In September 2026, national home sales dropped by 17.4 per cent over the 3 months to September 2026 compared to the previous period.
It all starts with the inflation.
The Reserve Bank of Australia (RBA) targets CPI rate between 2 to 3 percent. When it climbs over 3 percent, increasing cash rate will deter the inflation.
When interest is high, it means discretionary income will be used to service loan, mortgage and other financing needs. It will discourage consumer spending.
When people spend less, demand is weaker. Left over stock increase, business will discount to maintain sales which decrease inflation.
However, research may not agree with the standard economic theory. This theory assumes sellers are purely forward-looking: a home is worth whatever the market is willing to pay today, regardless of what the owner paid years ago.
Genesove and Mayer demonstrated that sellers do not behave this way. Instead, owners anchor psychologically to their original nominal purchase price as an arbitrary “break-even” reference point.
When market conditions soften and fair market value dips below that original figure, agreeing to sell at market price means locking in an actual monetary loss. Because the psychological pain of realising a loss is roughly twice as intense as the pleasure of making an equivalent gain, vendors actively resist accepting it.
When prices drop and interest rates rise, turnover falls because borrow capacity reduces. Sellers facing nominal losses set list prices higher than others to keep their properties on the market longer.
In this situation, buyers’ perception is “too risky to buy” vs seller’s perception, which is “too soon to sell”. The result: more stock on the market with fewer transactions.
The below table shows the many impacts when the residential sales volume drop and its impact on commercial properties.
The Turnover Freeze: How Falling Residential Sales Transmit to Commercial Property
Understanding how declining residential sales volumes impact the wider commercial property market
Contagion Flowchart
1. Primary Trigger: Interest Rate Rises Borrowing capacity contracts; buyers and vendors withdraw from active marketing.
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2. Core Metric: Sales Volume Freeze (-17.4% Nationally) Transaction turnover drops sharply as property owners resist selling into weaker market conditions.
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3. Service Transmission Channels Fewer property settlements directly reduce revenue for conveyancers, removalists, trades, and retail home fit-outs.
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4. Commercial Property Repercussions Large-format retail sales decline, suburban office leasing softens, warehouse storage slows, and development sites stall.
Transaction Plunge by Capital City (Quarterly)
Brisbane-26.3%
Sydney-24.8%
Perth-23.9%
Melbourne-18.4%
National Average-17.4%
Commercial Real Estate Sector Impact
| Asset Class | Direct Exposure | Transmission Pathway | Asset Management Outlook |
|---|---|---|---|
| Large-Format Retail | Furniture, homewares, and whitegoods showrooms | Moving home drives replacement purchases; fewer transactions mean weaker retail turnover. | Reduced turnover rents, protracted lease negotiations, and pressure on bulky goods floor space. |
| Industrial & Logistics | Wholesale storage, trade supplies, distribution centres | Reduced residential renovations reduce warehouse dispatch activity for trade goods. | Softening absorption rates for secondary warehouses and reduced throughput in building supply depots. |
| Suburban Office | Conveyancing legal practices, finance brokerages, real estate suites | Professional service fees contract in direct alignment with local settlement numbers. | Increased risk of lease non-renewals, tenant footprint downsizing, and rising suburban vacancy. |
| Development Land | Infill development parcels and mixed-use sites | Off-the-plan presales decline, making bank funding criteria harder to satisfy. | Acquisition holds, renegotiated purchase options, and reduced liquidity across development stock. |
So, if you are the landlord, what you should do?
Prioritise Tenant Retention Over Aggressive Rent Increases:
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Securing existing, paying tenants is substantially cheaper than incurring extended vacancy, tenant inducement packages, and re-leasing fees in a slowing market.
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Approach tenants six to nine months ahead of lease expiry to negotiate renewals early, offering structured incentives or fit-out contributions in exchange for lease term security.
- A vacant tenant takes much longer to lease out. In addition, landlords may have to offer incentive to attract new tenant. Our view is to negotiate so tenants and landlords are both beneficial.
The reason:
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A fixed 4% annual increase is compounding, not linear. Over a 10-year term, rent increases by 48%. Over 15 years, it increases by 80%.
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In contrast, tenant turnover, wages, and general consumer price inflation (CPI) historically track closer to 2% to 3%. When rent escalates faster than a tenant’s business revenue growth over a long horizon, the rent becomes unsustainable.
Mr landlord, you will have a few good years but when time is tough, you need to review the lease too. If you are unsure, please send us an email at asset.admin@bne.mcgeees.com.au
We will review and get back to you.
For a complete list of weekly commercial transactions in Queensland, visit McGees Wrap Up | McGees Property Brisbane
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