Australian bank commercial real estate (CRE) debt reached a record $415.7 billion in June, rising 9.6% over the year – the strongest growth since 2023.
BWP Advisors founder Richard Jenkins (pictured) said that despite economic uncertainty, loan performance has improved.
“The health of Australia’s banking system contrasts debt pressures and lender exits in other markets such as the US, where commercial real estate distress hit $116 billion in March, up 23% over the year and are now at their highest level since 2014,” Jenkins said.
Jenkins reported that CRE debt grew by $36 billion in 12 months, well above the 10-year annual average of $20bn.
“The pace of growth reflects the confidence that lenders have in the Australian commercial real estate market with Australia’s population growing at one of the fastest rates globally and a general undersupply of property sectors,” he said.
Industrial property led the gains, with banks’ exposure up 17% over the year.
“With industrial and logistics properties benefiting from the acceleration in the structural shift to online retail trade, lenders have increasingly sought to increase their exposure to the sector,” Jenkins said. “Australian industrial CRE debt has doubled over the past five years, far surpassing the gains of the other sectors.”
Banks’ exposure to retail CRE has now risen for eight consecutive quarters, reaching new highs in June. Jenkins said the combination of lower interest rates, population growth, and labour market strength is expected to support further growth.
Office exposure also hit a milestone, surpassing $120bn, accounting for 26% of ADI CRE debt. However, Jenkins warned that “with work patterns evolving coupled with climate-related and broader ESG risks increasing, lenders remain wary of office assets, leading to tighter scrutiny of loans for assets requiring significant investment to meet sustainability standards.”
Australia’s major banks now hold 73.3% of CRE debt, down from their 2013 peak of 84.7%. Foreign banks account for 21.5%, below their peak of 24.7%, with a retreat from office and retail but stronger exposure to industrial.
Jenkins also flagged refinancing risks.
“According to BWP Advisors research, Australia’s CRE debt market is also facing a significant refinancing wave, with nearly 30% of outstanding debt set to mature between 2026 and 2028,” he said. “Borrowers looking to refinance will encounter higher capital costs, increased vacancies, and moderating lender appetite, especially for secondary assets. This environment will likely benefit non-bank lenders, who continue to grow their presence in the market.”
Jenkins highlighted private credit’s rising role in CRE financing, noting its growth from $33bn in 2016 to over $200bn in 2025, supported by high-profile acquisitions.
“The absence of a more receptive environment from traditional lending sources means more construction projects are turning to non-bank financiers,” he said. “Given Australia’s projected population growth will lead to increased demand for all property asset classes, the level of Australian debt for CRE construction is forecast to grow to $350 billion in 2027.”
He concluded: “The ability of private credit to bridge funding gaps and offer customised lending solutions, means that private credit will continue to play a crucial role in diversifying Australian CRE debt and Australia’s private credit market is projected to grow beyond $100 billion in 2030, up from its current participation of $60 billion according to BWP Advisors research.”
Jenkins pointed out that Australian banks remain among the world’s best-capitalised institutions, exceeding Basel III requirements. Non-performing CRE loans sit at just $3.5bn, or 0.8% of total debt – well below GFC-era levels.
ASIC has also called for higher standards in private credit – from governance to disclosure – a reminder as nearly a third of CRE loans come up for refinancing by 2028. Brokers may see more opportunities for non-bank lenders, but tighter oversight will influence how this capital is deployed.
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
