The Australian economy is displaying signs of a deliberate and expected moderation through the first half of 2026, following a modest GDP print of 0.3% in the March quarter, bringing year-on-year growth to 2.5%. This softening reflects the cumulative weight of restrictive monetary policy working its way through the domestic economy.

The outlook for interest rates has undergone a notable pivot since the hawkish anxieties of early May 2026, when three consecutive rate hikes culminated in the Official Cash Rate (OCR) reaching 4.35%. A softer-than-expected June quarter inflation print, which saw headline CPI fall to 3.8% year-on-year from 4.6% in March 2026, has shifted market sentiment from a tightening bias towards a neutral stance.

This flight to income resilience is directly reflected in capital allocation, with retail assets capturing approximately 40% (or approximately AUD 13.0 billion) of total core CRE transaction volumes in FY 25-26.
The construction pipeline remains robust, with 59 projects currently under construction, encompassing 509,200 sqm of retail space, of which 293,400 sqm is scheduled for completion in 2026. Retail fundamentals remain positive, driven by sustained population growth, resilient consumer demand demonstrated by 6.0% household spending growth, and limited new retail supply.

National quarterly gross take-up reached 1.18 million sqm in Q2 2026 across 105 occupier moves (the highest volume of individual deals ever recorded) with Melbourne accounting for 37.6% of national activity. The interest rate hikes already delivered in 2026 will likely place downward pressure on domestic goods consumption, while renewed geopolitical tensions inflating energy and transport costs pose a downside risk to occupier demand in the short term.