Rate hikes trigger $3.2b reset in WA commercial property

Western Australia’s commercial property market underwent a sharp reset in FY26, with total transaction volumes falling 34.4 per cent to $3.19 billion as higher interest rates, elevated construction costs, and cautious capital re-anchored deal activity across every major sector.

According to end of financial year research from RWC WA, the slowdown was driven by a shift in buyer behavior rather than a withdrawal of capital.

Following the 2025 rate-cutting phase, three subsequent interest rate hikes through early 2026 forced private investors, syndicates, and institutions to extend due diligence periods, scrutinize tenant covenants, and lengthen settlement timeframes.

“The urgency that characterised the market when rates were falling has given way to a far more considered approach,” RWC WA managing director Stephen Harrison said.

“Buyers aren’t stepping back from the market altogether, they are simply taking longer to satisfy themselves on building condition and covenant strength before committing.”

Industrial maintained its position as Western Australia’s largest asset class, pulling in $1.2 billion despite a modest 9.1 per cent dip in volume, according to RWC WA data.

The sector continues to benefit from a significant yield and pricing arbitrage relative to Sydney and Melbourne, keeping east coast capital actively bidding for Perth logistics and warehouse assets.

The office market recorded $513.9 million in transactions, down 5 per cent on the previous year, effectively holding steady compared to broader market movements.

Office fundamentals are now dictated by supply economics. With construction costs and builder insolvencies pushing replacement costs to record highs, feasible rents for new builds sit well above current market benchmarks.

This dynamic is opening a rare counter-cyclical opportunity for patient capital to acquire existing premium and high-quality stock at prices significantly below new construction costs.

While RWC WA figures show headline retail volumes fell 62.1 per cent to $813.4 million, the dip masks underlying strength. The previous year was inflated by a major shopping centre deal; today, population growth continues to drive steady demand for defensive, supermarket-anchored assets.

Elsewhere in the market, hotel transactions reached $233.9 million, down 17.3 per cent purely due to a scarcity of available assets rather than weaker demand, with Singaporean capital continuing to pursue Perth hospitality assets backed by peak room rates.

Development site sales fell 23.4 per cent to $331.9 million as buyers faced elevated feasibility hurdles, while healthcare and childcare recorded $98.5 million, down 29.8 per cent as localised childcare oversupply and staffing shortages weighed on the sub-sector.

Western Australia enters FY27 backed by strong economic fundamentals, with low unemployment and sustained population growth supporting long-term tenant demand across all six asset classes.

A key catalyst for the market over the coming year will be recent federal budget changes to negative gearing on established residential property, alongside tighter self-managed super fund borrowing rules.

RWC WA expects these policy shifts to progressively redirect private and syndicate capital away from residential investments and into commercial property, with industrial facilities and convenience retail positioned as the primary beneficiaries of this capital pivot.