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Industrial yields are lower in every capital than a year ago, office results split by city and retail compressed. Budget tax changes could lift commercial demand over time.
Industrial property remains the strongest performer in Australian commercial property. Industrial yields are lower in every capital city than a year ago, while office yields moved in different directions across cities and retail yields compressed. Budget tax changes that kept negative gearing for commercial property but removed it for residential could add demand over time.
Commercial property yields saw varied performance across the last quarter, according to the latest realcommercial.com.au Commercial Yield Report. Transaction activity picked up across Australia, though elevated interest rates continue to constrain buyer demand.
The sector is now eyeing a potential boost following recent federal budget tax reforms that retained negative gearing benefits for commercial property while removing them for residential investments.
Budget tax changes give commercial property a tailwind
REA Group Senior Economist and report author, Anne Flaherty, said tax changes and shifting risk profiles are driving the mixed performance across commercial property sectors.
“One tailwind for the sector has been the sweeping tax changes brought in following the Federal Budget, which retained negative benefits for commercial property investment, while removing them for residential,” Ms Flaherty said.
“Over time, this could translate into increased demand for commercial property, particularly once funding costs are in less restrictive territory.”
The residential change, which passed Parliament on 25 June 2026, means that from 1 July 2027 rental losses on established residential properties bought after 7:30pm AEST on 12 May 2026 can only be offset against residential property income, not wages. New builds and properties held before that time keep the existing rules. Our summary of the 2026 negative gearing changes explains what this means for residential investors.
Industrial: the safest option
Industrial property maintained its position as the market’s safest option, with gross yields holding stable over the quarter following modest compression across most major cities. The sector is the only property type where yields are sitting lower in every capital city compared to 12 months ago, reflecting ongoing demand.
Western Australia and Queensland led the annual tightening, with industrial yields in Perth compressing by 37 basis points and Brisbane by 19 basis points year-on-year. Adelaide also saw compression of 17 basis points. Sydney and Melbourne industrial yields currently sit at the tightest in the country at 4.2% gross.
Supply is part of the story. Developers have cut back speculative warehouse construction, as our report on industrial vacancy falling for the first time in two years explains.
Office: the widest divergence
The office sector showed the greatest divergence in performance nationwide. Gross yields sharpened over the quarter in Brisbane, down 22 basis points, Adelaide, down 10 basis points, and Sydney, down one basis point. However, they softened in Melbourne, up six basis points, and Perth, up 17 basis points.
Retail: compression, but higher perceived risk
Retail property experienced notable national yield compression through June, led by sharp quarterly drops in Brisbane at 25 basis points, Adelaide at 18 basis points, and Melbourne at 10 basis points. Sydney and Perth held flat over the period.
Ms Flaherty said the retail sector continues to carry higher perceived risk.
“Retail yields remain notably higher than office and industrial yields in every capital city, indicative of the higher perceived risk in the sector,” she said.
Investor appetite for retail has still been strong, with shopping centres leading transaction volumes. Read more in shopping centres lead commercial property investment.
| City | Industrial | Office (quarter) | Retail (quarter) |
|---|---|---|---|
| Sydney | 4.2% gross | down 1 basis point | flat |
| Melbourne | 4.2% gross | up 6 basis points | down 10 basis points |
| Brisbane | 5.2% gross, down 19 bp over the year | 6.8%, down 22 basis points | 7.9%, down 25 basis points |
| Adelaide | down 17 bp over the year | down 10 basis points | down 18 basis points |
| Perth | down 37 bp over the year | up 17 basis points | flat |
Queensland leads on headline returns
For investors seeking higher headline returns, Queensland continues to lead the pack. Brisbane offers the highest yields across industrial at 5.2%, office at 6.8%, and retail property at 7.9% among all capital cities.
Reading yields as an investor
A yield is the annual rent as a percentage of the property’s value. A basis point is one hundredth of a percentage point, so a 25 basis point move is 0.25 percentage points. When yields compress, values are rising relative to rents. Lower yields usually mean less risk in the eyes of the market, while higher yields compensate investors for more risk, such as retail’s exposure to consumer spending.
Gross yields don’t account for costs. Commercial leases often pass outgoings to the tenant, but check the lease, because vacancy periods, incentives and capital works can still eat into your return.
Financing a commercial property purchase
Elevated interest rates are still holding buyer demand back, as the report notes. Lenders assess commercial property loans on the property, lease, tenant and your financial position, and the spread between your loan rate and the property’s yield shapes whether the investment pays its way.
A broker can compare commercial property loans and model the cash flow for a specific property. Yields are only part of the return, as our report on commercial property returns shows. For timing, see how the commercial property cycle creates opportunities for investors. Attain Loans is a mortgage and commercial finance broker in Melbourne’s west, and any loan is subject to each lender’s assessment.
This article is general information only and doesn’t take into account your objectives, financial situation or needs. Tax outcomes depend on your circumstances. Consider whether it’s appropriate for you and speak with a licensed professional, including your accountant, before making a decision.
Further questions
What are commercial property yields in Australia?
Does negative gearing still apply to commercial property?
What does yield compression mean?
What is the difference between gross and net yield?
Is commercial property a better investment than residential?
This is general information only and is subject to change at any given time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.
