Sydney Commercial Property Market

The Property Council of Australia’s July 2026 Office Market Report put Sydney CBD office vacancy at 13.3 per cent, down from 13.8 per cent six months earlier. The improvement is being led by the premium end of the market, where vacancy fell from 8.9 to 7.7 per cent as tenants continued to move into the best buildings. The full trend is in the vacancy tracker above.

The market has split sharply between grades. Premium and A-grade assets with committed tenants are performing well and attracting a healthy lender pool, while secondary and strata-grade office still faces pressure on both rents and valuations. Outside the CBD, conditions are weaker: North Sydney sits at 25.8 per cent and Parramatta at 23.5 per cent. For buyers, that means a narrower lender pool for non-prime assets and the need for careful lender matching based on asset quality, lease profile and location. This is not a market where you can assume the first lender you approach will be the right one.

Commercial property yields in Sydney are the most compressed of any Australian capital city. You pay more per dollar of income here than for a comparable asset in Brisbane or Perth, reflecting the depth of investor demand and the scarcity of quality inner-precinct assets. Current sector-by-sector ranges are in the yield tracker above, reviewed quarterly from active transactions. Medical and industrial assets attract the tightest yields; CBD strata office sits at the wider end.

One thing worth understanding for lending purposes: lenders apply their own capitalisation rate assessments, and a deal that works at an acquisition yield can quickly become difficult if the lender’s valuer applies a wider cap rate. With the cash rate at 4.60 per cent, that gap matters more than it did a year ago. I see it trip buyers up more often than almost any other single issue.

CBRE put Sydney industrial vacancy at 3.5 per cent in the first half of 2026. That is still below the 4 per cent level the sector treats as balanced, though it has drifted up as new supply completes rather than tightening further. Two structural factors keep the base low:

• Last-mile logistics demand in a geographically constrained city, where inner-ring industrial land can’t be replaced once it’s gone.
• Airport-driven pre-commitments around Western Sydney International (Badgerys Creek), which began commercial freight operations on 27 July 2026 and, as a curfew-free airport, will take on a growing share of Sydney’s overnight freight.

What’s changed is that conditions are no longer uniform. The recent increase in vacancy has been concentrated in new speculative space and older stock on the outer fringe, and prime incentives have risen, while modern, well-located facilities continue to attract strong competition. Industrial remains a favoured asset class with well-supported valuations, but the assumption that any industrial asset will lease itself no longer holds. For lending criteria specific to this sector, see our industrial property loans page.

Sydney commands the lowest commercial property yields of any Australian capital, reflecting the depth of demand and a distinct liquidity premium. On office, Sydney now sits between its two east-coast peers: CBD vacancy of 13.3 per cent is well below Melbourne’s 18.9 per cent, but above Brisbane’s 10.2 per cent, which became the lowest CBD vacancy in the country in July 2026. Where Sydney stands apart is industrial infill scarcity: inner-ring vacancy is considerably more acute than Melbourne’s outer-ring equivalents, and premium entry prices mean LVR calculations leave less room for valuation shortfall. Sydney lenders also maintain unpublished postcode exposure limits that aren’t visible on any rate sheet. Knowing which lenders have quietly pulled back from which precincts requires active panel access and current transaction history.

Typical Sydney LVR ranges are 60–75%, depending on asset type, borrower profile and lender. On a $3M asset, the gap between 60% and 75% is $450,000 of equity, so lender selection genuinely matters. Broadly:

• Owner-occupiers attract the most favourable terms, often 70–75% across healthcare, professional services and light industrial.
• Investment-grade industrial in South Sydney and the established south-western corridors is achieving 65–70% from multiple lenders.
• CBD strata and B-grade suburban office is the most challenging, with narrower appetite and valuations coming in short in a meaningful number of transactions.

Keep in mind that LVR is only half the equation. After four rate rises in 2026, serviceability often limits the loan before LVR does. If you’re buying strata office, build in a genuine equity buffer rather than just meeting the minimum. For full LVR ranges by sector, see our Sydney commercial property loans page.

