Australian Economy and CRE Trends - May 2026

The global economy is navigating a period of uncertainty in early 2026. While growth has proven resilient, the outlook is shaped by the geopolitical landscape, which presents a material risk to near-term economic growth.

Domestically, the Australian economy is demonstrating resilience, with economic growth anticipated to trend at 2.0% in 2026. This is supported by a gradual recovery in private demand, stable household incomes, and robust public spending. However, the labour market, while still tight, is beginning to show signs of softening, and persistent low productivity growth remains a key challenge for the nation's economic potential. As the geopolitical landscape continues to evolve, economic growth forecasts for the second half of 2026 are subject to invariable shifts.

The outlook for interest rates has been decisively reshaped by a resurgence in inflation, led by both domestic and international pressures. The annual Consumer Price Index (CPI) rose to 4.6% in the 12 months to March 2026. In response to these renewed price pressures, the Reserve Bank of Australia (RBA) raised the official cash rate to 4.35% in May 2026, recording three consecutive increases in 2026. Looking ahead, the economic path is intricate. The RBA faces a complex balancing act: curbing persistent inflation without stalling economic growth.

Commercial property sectors underpinned by long-term structural trends, such as shifting demographics and technological advancements, are expected to demonstrate the greatest resilience. Investor focus is pivoting towards securing income growth. Consequently, assets that can generate income streams that outperform inflation are becoming the primary driver of investment strategy.