Industrial demand hits record but commercial property confidence cools overall

Australia’s commercial property market is becoming increasingly divided, with industrial property continuing to attract strong occupier demand while confidence in retail property deteriorates and access to finance becomes more difficult.

The latest NAB Commercial Property Survey points to a more cautious outlook for the sector, but new industrial leasing figures suggest opportunities remain for investors who properly assess asset classes, locations and tenant demand.

The NAB survey for the September quarter found that its commercial property index fell 15 points to +1, returning to its long-run average after weakening for a second consecutive quarter.

Confidence in the outlook also softened, with the 12-month expectations index falling 10 points to +10, while access to debt and equity funding became more difficult for property professionals.

The headline figures, however, obscure some significant differences between sectors.

Industrial property continues to stand out

Industrial property remained the strongest-performing sector in NAB’s sentiment survey, recording an index reading of +23 despite a moderation in confidence.

By contrast, retail sentiment fell 27 points to -7, while office sentiment remained unchanged at +9.

The difference is also reflected in expectations for capital values over the next 12 months. Survey respondents expect industrial property values to increase by 1.2 per cent, compared with anticipated declines of 1.3 per cent for retail and 1 per cent for office property.

Separate research from JLL provides further evidence of industrial property’s underlying demand.

According to JLL’s latest industrial research, gross take-up across Australia’s five tracked industrial markets reached a record 1.49 million square metres in the September quarter, an increase of 20 per cent from the previous quarter.

National industrial vacancy also fell for a second consecutive quarter, from 4.8 per cent to 4.6 per cent. Vacancy across prime industrial properties dropped from 4.2 per cent to 3.7 per cent.

The figures suggest demand for well-positioned warehouse and logistics facilities remains substantial, even as economic uncertainty and higher borrowing costs weigh on business confidence.

Strong demand, but not across the board

The record leasing result should not be interpreted as evidence that every industrial property is benefiting equally.

JLL found that large pre-lease commitments were a major contributor to the result, running 132.9 per cent above the ten-year average. Transport, postal and warehousing businesses, together with retail trade occupiers, accounted for 66.7 per cent of industrial take-up.

Demand is increasingly being shaped by larger logistics operators seeking to improve supply-chain efficiency and incorporate automation and robotics into newer facilities. JLL also noted that smaller operators were less bullish than their larger counterparts.

Annabel McFarlane, Head of Strategic Research, JLL Australia, said the confidence rests mainly with the larger third-party logistics providers, large retailer and the data centre ecosystem.

“While the headline figures are strongly positive, behind these headlines the story is mixed,” Ms McFarlane said.

“Pre-lease commitment activity has been dominated by large tenants, who are focused on increasing supply chain efficiency across their operations, incorporating the latest automation and robotics systems into new developments that will be completed in coming years.

“Height is a big driver of operational efficiency and older buildings can’t be automated cost effectively. Smaller operators are not as bullish as the larger traders.

“We also found that while suppliers to the data centre sector are contributing to industrial sector demand, the ecosystem around data centre construction is also contributing to the strong results for the industrial sector,” Ms McFarlane said.

Supply conditions are also changing. Industrial completions fell 51.5 per cent during the quarter to 280,400 square metres, their lowest quarterly level since the third quarter of 2021. Of the industrial stock currently under construction, 70.7 per cent has already been pre-committed.

This combination of sustained demand and lower new supply is supportive of established, well-located industrial assets. Investors, however, still need to assess tenant quality, lease terms, building specifications and the price paid for an asset rather than treating the sector’s aggregate performance as a guarantee of returns.

Retail sentiment put in context

Retail property also presents a more complicated picture than NAB’s falling confidence index might suggest.

The Reserve Bank’s October 2026 Financial Stability Review reported that commercial property fundamentals had continued to improve across most markets during the first half of 2026. It also noted gradual increases in retail valuations and rents, consistent with declining vacancy rates across many retail asset types and locations.

NAB’s figures reflect growing caution among property professionals, including expectations that retail capital values could fall over the coming year. The RBA’s assessment, meanwhile, indicates that some underlying retail property measures have remained supportive.

A softer outlook does not automatically make an asset unattractive, just as relatively strong current conditions do not guarantee continued growth.

Location, the strength of the tenant, the durability of rental income and the amount of capital required to maintain or improve a property all influence its investment prospects.

Finance becoming a bigger consideration

One common challenge across commercial property is access to funding.

NAB’s survey found that property professionals faced greater difficulty accessing both debt and equity finance during the September quarter.

For commercial investors relying on borrowed capital, higher financing costs narrow the difference between rental income and the cost of holding an asset.

That is putting greater emphasis on purchase price, cash flow and the reliability of income, particularly where leases are approaching expiry or additional capital expenditure is required.