Three months into the 2027 financial year, Australian commercial property has two stories running at once. Capital is flowing back in. At the same time, higher rates and a falling housing market are putting pressure on the businesses that occupy commercial space. For Melbourne owners weighing a sale or a lease, the gap between those two stories is where the decisions get made.
Capital Is Back:
Investment activity has recovered strongly in 2026. Transactions topped $23 billion in the first half, the strongest start to a year since 2022. Domestic institutions and fund managers did the heavy lifting, with offshore buying slowing amid global volatility.
Pricing has steadied too. Prime cap rates held stable across all sectors in the September quarter, while secondary assets saw some yield expansion. That split between prime and secondary runs through the rest of this report.
Rates Are Higher, And Housing Is Falling:
The quarter closed with the Reserve Bank lifting the cash rate 25 basis points to 4.60% on 29 September. It was the fourth rise of 2026 and took the cash rate to its highest level since late 2011.
The Board noted the economy appeared to be slowing but left the door open to further increases. Three of the four major banks don't expect a first cut until around August 2027.
Housing is feeling it. Cotality's national Home Value Index fell 1.1% in September, the sixth consecutive monthly decline, leaving values 5.2% below their March peak. Melbourne values fell 6.3% across the first eight months of 2026, and one major forecast points to a 10 to 15% national correction from here.
Why does that matter for commercial property? Housing drives spending, construction and employment. When it slows, the builders, trade suppliers and retailers who occupy commercial
space feel it first. Construction already accounts for around a quarter of company insolvencies nationally, with 3,472 of 14,152 in FY26 according to ASIC, even though that figure fell for the first time in five years.
Melbourne - A Two-Speed Market:
Melbourne started the financial year with the highest industrial vacancy of the mainland capitals, at 4.7% against 3.2% nationally. Melbourne's available space is dominated by older stock, and second-generation buildings are becoming harder to lease as occupiers focus on efficiency and rising outgoings. Melbourne prime industrial yields softened 15 basis points to an average of 6.0% in the June quarter, the second consecutive quarter of softening.
The September quarter brought better headline news. National industrial take-up hit a record 1.49 million square metres, new supply fell to its lowest level since 2021, and Melbourne rents rose 0.8% over the quarter. But that demand is being led by large occupiers pre-committing to new, automated facilities. Older buildings can be hard to automate cost-effectively, and smaller operators are less optimistic than larger ones.
Office tells a similar story. The Property Council's July report put Melbourne CBD vacancy at 18.9%, still the highest in the country, against 13.3% in Sydney and 10.2% in Brisbane.
The pattern is consistent. Modern, functional, well-located assets are holding up. Older and secondary assets face a harder test.
Information First:
So what do you do if you need to sell or lease in this market?
Get the information first, then set your direction. In a two-speed market, the headline numbers won't tell you where your property sits. You need to know what your asset is likely worth for sale or
lease today, what competing supply you'll be up against, and how the businesses that occupy space like yours are travelling. Without that, you're simply hoping.
Before Q2:
Before the second quarter, get a property assessment from someone who knows this market. CVA manages more than $6 billion of commercial property across Melbourne and has done so for 35 years. Our sales and leasing team can give you an opinion of value and a clear read on the competition around your asset.
Book an Asset Review with us.
What We're Watching Next:
the September quarter inflation figures, the Reserve Bank's 3 November decision, and the September quarter industrial and office data. We'll cover all of it in the Q2 report in January.
This report is general information only and is not financial advice. Forecasts are from third parties and are subject to change. Seek independent advice before acting on any information in this report.
Sources:
Reserve Bank of Australia, Monetary Policy Decision, 29 September 2026
CBA, Westpac and NAB cash rate forecasts, September 2026
Cotality, Home Value Index, results to 30 September 2026 (released 1 October 2026)
Cotality, Home Value Index, results to 31 August 2026 (Melbourne)
[Report] (housing correction forecast)
ASIC, Insolvency Statistics Series 1, FY2025-26
Knight Frank, Australian Capital View, September 2026
CBRE, Australian Capital Markets, H1 2026
CBRE, The House View, Q4 2026
CBRE, Industrial & Logistics Vacancy Report 1H26, July 2026
Knight Frank, Melbourne Industrial State of the Market, Q2 2026
JLL Research, Australian Industrial Market, Q3 2026
Property Council of Australia, Office Market Report, July 2026
