Office glut deepens as landlords quietly cash out

Australia heads into the week watching Tuesday afternoon, when the Reserve Bank hands down its rate call at 2:30pm alongside its quarterly economic forecasts, with the outcome published alongside the quarterly Statement on Monetary Policy at 2:30 pm. A hold at 4.35 per cent is now close to a formality after June quarter inflation surprised to the downsideJune’s CPI came in below expectations at 3.8% headline and 3.6% trimmed mean, prompting Westpac to update its forecast and now expect the RBA to leave the cash rate unchanged in August, bringing all four major banks into alignment on an August hold. Our own read of the cash rate still sits at 4.35, with the 10-year bond at 4.83 and the credit spread investors demand over government debt (BBB spread) at 0.94 — numbers that keep financing costs firm even as the peak-rate story gains confidence.

That backdrop landed just as landlords delivered a reminder of how much slack is still in office markets: national vacancy climbed to 16.1 per cent in the six months to June – the highest since the COVID pandemic and the recession years of the early 1990s, even as demand for premium and A-grade buildings held up, with premium grade vacancy decreasing by 1.2 per cent to 10.2 per cent — a flight-to-quality that is splitting the sector in two. Dexus used the moment to keep selling, offloading a Sydney-Brisbane office trio to Investa and BGO for $715 million, about 4pc below its combined December 2025 book value, days after a separate $700 million Brisbane tower sale, together pushing the group past its $2 billion divestment target early. Local buyers are filling the space offshore capital has vacated more broadly too, with H1 transactions reaching $19 billion in the first half of 2026, a 16 per cent increase on the same period last year, with domestic institutional investors stepping in as offshore purchasing retreated.

Against that, our value lens still ranks industrial cheapest and retail richest, with office trading around a 6.32% market yield versus a 6.98% fair-value estimate — a gap that helps explain why sellers like Dexus are willing to transact near valuation rather than wait. Watch Tuesday's rate call and the accompanying forecasts for the next signal on whether this repricing cycle has further to run.

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.

The numbers, by sector

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 →