Tax reforms & industrial strenght drive commercial property.

Commercial property yields saw varied performance across the last quarter, with industrial assets maintaining their position as the strongest performer while office and retail sectors showed divergent results across different cities.

According to the latest realcommercial.com.au Commercial Yield Report, transaction activity picked up across Australia, though elevated interest rates continue to constrain buyer demand. The sector is now eyeing a potential boost following recent federal budget tax reforms that retained negative gearing benefits for commercial property while removing them for residential investments.

REA Group Senior Economist and report author, Anne Flaherty, said tax changes and shifting risk profiles are driving the mixed performance across commercial property sectors.

"One tailwind for the sector has been the sweeping tax changes brought in following the Federal Budget, which retained negative benefits for commercial property investment, while removing them for residential," Ms Flaherty said.

"Over time, this could translate into increased demand for commercial property, particularly once funding costs are in less restrictive territory."

Industrial property maintained its position as the market's safest option, with gross yields holding relatively stable over the quarter following modest compression across most major cities. The sector is the only property type where yields are sitting lower in every capital city compared to 12 months ago, reflecting ongoing demand.

Western Australia and Queensland led the annual tightening, with industrial yields in Perth compressing by 37 basis points and Brisbane by 19 basis points year-on-year. Adelaide also saw compression of 17 basis points. Sydney and Melbourne industrial yields currently sit at the tightest in the country at 4.2 per cent gross.

The office sector showed the greatest divergence in performance nationwide. Gross yields sharpened over the quarter in Brisbane, down 22 basis points, Adelaide, down 10 basis points, and Sydney, down one basis point. However, they softened in Melbourne, up six basis points, and Perth, up 17 basis points.

Retail property experienced notable national yield compression through June, led by sharp quarterly drops in Brisbane at 25 basis points, Adelaide at 18 basis points, and Melbourne at 10 basis points. Sydney and Perth held flat over the period.

Ms Flaherty said the retail sector continues to carry higher perceived risk.

"Retail yields remain notably higher than office and industrial yields in every capital city, indicative of the higher perceived risk in the sector," she said.

For investors seeking higher headline returns, Queensland continues to lead the pack. Brisbane offers the highest yields across industrial at 5.2 per cent, office at 6.8 per cent, and retail property at 7.9 per cent among all capital cities.