Australian commercial property investment activity remained resilient in the first half of 2026 despite elevated geopolitical uncertainty and higher interest rates, with investors increasingly pivoting toward core plus and value-add strategies that offer stronger returns, according to Knight Frank’s latest research.
The firm’s Australian Capital View, released in September 2026, found that national transaction volumes climbed to $14.3 billion in the second quarter, up sharply from $8.8 billion in the previous quarter.
That brought total first-half investment activity to just over $23 billion, the strongest opening half to a year since 2022.
Industrial assets led the charge, accounting for $5.9 billion in transactions, while retail property contributed a further $3.4 billion.
Knight Frank said the results were underpinned by robust domestic investor demand and growing confidence in the market’s longer-term fundamentals, even as the broader economic backdrop remained uncertain.
Despite the rebound, the investment landscape continues to be shaped by a higher-for-longer interest rate environment.
Knight Frank noted this is reinforcing the importance of careful asset selection and rental growth as key drivers of future returns, rather than the yield compression that characterised earlier cycles.
Knight Frank Chief Economist Ben Burston said investors had successfully navigated another external shock in 2026, but that the prevailing rate environment was clearly influencing strategy across the market.
He said growth was expected to slow, though the Australian economy was likely to prove more resilient than many investors had anticipated back in March.
Burston added that this year’s rise in inflation and interest rates had been far less severe than the shock experienced in 2022 and 2023, with households and businesses entering the current period from a considerably stronger position.
“The key difference for investors is that higher interest rates are likely to persist for longer,” said Burston.
He said this placed a premium on market segments experiencing strong growth without the risk of new supply dampening momentum.
Knight Frank Partner and Head of Capital Markets Australia Michael Kwok said investor appetite had remained healthy despite ongoing macroeconomic headwinds and geopolitical uncertainty, with buyers steadily regaining confidence throughout the year.
“The fact that transaction volumes rebounded so strongly during a period of elevated uncertainty demonstrates that capital remains committed to Australian commercial property,” said Kwok.
Kwok said investors remained highly selective about where they deployed capital, focusing largely on high-quality assets with clear near-term structural tailwinds.
He noted a clear shift in preference away from core investments toward core plus and value-add strategies, which offer the prospect of higher returns in the current climate.
“The higher interest rate environment has resulted in many seeking 10 to 15 per cent returns rather than the typical eight to 10 per cent benchmark for core strategies,” he said.
Kwok said investors were also concentrating on sectors and locations where rental growth was being supported by constrained supply, pointing to strong demand for prime office assets in the Sydney and Brisbane CBDs, as well as industrial investors targeting infill locations with limited available stock.
Kwok said Australia’s transparency, stability and improving property fundamentals continued to draw both domestic and offshore capital, noting that the market compared favourably on a global basis.
He said that as confidence continues to improve and uncertainty recedes, investors are expected to remain active, particularly in sectors benefiting from strong occupier demand and limited new supply.
The report cautioned that further interest rate increases remain a possibility, but said improving business confidence, resilient consumer spending and strong investment in emerging areas such as data centres are helping support the broader economic outlook heading into 2027.
