Higher interest rates have not stopped commercial property from delivering attractive long-term returns.
However, they have made the difference between a good asset and an average one more important than ever. The way to find a good asset has not changed either.
When people ask me which commercial assets will deliver the best returns in 2027, I give them the same answer I give residential clients.
Do not start with the asset class. Start with supply.
Growth does not come from a sector being fashionable. It comes from demand exceeding the amount of suitable property available to meet it.
Heading into 2027, my strongest conviction remains in well-located industrial property and neighbourhood retail serving everyday needs. But the opportunity is more specific than simply buying a warehouse or a shop.
See also: Why commercial property is winning investor attention
Industrial: Location is the variable that counts
Industrial remains my favoured sector, particularly in established locations where businesses already want to operate and competing supply is difficult to add.
That does not mean industrial vacancy is low everywhere. JLL reported national industrial vacancy of 4.8% in Q2 2026, but the range across cities is significant.
Perth sits at 2.2%. Melbourne at 4.9%. Brisbane at 4.5%. These are broad market measures, and the sub-market picture within each city tells a more specific story.
In Melbourne alone, JLL reported City Fringe vacancy of 3.4% against 5.4% in both the North and West. Within the same city, conditions can be genuinely different.
The forward outlook adds another layer. Cushman and Wakefield forecast 46% less speculative supply across 2026 and 2027 compared to the two prior years, with Melbourne expected to record the largest reduction.
Gross take-up is forecast to reach 3.3 million square metres in 2026 and 3.8 million in 2027.
If those figures play out, national vacancy could approach 2.5% by the end of next year.
That would represent some of the tightest conditions the sector has seen.
For private investors, I am particularly focused on small to mid-sized industrial assets, generally below $10 million, in established locations with an existing business base, good access, and limited competing stock.
Specification matters too. A building that suits a broad range of tenants gives you considerably more options when a lease ends than one built for a single occupier.
See also: Which commercial sector is right for SMSF investors
Neighbourhood retail: Income from everyday needs
Neighbourhood retail is the other area I am watching closely, specifically supermarket-anchored centres and well-located assets serving everyday spending categories that are difficult to shift online.
CBRE reported that neighbourhood centres delivered 9.4% annual investment returns over the preceding 10 years. That is a strong long-run number, and the underlying logic is straightforward.
A supermarket or pharmacy anchors consistent foot traffic. A tenant with an expensive, specialised fit-out is often less likely to relocate because of the cost and disruption involved.
The discipline here is knowing the local catchment.
A strong national brand does not automatically mean the location performs.
The asset needs convenient access, a genuine customer base nearby, and tenants whose businesses depend on being where they are.
See also: How value-add strategies can boost commercial property returns
Office: Where I am not looking
Office remains the sector I approach with the most caution. The Property Council reported national office vacancy of 16.1% in July 2026. Melbourne CBD sat at 18.9%.
A high advertised yield in that environment can be quickly undermined by prolonged vacancy, leasing incentives, or the cost of making a space attractive to the next tenant.
For someone making their first commercial acquisition, I would be particularly careful about any asset that depends on an optimistic re-leasing assumption to make the numbers work.
The principle that runs through all of it
Ray White Commercial's review of December 2025 data reported total commercial property returns of 7.4%, with industrial at 8.6% and retail at 9.2%. These are historical index results, not a forecast for what any individual asset will deliver.
What they reflect is the long-run advantage of owning assets in sectors where demand is structurally supported.
The investors who perform best in commercial property are not the ones who identified the right sector. They are the ones who went a level deeper, into the specific location, the building's functional specifications, the tenant's covenant, and the supply picture in that exact precinct.
That analysis is less exciting than picking a broader theme. However, it is where the value is really uncovered.
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