Despite interest rate hikes increasing pressure in the property market, the commercial sector has held firm, with industrial assets recording the strongest results.
New data showed that the commercial market has remained robust despite recent interest rate rises, with the industrial sector recording the strongest results, followed by office and retail.
Raine and Horne’s Commercial Insights found that recent volatility in the share market and its ability for stable income through cost-effective lease arrangements had boosted the appeal of commercial property.
Raine & Horne Group chairman, Angus Raine, said commercial property had continued to deliver attractive yields, combined with strong cash flows, making it an attractive asset class.
The report also highlighted key factors affecting the market this year, with recent rate hikes prompting investors to factor in higher borrowing costs in price negotiations.
Raine said the sudden shift in expectations from rate cuts to hikes meant investors were focusing on sustainable yields and realistic asset pricing.
“This is definitely a shout-out to vendors to meet the market,” he said.
Industrial
According to the data, the industrial market has remained the commercial market’s top performer, bolstered by government infrastructure investment.
Raine and Horne said investors had been particularly embracing industrial units as an affordable, low-maintenance way to diversify their portfolios.
The network said the findings reflected the ongoing growth of e-commerce, which has driven demand for warehouse space.
It also said a continued shortage of land earmarked for new industrial estates had fuelled demand, particularly as more commercial assets were 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,” it said.
It said Sydney’s Inner West was an example of high demand meeting low supply, particularly across industrial assets.
Raine said that while small business confidence was being affected by the Middle East conflict, the longer-term picture showed that improved infrastructure could support business productivity, helping 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.”
Office
According to Raine and Horne, the office market has continued to rebound as employees gradually returned to formal workplace settings, following the pandemic work-from-home era.
It said tenants have increasingly sought modern work environments with attractive amenities to entice staff back to work.
“The result is the emergence of a two-speed market, where new or recently renovated office assets are attracting plenty of buyer and tenant interest, while older properties are more likely to be overlooked,” it said.
Raine and Horne Group CEO, Chris Nicholl, said the shift meant owners of old office properties needed to significantly invest in their assets, or risk facing longer vacancy periods.
“In Sydney’s CBD, for example, owners who are prepared to upgrade assets by investing in improved facilities and flexible fit-outs can significantly enhance the tenant appeal of their property,” Nicholl said.
He said that, similarly, assets with strong eco-credentials could result in lower costs for both tenants and landlords.
“This is important as tenants typically want to see their leased assets work harder to attract and retain staff as well as contribute to cost reductions.”
Retail
According to Raine and Horne, the retail property market has seen a resurgence across neighbourhood centres with non-discretionary outlets in areas with strong population growth.
Australian Bureau of Statistics data found that household spending remained robust, rising 4.6 per cent in January 2026 compared with January 2025.
Nicholl said that the commercial property market relied on a strong economy, with consumer spending currently relatively undeterred by cost-of-living pressures.
“Even if households do rein in spending as a result of higher prices at the bowser, we believe segments of the retail property market will still perform well, particularly small neighbourhood centres that focus on discretionary spending.”
The network noted that spending habits may change due to rising fuel prices and interest rates, but for now, the unemployment rate remaining at 4.3 per cent was reassuring.
“This is a positive driver for commercial real estate with many businesses ultimately relying on consumer spending for revenue growth,” it said.
Making the most of the market
Ultimately, Raine and Horne advised investors to take advantage of the current market by negotiating on sale prices and diversifying their portfolios through commercial property.
It said these tactics can particularly work for self-managed super funds and small-to-medium enterprises that wished to invest in their own premises.
“For property owners, now could be the time to list, and tap into strong demand from both investors and owner occupiers,” the network concluded.
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