Industrial vs Office vs Retail vs Medical: Commercial Property Rates Compared

The Full Comparison

Four distinct asset classes, four distinct risk profiles in the eyes of a lender. The cash rate is identical for every borrower; what varies is how exposed each sector is to vacancy, how liquid the asset is if a lender needs to recover security, and how diversified the tenant base is.

Industrial: The Sector Lenders Favour Most

Industrial and logistics property has been the standout performer through 2026. National vacancy sits near 3.5%, and Western Sydney alone recorded a record $5.8 billion in industrial investment volume, 78% of Sydney's total, in the year to September. Prime Western Sydney yields have compressed to 5.00-5.75%, the tightest since early 2020, though rents have stayed flat for two years at $182-$230 per square metre with incentives above 20%.

Lenders reward this security with the highest loan-to-value ratios of any commercial sector, up to 80% for well-located, strongly tenanted assets, and the sharpest rates in the market from around 6.25%.

Retail: Not the Sector You Might Expect

Large discretionary retail has struggled for years against online competition, but neighbourhood and convenience retail, the kind anchored by a major supermarket, tells a completely different story. Shopping centre vacancy nationally sits near 4.4%, the lowest since 2018, and regional centres are tighter still at around 2.0%. CBRE reports neighbourhood centres delivered sector-leading 10-year returns of 9.4% per annum, driven by both cap rate compression and rising rent.

For lenders, the tenant covenant is everything here. A centre anchored by a major supermarket chain prices close to industrial, from around 6.50%, while a strip reliant on discretionary, lower-covenant tenants is treated far more cautiously regardless of location.

Office: Quality Now Matters More Than Location

Office is the clearest laggard, but the sector is not uniformly weak. National vacancy has reached 16.1%, with Melbourne the worst-performing major CBD at 19-20.5% and negative net absorption recorded in the June quarter. Brisbane leads the country at 10.6% vacancy on the strength of its leasing activity, and Sydney has actually tightened to 13.3-13.9% after several consecutive quarters of positive net absorption.

The sharpest signal is the widening gap between prime and secondary assets within the same city. In Melbourne, the spread between prime and secondary office yields has reached 107 basis points, a decade high, as Knight Frank's research shows investors and lenders alike pulling away from older, lower-quality stock even in the same precinct. Sydney CBD prime yields sit around 5.70%, with secondary at 6.25%.

Financing reflects that split precisely. Prime, well-located office can still secure rates from around 6.75% and LVR up to 70%. Secondary office, particularly in a weaker market, can see rates exceed 8.50% with LVR capped as low as 55%, if a lender will finance it at all.

Medical: Steady Demand, Wide Rate Range

Medical and healthcare property benefits from genuinely defensive demand drivers, an ageing population and growing allied health demand, but financing varies more than any other sector depending on the specific asset. Cap rates in Sydney and Melbourne broadly sit between 5.50% and 7.00%, with Cushman & Wakefield reporting a median of 5.95% for medical-grade leased investment sales in South Australia.

Lending rates span 6.50% to 8.15%, a wider range than industrial, retail or prime office, because the valuation of a heavily fitted-out specialist medical suite depends enormously on whether that fit-out would suit another tenant if the current one left. A general practice suite in a mixed-use building is financed very differently to a highly specialised surgical or imaging facility.

Many medical property purchases, particularly by practitioners buying their own premises, are financed through an SMSF Limited Recourse Borrowing Arrangement, which comes with its own LVR limits (typically 50-70%) and the same 15% concessional rent tax and 10% effective capital gains tax treatment that applies to any SMSF commercial purchase.

Max LVR: The Clearest Signal of Lender Confidence

If you want one number that captures how a lender really feels about a sector, it is the maximum loan-to-value ratio they will offer.

Which Property Type Suits Which Investor

• Industrial suits investors prioritising certainty. The lowest vacancy, highest LVR, and sharpest rates make it the easiest sector to finance, though entry yields are now historically tight, meaning less room for cap rate compression to drive future returns.
• Neighbourhood retail suits income-focused investors. Strong covenant tenants and long leases suit those prioritising stable rental income over capital growth, provided you can verify the anchor tenant's lease strength.
• Prime office suits investors comfortable with cycles. Well-located, high-quality assets remain financeable and could benefit disproportionately if vacancy eases, but timing and asset selection matter enormously.
• Medical suits practitioners and specialists. The combination of defensive demand and SMSF LRBA access makes it a natural fit for business owners buying their own premises, less so for passive investors unfamiliar with the sector's quirks.
• Avoid secondary office without a clear repositioning plan. Unless you have a specific strategy (refurbishment, change of use, or a strong existing tenant), this is currently the hardest sector to finance well.