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Early movers win: Commercial opportunities for 2026
Investors can expect opportunities in Australia’s commercial market in 2026 as office, retail, and industrial sectors stabilise and grow across major capitals and high-demand precincts.
According to the Australian Horizon 2026 report from Knight Frank, the nation’s commercial market has begun to equalise in 2025 and is set to continue to grow in the new year.
Knight Frank chief economist Ben Burston said the office market began its resurgence in 2025, highlighted by strong demand in the nation's major markets.
“Office markets have been slower to respond, and have also demonstrated a greater degree of divergence, but growth has now returned across all major CBDs, led by Sydney, Brisbane and Adelaide,” Burston said.
“Sydney has been a bellwether for the health of the wider office market, and to date the recovery has been strongest in the core CBD precinct, linked to the improving performance of the leasing market.”
“Melbourne has witnessed a similar trend, with sustained demand and strong rental growth in the Eastern Core.”
Additionally, Burston said growth and recovery were likely to extend beyond office assets, leaving them on a more even footing with retail and industrial heading into the new year.
“In industrial markets, we expect the recovery to extend to Melbourne, while in retail markets, growth will pick up in sub-regional centres, as positive sentiment spills over from the larger centres,” Burston said.
“In office markets, we expect continued growth in Adelaide and Brisbane, while in Sydney and Melbourne, we expect to enter a second phase as growth extends beyond the core precincts previously identified.”
“Adjacent markets, particularly Midtown in Sydney and the Western Core in Melbourne, should see a return to growth as they join the core in starting to benefit from a thinning supply pipeline.”
The window is closing, but not shut
According to the report, investment opportunities will continue to arise from the market’s cyclical downswing, creating a window to purchase quality assets at lower prices and with lower risk.
To capitalise on the downswing, Burston said investors must act quickly and may be forced to look beyond core markets in major capitals to achieve the best results.
“There is still time to buy, with the early-cycle window remaining open in most markets, but since pricing has moved off the bottom in favoured markets like the Sydney CBD Core office market, many owners are now less willing to trade given the anticipation of cyclical recovery,” Burston said.
“As a result, in 2026, Knight Frank expects investors to start to broaden their focus to other markets where the recovery is yet to gain a firm footing.”
The report found that it was likely to be easier for investors to enter the market in areas where deal flow has been restricted in recent years, which could unlock opportunities at a discount compared to core precincts.
A slumbering titan to awaken
While many capital cities have experienced rapid growth recently, Knight Frank said that Melbourne has taken longer to turn around.
Despite its slow start, Burston said the Victorian capital was set to build momentum in 2026, and investors distracted by external noise risked missing out on significant growth.
“Investors are aware of the high overall vacancy rate, but fewer are tuned into the looming slowdown in new supply,” he said.
“Off the back of a larger downturn than in other cities, downside risk is now limited, and those prepared to look through the current headwinds can take advantage of very attractive pricing.”
No more advantage in “beds and sheds”
The report found that while residential and industrial markets have mostly avoided the challenges faced by office and retail assets over the last decade, the conditions across all major sectors are now more balanced.
Burston said that office and retail assets are set to experience strong growth, having stabilised, and investors are benefiting from decreased downside risks.
“Office and retail assets now offer stronger income returns, and rental growth prospects are increasingly positive,” Burston said.
“They are also readily investable, and new entrants can acquire large holdings of stabilised assets relatively quickly, to take advantage of the nascent recovery.”
High economic rent to drive growth and restrict supply
Burston said the “economic rent”, the level of rent at which the construction of a new development becomes feasible, sits above the forecast rent across major asset types, having surged since 2021.
According to Burston, a “perfect storm” of rising construction costs and interest rates, alongside high incentives and falling capital values, has created significant obstacles for developers in increasing supply, with lower supply continuing to support the performance of existing assets.
“New office developments that do proceed will be skewed to core CBD locations where rents are highest,” he said.
“Industrial developers will similarly be attracted to infill locations where higher rents are achievable and also focused on land banking to position themselves for the next development cycle.”
Prime office rentals to defy vacancy rates
Burston noted that while rental growth typically correlates with vacancy rates, there are signs that this may not hold in 2026.
Despite an office vacancy rate above 10 per cent, prime offices in Brisbane, Adelaide, Sydney’s Core, and Melbourne’s Eastern Core have performed strongly in 2025, and Burston said this could continue into 2026.
“High-quality prime assets are achieving strong leasing outcomes, and we expect rental growth to accelerate in 2026-27 as the supply pipeline diminishes,” he said.
Industrial vacancy to stabilise before bouncing back
The report found that construction levels in the industrial markets have adjusted to the high vacancy rates and economic rents.
Burston said industrial asset vacancy levels would begin to fall in 2026, with demand driven by pre-committed tenants.
“Vacancy and effective rents will stabilise on average in 2026, but continue to diverge at the precinct level, before the next phase of broad-based growth commences in 2027,” he said.
Shopping centres are a focal point for retail
While retail will remain a strong option for investors nationally in 2026, Burston said prominent, well-located assets will continue to outperform the broader market.
The retail sector performed strongly across the board in 2025, and Burston predicts that will continue into 2026, with prominent, well-located assets showing the most potential for growth.
“Dominant shopping centres are best placed to take advantage due to their lack of immediate competition, a flight to quality from retailers who realise they don’t need to be everywhere all at once,” Burston concluded.