Commercial property is entering a more complex phase as yields edge lower while interest rates climb.
realcommercial.com.au’s Commercial Yield Report shows commercial property yields eased across most markets in the three months to March, with performance varying by asset class and location.
The findings come as investor appetite strengthens, with the latest PropTrack Westpac Investor Report showing new investor loans up 64% from their 2023 low, driven by tight rental conditions and strong rent growth.
REA Group Senior Economist and report author Anne Flaherty (pictured) notes that sales activity rebounded in 2025 on the back of three rate cuts, but two of those moves have already been reversed in 2026, with inflation still elevated and further tightening a live risk.
That risk is being reinforced by major bank forecasts, with Westpac now expecting three more 25 basis point hikes this year, which would lift the cash rate to 4.85% by August and keep borrowing conditions restrictive for longer.
Industrial assets remain the standout performer.
“Industrial yields have seen the most significant compression over the past 12 months, with every capital city recording a decline,” Flaherty said.
Perth and Adelaide led the shift, with yields in both markets “down 37 basis points (bp) year-on-year.” Strong tenant demand and limited modern stock continue to support pricing, even as the interest‑rate outlook turns less friendly.
Office yields tell a more uneven story. The report notes that “offices were more mixed, with yields lower in Sydney and Adelaide over the year, though higher in every other capital.” Melbourne, burdened with the highest office vacancy rate, has seen the sharpest softening in yields, up 37bp over the year.
Retail yields were also mixed, with softening in Sydney and Melbourne but improving values in Brisbane and Adelaide and broadly stable conditions in Perth.
Overall, Brisbane offers the highest yields across industrial, office, and retail, while Sydney and Melbourne sit at the lower end. Adelaide is notable for the most pronounced yield compression across all three sectors over both the past year and the past five years, helped by the abolition of stamp duty on commercial property transactions and rising investor demand.
That demand is being underpinned by solid returns, with recent PropTrack data indicating that almost every investor resale in Brisbane, Adelaide, and Perth is still turning a profit despite higher mortgage rates.
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