Commercial Property Market Undeterred by Higher Rates as Office and Retail Markets Rebound

Leading property group Raine & Horne has just published its latest _Commercial Insights_ report, providing a window into the state of play of commercial property markets around Australia. The report identifies the key factors impacting today’s commercial property market, including: 1.

Investors are factoring in higher rates

To date, the Reserve Bank of Australia (RBA) has announced two rate hikes in 2026, lifting interest rates by a total of 0.5%. Investors are starting to factor higher borrowing costs into price negotiations. This calls for sellers to take a realistic approach when it comes to asset pricing. Angus Raine, Chairman of Raine & Horne Group, said, “In a short timeframe, we have moved from expectations of rate cuts to rate hikes. Higher borrowing costs are, understandably, playing a role shaping buying decisions. “In particular, investors are focusing on sustainable yields, and realistic asset pricing. This is definitely a shout-out to vendors to meet the market.” 2.

A growing preference for income stability

The high levels of volatility seen on the Australian share market in recent weeks, and more broadly over the past year, have enhanced the appeal of commercial property, backed by its track record for delivering stable and sustainable income through long, and often cost-effective, lease arrangements. “We continue to see commercial property deliver attractive yields coupled with solid cash flows, which make this asset class attractive to investors,” said 

Mr Raine

. 3.

Low supply backed by high demand

In recent years, surging growth in residential property prices has seen a number of substantial commercial property assets converted to residential housing. Coupled with an already acute undersupply of land devoted to new industrial estates, this is driving the price of industrial assets higher, especially in areas close to CBDs, transport links and infrastructure hubs. There is little evidence that this will change any time soon. Sydney’s Inner West is a prime example of high demand meeting low supply, particularly across industrial assets. Mr Raine said, “On one hand we know that small business confidence is being impacted by conflict in the Middle East. However, the longer-term picture is that improved infrastructure can support business efficiency and productivity, helping to lower costs. “The completion of the metro rail line through Sydney’s Inner West is making the area particularly attractive for commercial property as it offers exceptional transport links, and a nearby supply of workers. “Similarly, the announcement of a high-speed rail link between Sydney and Newcastle, is expected to drive the commercial property market across the lower Hunter and beyond. “The catch is that demand vastly outweighs supply in many of these areas. This is reflected in strong sales results and rapid sale times, with Raine & Horne commercial property experts reporting a backlog of cashed up buye