Capital Edge

Business Insights | The Return of Debt as a Market Driver

Debt has re-emerged as a key market driver, with higher financing costs influencing investment decisions, refinancing activity and transaction volumes, while creating new opportunities for investors with access to capital.

October 6, 2026

Modern civic plaza framed by monumental stone columns, with views towards a landmark government precinct and distant hills under a clear sky.

Associated Contact

Andrew McCasker

Head of Debt & Structured Finance – Capital Markets, Pacific

Photo of andrew-mccasker

While occupier fundamentals continue to improve across many parts of Australia's commercial property market, capital markets are being increasingly influenced by a different factor: the cost of debt. 

Recent labour force data points to a gradual easing in employment conditions, while inflation and interest rates remain central to the economic outlook. With the Reserve Bank of Australia expected to lift the cash rate and bond yields remaining elevated, investors are continuing to adjust to a financing environment that looks markedly different to the one that underpinned activity over recent years. 

A Higher Cost of Capital

The Australian 10-year government bond yield has remained above 5% since March 2026 and as at September 2026 hitting 5.40%, this is continuing to place upward pressure on borrowing costs across the market. Premium-grade borrowers are currently facing all-in floating debt costs above 6%, while secondary assets are generally attracting higher pricing. For borrowers seeking alternative financing solutions, private credit remains readily available, albeit at a significantly higher cost. 

Financing is therefore meaningfully more expensive than it was 12 months ago. 

Importantly, the challenge today is not the availability of capital. Australia's major banks, non-bank lenders and alternative capital providers continue to compete strongly for quality transactions. Lending margins have remained relatively stable despite the increase in benchmark rates, reflecting ongoing lender appetite for well-located assets, experienced sponsors and disciplined business plans.

For investors with access to quality assets and strong banking relationships, debt remains available on competitive terms. However, the higher cost of capital is changing how transactions are assessed and executed. Leverage levels are coming under greater scrutiny, interest cover ratios have become more important, and investors are applying greater discipline to underwriting assumptions. 

Debt Shapes Market Behaviour

Debt is increasingly shaping market behaviour, where higher borrowing costs are not only influencing acquisition decisions, but also ownership strategies. As debt facilities mature and refinancing requirements emerge, many owners are facing materially higher funding costs than those secured several years ago. For some investors, this is prompting a reassessment of hold strategies, capital allocation priorities and portfolio composition. 

At the same time, institutional owners continue to manage capital recycling programs, liquidity requirements and fund redemption activity. Combined with refinancing pressures, these factors are contributing to a growing pipeline of assets expected to come to market over the coming months. 

The result is an interesting market dynamic. Occupier markets across a number of sectors remain relatively healthy, supply remains constrained in several locations, yet investment opportunities are increasing as owners respond to changing financing conditions. 

Opportunity Through Dislocation

For investors, this creates both opportunity and complexity. 

There is more product available for consideration than there has been in recent years, but there is also less flexibility in how capital can be deployed. The ability to secure efficient debt structures is becoming increasingly important, while asset quality, income durability and covenant strength continue to play a critical role in investment decision-making. 

Perhaps the most significant shift is that debt has once again become a key differentiator between buyers. In a higher-cost capital environment, access to competitive financing can materially influence returns, acquisition capacity and transaction certainty. 

The return of debt as a market driver does not signal a lack of liquidity. Rather, it reflects a market that is becoming more disciplined. While elevated borrowing costs are creating challenges for some owners, they are also generating new opportunities for investors able to navigate an increasingly complex financing landscape. 

As the market moves through the remainder of 2026, debt is likely to remain one of the most important factors influencing transaction activity, ownership decisions and capital deployment across Australia's commercial property sector. 

Explore More Insights from Capital Edge

Item 0 Item 1 Item 2 Item 3 Item 4 Item 5 Item 6 Item 7 Item 8

Read the Latest From Capital Edge

In each issue we bring you critical insights, data points, trends, and transactions to help you stay ahead of the curve in the evolving world of Capital Markets. 

Explore the Latest Issue
Desktop computer displaying the CBRE Capital Edge website on a tidy office desk with a keyboard, mouse, and coffee mug.