It varies sharply by sector and asset grade. In short:

• Office: premium CBD office is the clear winner, with vacancy down to 7.7 per cent. The non-CBD markets are weaker: North Sydney is at 25.8 per cent despite better tenant enquiry since Victoria Cross Metro opened, and Parramatta is at 23.5 per cent, with B-grade stock close to 40 per cent vacant.
• Industrial: South Sydney and Inner West infill assets are among the tightest in the country. Western Sydney is the longer-term airport-and-Aerotropolis story, now with a clear split between the established corridors and the outer speculative edge.
• Weakest: CBD strata office, B-grade suburban office and non-anchor retail remain soft in both lender appetite and valuation outcomes.

Medical and healthcare assets are the consistent performer across most precincts, on the back of strong tenant covenants and active SMSF demand. If you’re unsure which precinct suits your asset type and finance profile, that’s the conversation to have before signing a contract.

The clearest divergence this year has been between residential and commercial. Higher rates and the May 2026 budget changes to negative gearing and the capital gains tax discount have taken confidence out of residential, while commercial has been far less affected: those tax changes apply to residential property only, and commercial buyers are largely pricing yield rather than capital growth. NSW still recorded $34.5 billion in commercial transactions in FY2025–26, the largest of any state.

Within commercial, it’s several markets moving in different directions. Industrial and logistics attract the deepest investor pool, supported by low vacancy and a supply constraint unlikely to ease quickly. Medical and healthcare is similarly compelling. Office is more selective: premium CBD assets are absorbing well, but secondary and suburban office remain challenged, and discretionary retail is still the weakest category.

The rate environment is the key variable. The RBA has lifted the cash rate four times in 2026, to 4.60 per cent in September, and has said it will move again if needed. Serviceability has tightened, yield spreads are thinner and assets need to be bought at the right price. The deals going unconditional are the ones where buyers have confirmed finance terms before committing, not after. Our commercial property loans overview sets out how we approach that across asset types.

Cap rates in Sydney are the most compressed of any Australian capital. You pay more per dollar of net income than in Brisbane or Perth, reflecting liquidity, tenant quality and a long capital-appreciation track record. Current ranges are in the yield tracker above: medical and industrial sit at the tighter end, CBD strata office and mixed-use at the wider end.

The trap for buyers is that lenders apply their own cap rate assessments, which don’t always match the acquisition cap rate. A deal that stacks up at purchase can fall over if the valuer applies a wider one. It’s one of the most common reasons commercial finance fails in Sydney, and why understanding the valuation environment before you sign matters.

Yes, and Sydney is the market where I see this used most frequently. An SMSF can borrow to purchase commercial property through a limited recourse borrowing arrangement (LRBA), provided the fund has sufficient assets and the acquisition meets the sole purpose test and other compliance requirements.

The advantage most people don’t fully appreciate: your SMSF can lease the premises back to your own business at market rate, one of the few related-party transactions explicitly permitted under super law. Your rent flows into your fund rather than to an external landlord, and over a 10–15 year hold the tax treatment (15 per cent on rental income in accumulation, potentially zero in pension phase) makes it an efficient structure for long-term business owners. Talk to your accountant about how that applies to your fund. Sydney SMSF loans typically run at 65–70% LVR, strongest in industrial, medical and professional services premises. It’s a specialist area and not all lenders offer it, so see our SMSF commercial property loans page and start the conversation early.

Inner Sydney industrial (South Sydney, Inner West, Alexandria, Botany) is a pure infill market: virtually no new supply, vacancy among the lowest in the country, and assets fought over by owner-occupiers needing CBD proximity and investors wanting that supply constraint locked in. Prime rents reach around $405/sqm in South Sydney, and lenders are very comfortable here.

Western Sydney is a growth story rather than a supply-constrained one. The airport, with freight operating since July 2026 and passengers from 25 October, and the Aerotropolis precinct are reshaping the logistics geography of greater Sydney, characterised by large-format modern assets on long leases to national tenants. Yields are slightly wider, reflecting the longer-run thesis, and it’s where most of the recent increase in vacancy has landed, in the outer speculative edge rather than the established corridors. Both are well regarded by lenders, though inner Sydney strata industrial can be trickier to finance than freehold Western Sydney assets where the strata plan is old or there are owners corporation complications.