Apartments boosting building approvals in May: ABS
Housing loan values and construction approvals trend upwards leading into tomorrow’s RBA Board meeting on the cash rate
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The residential property market has bounced back strongly ahead of tomorrow’s RBA Board announcement on interest rates, data released by the Australian Bureau of Statistics today shows.
In signs that housing sales have rebounded, the value of new loans for housing rose by 4.8 percent in May, the equivalent of $24.9 billion. New owner-occupier loan commitment values went up by 4 percent to $16.4 billion while the value of new investor loan commitments increased by 6.2 percent to $8.5 billion.
Building approvals also rose during May, with the number of total dwelling approved up by 20.6 percent. This has overwhelmingly been driven by approvals in the apartment sector, ABS head of construction statistics, Daniel Rossi said.
“The rise in total dwellings was driven by the more volatile dwellings excluding houses series, which rose 59.4 per cent. This increase reflected a large number of apartment developments approved in New South Wales in May,” he said. “Approvals for private sector houses remain more subdued, rising 0.9 percent, following a 3.0 percent fall in April.”
All the action has been on the east coast, with total dwellings approved rising by 52.9 percent in NSW, followed by Tasmania, up by 41.1 percent and Victoria, which saw an increase of 15 percent. Total dwelling approvals fell in Western Australia (-11.1 percent) and South Australia (-4.8 percent). In the strongest indication that the residential apartment construction sector is forging ahead, building Approvals for private sector houses fell in South Australia (-7.2 percent), Western Australia (-4.5 percent), NSW, and Queensland (-1.8 percent).
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Strong consumer spending and tight supply have driven retail to the top of commercial property, but signs of pressure are starting to emerge.
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Australia’s retail property sector entered 2026 as the strongest performing commercial asset class, but rising geopolitical risks and cost pressures are beginning to test its resilience, according to new research from Knight Frank.
The latest Australian Retail Review shows the sector rode a wave of consumer spending and constrained supply through 2025, delivering total returns of 9.2 per cent and driving transaction volumes up 43 per cent year-on-year to $14.4 billion.
That momentum carried into early 2026, with around $3.6 billion in deals recorded in the first quarter alone.
“Retail clearly emerged as the standout commercial property performer in 2025,” said Knight Frank Senior Economist, Research & Consulting Alistair Read.
“Improving household spending, limited new supply and stronger leasing fundamentals combined to drive better income growth and renewed investor confidence in the sector.”
Spending rebound drives retail strength
A lift in household spending has been central to the sector’s performance. Consumer spending rose 4.6 per cent year-on-year to February 2026, supported by easing inflation and improving real incomes.
That shift flowed directly into retailer performance, with average EBIT margins across major retailers rising to 8.9 per cent in the first half of 2026, their strongest level in several years.
“Stronger consumer spending was critical in restoring momentum to the retail sector,” Mr Read said.
“Retailers have generally been better able to absorb costs, rebuild margins and support sustainable rental outcomes, particularly in higher-quality centres.”
Improved trading conditions also pushed leasing spreads up 4.2 per cent in 2025, reinforcing income growth and supporting capital values.
Geopolitical tensions begin to bite
But the outlook has become more complicated. The report warns that escalating conflict in the Middle East and its impact on fuel prices, supply chains and interest rates could weigh heavily on consumer spending.
“Higher fuel prices, flow-on cost pressures across supply chains, and recent interest rate increases are collectively squeezing household budgets, and early consumer sentiment data suggests confidence is already softening,” Mr Read said.
“While household balance sheets remain generally resilient, heightened uncertainty over future costs is likely to weigh on spending — particularly in discretionary categories — in the months ahead.”
The impact is already being felt in investment activity. While the year began strongly, transaction volumes slowed in March as investors paused amid the uncertainty.
“Early indicators suggest elevated uncertainty has already begun to affect the market. While retail investment enjoyed its strongest start to a year in a decade, with nearly $3 billion transacted by the end of February, activity stalled in March, as investors took a pause amid elevated uncertainty,” Mr Read said.
Solid foundations support medium-term outlook
Despite the near-term headwinds, Knight Frank maintains that the sector’s underlying fundamentals remain strong. Limited new supply, high construction costs and population growth are expected to continue supporting rental growth over the medium term.
“Retail has entered this period of uncertainty from a position of strength,” Mr Read said.
“Supply-side constraints, population growth and improving income fundamentals remain powerful structural supports for the sector.”
The report highlights several trends shaping the year ahead, including steady yields as interest rates rise, mounting pressure on tenant margins, continued outperformance of prime centres, the growing need for logistics integration, and risks linked to underinvestment in capital expenditure.
For now, retail remains a sector with momentum, but one increasingly at the mercy of forces far beyond the shopping centre.
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