Shops keep closing, but there's never been less empty retail space

Store closures aren't leaving empty shopfronts behind

A number of retailers have entered voluntary administration since May, a wave that could result in the closure of up to 160 stores nationally, mostly in the clothing and footwear category. Despite that, shopping centre vacancy kept falling through the first half of 2026, dropping to 4.4% — the lowest level since 2018, according to JLL Research. Vacancy is lowest of all in the Large-format and Regional shopping centre subsectors, at just 2.8% and 2.0% respectively, while CBD centres carry the highest vacancy, though even that is declining.

Why the numbers don't match the headlines

Higher interest rates have slowed consumer spending, which would normally be expected to soften demand for retail property. Instead, landlords are backfilling closed stores quickly enough that vacancy keeps falling, and rents in the large-format sector rose 5.8% over the past year — the strongest of any retail property type. Industrial space has followed a similar pattern, with vacancy easing to 4.8% from a recent peak of 5.0%, as rental growth there returns to its long-term average of around 3% a year.

"With little prospect of yield tightening in the short term, income growth is central to lifting valuations," said Kevin Stanley, CBA's Director of Commercial Property.

The bigger property picture

"Australian commercial property performed broadly in line with earlier periods through the turbulence of the second quarter 2026," Stanley said. Property sales turnover reached $27.6 billion in the year to May, 16% higher than the same time in 2025, according to RCA.

Queensland was the standout, with turnover up 69% to $7.2 billion on the back of Olympic preparations, population growth and business investment — while Victoria's turnover rose 26% to $5.5 billion, driven largely by industrial property demand.

Commercial property yields mostly held steady over the quarter, with the exception of further softening in cap rates for secondary offices in Canberra and the Melbourne CBD, and prime offices in Brisbane Fringe, Canberra and Perth CBD. The office sector remains the property market's outlier, with vacancy edging up to 16.9% nationally, though central Sydney and Brisbane bucked the trend with positive demand for space.

What could change the picture

CBA Economics expects the RBA to stay on hold for the remainder of 2026, with two 25 basis point rate cuts penciled in for mid-2027. "The outlook for commercial property, both the underlying fundamentals and valuations, is very much tied to interest rate movements from here," Stanley said.

Lower rates would likely lift demand for commercial property further, pushing vacancy further down.