Australia: Middle East Conflict Will Apply Pressure To Commercial Property Market If It Continues

RICS APAC Commercial Property Monitor, Australia, Q1 2026

RICS has released the Q1 2026 APAC Commercial Property Monitor.

Global Commercial Property Sentiment Indicators remain relatively steady in the face of conflict in the Middle East with minor movement across the Occupiers Sentiment Index (-2 from -1), Investor Sentiment Index (-3 from -2) and the overall Commercial Property Sentiment Indictor posting -2 from -1.

However, the story is quite different in Australia. The Occupier Sentiment Index moved from +11 to -12, Investor Sentiment Index moved from +15 to -14 with the Australian Commercial Property Sentiment Index overall moving from +13 to -13.

There has been a more negative shift with Occupier Demand overall moving from +16 to -11, with office reversing its march into positive territory with a -10 reading, industrial just remained positive with +3 whereas retail moved from -5 to -26.

In line with these readings Availability increased across all segments with the overall reading moving from +27 from +5 with office posting +34 from +4 (potentially in response to fuel shortages and greater likelihood of people working from home), with industry moving from +10 to +21 and retail moving from +26 from +2.

Inducements are also increasing across the board with +26 from +11 for overall, office +27 from +7, industrial +18 from +12 and retail +33 from +15.

Development starts produced much more negative results with the overall reading moving to -31 from -22, office moving to -40 from -30, industrial moved to -15 from -7 and retail moved to -37 from -29.

Three month rental expectations mostly held in positive territory with the overall reading moving from +29 to +2, with office and industrial remaining in positive territory moving from +37 to +15, industrial moving from +35 to +8. Retail moved into negative territory reflecting expectations of reduced consumer spending in response to tougher economic conditions as a result of the conflict in the Middle East returning -16 from a previous reading of +16.

Investment enquiries moved from positive territory to negative territory across the board with the overall readings returning -23 from +32, office posting -23 from +32, industrial moving from +36 to -5 and retail moving from +24 to -33.

Three month capital value expectations seem equally impacted with the overall reading moving from +33 to -3 with office posting 0 from +29, industrial dropping from +45 to +10, and retail moving from +26 to -18.

There was better news in the twelve month rent expectations with the overall reading remaining relatively steady moving only one point down to +27, office stepped lower from +35 to +23, industrial edged higher moving to +43 from +39 and retail also moved up to +14 from +9.

Twelve month capital value expectations returned mixed results as well with the overall reading moving from +35 to +24, with office slipping from +37 to +25, industrial staying relatively steady as it dropped from +46 to +41 although retail slipped further moving from +23 to +5.

Foreign enquiries, potentially as a result of global geopolitical tension, returned negative readings overall and across all segments.

Supply availability in terms of sales was only slightly impacted with the overall reading moving from +21 to +17 with office moving from +26 to +21, industrial moving from +17 to +13 and retail moving from +21 to +16.

Similar to the response showing in the Q1 2026 Global Construction Monitor the Australian market is indicating significant deterioration in credit conditions with the overall reading moving from +7 to -55 with the majority of respondents now indicating a slight deterioration in credit conditions when previously the majority of respondents indicated no change.

Capital value expectations for a 12 month average overall remained positive moving from 1.0 to 0.1 with prime office, prime industrial and prime retail remaining in positive territory. Conversely secondary office, industrial and retail all returned negative readings.

Rent expectations as a 12 month average all moved slightly lower with only secondary office and secondary retail returning negative readings.

In terms of overall current market valuation there is very little change at this stage although a small drift towards placing the market as being very expensive is noted.

Respondents also moved towards indicating an early or mid-downturn with less indicating an early or mid-upturn as was reported previously.

Vishant Narayan RICS Australasian Board Member

“The Q1 2026 Commercial Property Monitor Sentiment Indicators point to early signs of market softening, reflecting broader geopolitical uncertainty stemming from the Middle East conflict.

While this has not yet materially affected 12-month expectations for capital values or rental growth, a protracted conflict risks a meaningful deterioration in the outlook for Australian commercial property."

The full global report may be found at this link.

The APAC Commercial Property Monitor is a leading sentiment indicator trusted by policy makers and capital markets globally.

Scores are calculated on a net balance basis (the proportion of respondents reporting a rise in a variable minus those reporting a fall). Net balance data can range from -100 to +100.