After a difficult period of structural headwinds from higher interest rates, work from home (WFH) policies and cost-of-living pressures, we believe the worm has turned, and we expect the following four macroeconomic tailwinds to support performance in FY26.
After three rate cuts in FY25, the RBA paused at 3.60% in September and remains cautiously data‑dependent. We expect further easing to restart in 2026 as the labour market loosens and inflation returns to the middle of the target band.
Net overseas migration is at 315,900 in the year ending March 2025, and remains historically strong, with State and Federal governments both addicted to the nominal economic growth it provides. A growing population is a tailwind for demand across metropolitan commercial stock, particularly industrial and essential retail sectors.
With headline inflation having moderated, monthly household spending rose 5% y/y by August 2025. Private‑bank card data points to improving discretionary momentum through Q2. For warehouses, that means inventory rebuilds and sustained, modest growth – enough to support rent and occupancy.
Construction cost inflation has slowed versus the 2021–22 spikes, albeit still relatively high compared to history. Further, financing costs remain high, meaning development projects are left in “pre‑commit” mode reducing future supply and placing upwards pressure on valuations for existing stock.
The macroeconomic backdrop for FY26 looks increasingly supportive: interest rates have begun to ease, bond yields are trending lower, and population growth continues to underpin occupier demand. These factors, combined with inflation-linked leases, result in income growth to drive valuations higher for industrial and retail property. As rents rise and capitalisation rates stabilise it appears the bottom of the valuation cycle is behind us.
Within this environment, we expect industrial, logistics, and essential-services property to deliver the most resilient, inflation-protected cash flows and outperform through the cycle. Data centres, while structurally attractive, remain priced for perfection and carry execution risk. Offices and retail will improve selectively, prime CBD assets and essential retail formats should stabilise – but structural challenges persist. Our positioning reflects this conviction: overweight industrial and healthcare, underweight office and discretionary retail, aligned with a house view that favours scarcity-driven sectors with strong fundamentals.