A fully leased building can still be worth less than it was a year ago. That is the reality of the current market, and it explains why stable rents are not always translating into stable values.
The Income Trap
Property owners often look first to income. When a tenant remains in place and rent continues, an asset feels secure. But value is not determined by rent alone. It is also shaped by the return investors now require, and that required return has changed as interest rates have moved higher. ABS data as at mid-June 2026 placed the Australian 10-year government bond yield at ~ 4.82%, while the RBA cash rate was 4.35% in June 2026.
For many readers, the easiest way to think about this is that investors are not simply buying this year’s rent. They are buying a future stream of income. The amount they are prepared to pay today depends not only on what that income is, but on the return they expect to earn from it.
When interest rates were very low, buyers were often prepared to accept a lower return from property, which supported stronger pricing. In Q1 2020, when the Australian 10-year government bond rate had fallen to ~ 0.80% and the RBA cash rate was 0.25%, the issue was that historically low rates could support values that proved difficult to sustain over the longer term.
Two Rates With Different Effects
The distinction between the RBA cash rate and the 10-year government bond rate is important. The cash rate influences short-term borrowing costs and affects debt serviceability, finance costs and, more broadly, market confidence. When the cash rate is high, borrowing becomes more expensive and buyers often become more selective. The 10-year bond rate works differently. It sits further out on the curve and is commonly treated as a guide to the longer-term cost of money. For property investors, it helps shape the return hurdle they apply to real estate. If safer alternatives are yielding more, investors will usually expect more from property as well.
Invisible Pressure on Capital Value
That is why stable rent does not guarantee stable value. Even if a property is collecting the same net income and its tenancy profile is unchanged, value can soften if the market now requires a higher return. In practical terms, the same rent can support a lower capital value when debt is more expensive and long-term rates are higher. This is one reason values can move downward even where there has been no obvious deterioration in the asset itself.
This also helps explain the widening gap between asking prices and bid prices. From an owner’s perspective, the building may appear to be performing much as it did previously. The income is holding up, the tenant is in place, and there may be little sign of operational weakness. A buyer sees the same asset through a different lens. Assessing the property against today’s funding costs, today’s return hurdles and today’s market risks. That can produce a meaningful difference between the price an owner hopes to achieve and the price a buyer is prepared to pay.
This is not simply caution for caution’s sake. It reflects a broader repricing of capital. Market participants have noted that higher funding costs amongst other things are placing upward pressure on commercial property yields and weighing on valuations.
The practical takeaway is straightforward. When the RBA cash rate and bond yields rise, target returns often rise with them, and when required returns rise, values can come under pressure — even when the rent has remained steady.
So, while stable rents are clearly positive, they should not be confused with stable values. In the current market, that distinction matters more than it has for some time.