Top five commercial property predictions for 2026

2026 property forecast: residential living sectors go institutional, retail continues rise, construction activity returns, sustainability credentials determine capital access. Premium office outperforms secondary stock significantly.

1. Living sectors become the new institutional darling

Build-to-rent will transition from niche investment to a mainstream institutional asset class in 2026, as major capital allocators chase residential exposure without direct development risk. Purpose-built student accommodation, co-living, and modern boarding houses will emerge as legitimate sectors as investors recognise the structural undersupply in housing and the defensive income these assets deliver. Institutional investors will appreciate the residential sector’s inflation-linked income, lower tenant concentration risk, and insulation from economic cycles compared to traditional commercial property. The lines between commercial and residential investment will continue to blur, with living sectors valued using commercial property metrics and managed with institutional grade processes. Government policy support for build-to-rent through tax settings and planning concessions will accelerate capital deployment. Major superannuation funds and offshore investors will announce significant allocations, validating the sector’s maturing in Australia. This shift represents a fundamental evolution in how institutional capital views residential property as an investment opportunity rather than merely a development play.

2. Retail’s resurgence continues to surprise

After leading the market recovery through 2025, retail will maintain its momentum throughout 2026, defying lingering pessimism about the sector. The death of new retail development over recent years has created supply constraints just as consumer spending patterns stabilise. Neighbourhood and convenience based centres will particularly shine as consumers prioritise local shopping experiences over destination retail. Major shopping centres with strong entertainment and dining offerings will benefit from the continued shift toward experiential spending. Supermarket anchored centres will deliver reliable income streams as essential retail proves its defensive qualities. Transaction activity will pick-up as investors recognise the sector’s recovery is genuine rather than temporary, with yields compressing for quality assets. The combination of constrained supply, steady foot traffic recovery, and rental growth will make retail one of the standout performers in 2026.

3. Construction sector rebound unlocks development opportunities

After years of construction paralysis due to soaring costs and funding constraints, 2026 will see a tentative return of development activity as feasibility gaps narrow.  Development sites that sat dormant through the high interest rate environment will become viable again as construction costs stabilise and pre-commitment levels from occupiers improve. We’ll see selective projects emerge across sectors, industrial for major logistics occupiers, premium office refurbishments capitalising on flight to quality demand, and opportunistic retail repositioning. The easing of labour shortages and material supply constraints will improve builder confidence, while developers with land banks will find funding more accessible as lenders regain appetite for development finance. This won’t be a construction boom, but rather a normalisation of development activity after an extended drought. Projects that commence in 2026 will be well-considered and pre-leased, reflecting a more disciplined approach than previous cycles.

4. Sustainability becomes a capital access issue

The Sustainable Finance Taxonomy will move from theoretical framework to practical reality in 2026, fundamentally changing how commercial property is financed and valued. Lenders and institutional investors will increasingly require minimum NABERS ratings, credible nett zero pathways, or tangible sustainability improvements as conditions for capital deployment.  Assets without strong ESG credentials will face genuine capital constraints, with higher borrowing costs and reduced investor appetite creating a tangible value gap. This shift represents sustainability moving beyond marketing and becoming a core driver of asset pricing. Landlords will need to demonstrate measurable performance improvements rather than aspirational commitments. The market divergence between assets that can access mainstream capital and those relegated to opportunistic buyers willing to fund improvement programs. Climate risk disclosure requirements will intensify, with physical and transition risks becoming standard components of investment analysis. Properties that fail to meet evolving standards will face structural devaluation regardless of location or tenant quality.

5. The great office separation continues

The divergence between premium and secondary office assets will continue to widen dramatically in 2026. Premium grade office buildings with strong ESG credentials, modern amenities, and prime locations will continue to outperform, capturing tenant demand and maintaining low vacancy rates. However, affordability considerations may create opportunities for high quality B-grade assets as tenants balance space quality aspirations against budget realities. Some occupiers will find value in well-maintained, well-located B-grade stock that offers most of the amenity without A-grade price tags. Meanwhile, lower quality secondary stock faces genuine obsolescence. The gap in vacancy rates between premium assets and truly secondary stock will expand significantly, with capital values reflecting this performance divide.  Sustainability requirements will accelerate this trend, as tenants increasingly demand NABERS rated spaces. This creates a more nuanced market than simple A-grade versus everything else.

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Vanessa Rader | Head of Research