertain, how you structure your borrowing matters more than ever. Commercial lending works differently to home loans: lenders look closely at the lease terms, the quality of the tenant, the type of property and its location, and loan-to-value ratios are typically lower than for residential lending. Decisions around fixed versus variable rates, loan terms and serviceability buffers deserve careful thought in the current environment. For self-employed borrowers, there are also flexible options where full financials aren’t readily available. Getting the structure right from the outset can make a real difference to your borrowing capacity and long-term returns.
Let’s Talk
Whether you’re looking to buy your first commercial property, purchase your business premises, refinance an existing loan or simply understand your options in the current market, I’d be happy to have a chat.
Get in touch with Glenn Watkins at Captiva Finance on 0477 731 871 or 03 5959 1974, email glenn@captivafinance.com.au.
This article is general information only and does not take into account your objectives, financial situation or needs. Please seek independent financial, legal and tax advice before making any investment decision.