Good morning,
Here's your week-in-review brief plus where the model stands. · Page 1 — market brief · Page 2 — what our model is telling us.
The week closed the books on a first half that surprised to the upside: $19 billion of Australian commercial property changed hands in the six months to June, up 16% on a year earlier1, and the real story sits in who was doing the buying. With offshore capital pulling back 8% to just $4 billion, barely a fifth of total volume, it was domestic institutions and fund managers stepping into the gap2, a shift CBRE's own researchers described as investors concentrating on home turf while global volatility swirls3. Retail actually led the way on $6.1 billion of deals, ahead of industrial and logistics on $5.5 billion and office on $4.1 billion4, underwritten by headline transactions like Goodman Group's $2.65 billion industrial tie-up with Washington H. Soul Pattinson and Lendlease's $1.2 billion sale of shopping centre stakes to GPT5.
Behind that resilience, the cost of money stayed stubborn. The Reserve Bank left the cash rate at 4.35%6, but bond markets didn't relax to match: the 10-year yield sat above 4.8%, near two-week highs, as banks read the RBA's June minutes as more hawkish than expected on excess demand and capacity pressures7. With headline inflation still running at 4.0% and the trimmed mean actually accelerating to 3.6%8, the case for holding rates higher for longer hasn't gone away, and that keeps pressure on the gap between what property is priced at and what it's fundamentally worth.
That tension showed up in two very different deals this week. Mirvac sold its refurbished 380 St Kilda Road office tower for $130 million, about $33 million below December's book value, to a Malaysian-backed buyer, in a fringe market where vacancy has pushed past 30%9. Meanwhile ESR's Singapore parent paid $277 million for a five-asset Melbourne logistics portfolio from Frasers, still chasing quality industrial even as offshore appetite elsewhere cools10 — a fair reflection of a value ladder that still runs cheapest through industrial and richest through retail. The next test is the RBA's August 11 decision.
In plain terms: right now the model likes Industrial best on value, and is most wary of Retail. Looking five years out, it expects Industrial to earn the most — about 8.7% a year — while Retail trails at roughly 6.8%. Why are property values under pressure? Because the ten-year government bond now pays around 4.8%. When something as safe as government debt pays that much, a building has to offer more to tempt a buyer — and that quietly drags values down. What's holding them up is the steady wave of overseas money still buying in — the one signal we've actually proven moves prices. The table below is that same picture, in numbers.
| Sector | Cap rate now | Fair value | 5-yr return | Worst case |
|---|---|---|---|---|
| Office | 6.32% | 6.98% | 7.9% | -17% |
| Retail | 5.59% | 6.71% | 6.8% | -19% |
| Industrial | 5.40% | 5.91% | 8.7% | -10% |
| All Property | 5.55% | 6.53% | 7.4% | -17% |
| Alternatives | 5.87% | 6.53% | 8.2% | -14% |
A quick guide: "cap rate" is the yearly rent as a share of the price — like an interest rate on a building; a higher number means cheaper. "Fair value" is what our model says that rate should be given today's interest rates. "Worst case" is a bad-but-realistic five-year fall in value.
Cheapest to priciest, the order runs Industrial then Alternatives then Office then All Property then Retail. We hunt for value, not hype — the best long-run buys tend to be where the crowd has already sold off.
Independent research — we don't develop, invest in or broker property, and every figure is built from public data. How it's built →