Are Australian commercial property cap rates going up or down in 2026?
Our model sees more repricing pressure, not the yield compression much of the market is forecasting. The reason is simple: cap rates are priced off the government bond, and the 10-year yield has pushed to a 15-year high (around 5.0% in our latest panel). That lifts the fair cap rate — the yield a building should trade at given today's rates and risk.
Across every sector, the market cap rate still sits below our fair yield — meaning recorded values have lagged the move in rates, and some further softening is likely before fair value is reached. On our read the gap is widest in retail and narrowest in industrial, which carries the least downside.
Why does MPLC disagree with brokers calling for yield compression?
Sell-side forecasts leaned on rate cuts arriving to pull yields tighter. That thesis is under strain: sticky core inflation and a 15-year-high bond have flipped the rate path toward higher-for-longer. We don't forecast the recovery we'd like — we read the regime the data is actually in. That's the whole point of an independent model with no assets to talk up.
Which commercial property sector has the best outlook?
On our current read, Industrial offers the best value versus where rates say it should trade, with the lowest modelled five-year downside; Retail carries the widest risk because its values have lagged the rate move by the most. The full fair-value cap rate and five-year return range for each city and sector are in the reports.