Australia’s property story looks very different depending on which asset class you’re in and total return tells the fuller story once capital growth and income are combined.

Residential houses: national house prices have grown at around 6.4% p.a. over the past 30 years, with Sydney and Melbourne the strongest performers. Add the national average gross rental yield of ~3.0% and houses have generated a total return of roughly 9–9.5% p.a. — skewed about two-thirds capital growth, one-third income. In Sydney and Melbourne, premium houses often yield under 3%, bought squarely for growth.

Commercial and industrial: income carries more of the load, with yields commonly 5–7%. Capital growth is where the volatility lives, industrial returned 13.9% total in 2020, surged to 19.2% by late 2022 as yields compressed, then cooled to around 6% by mid-2023. The broader all-property index has historically clustered in an 8–13% total return range.

Vacancy is the overlooked risk factor. Residential income is far more reliable because tenants are easier to replace: national residential vacancy sits at just 1.0–1.3%, with no capital city above 2%. Industrial vacancy, the tightest commercial sector, runs at 3.2% nationally (4.7% in Melbourne). Office is the outlier, at 15.9–16.1% nationally and near 19% in Melbourne’s CBD. A vacant house typically re-lets within weeks; an empty
office or warehouse can sit vacant for months.

The takeaway is that houses deliver capital-growth-heavy returns with the lowest income-interruption risk.

Commercial/industrial deliver comparable returns with stronger income, but far higher vacancy exposure, especially office.

The 2026 Federal Budget adds a wrinkle. From 1 July 2027, negative gearing is removed for established residential properties bought after budget night, retained only for new builds. That may tempt investors toward commercial or industrial property, where negative gearing is unaffected. But it deserves scrutiny: gearing into commercial property means underwriting vacancy rates of 3.2–4.7% (industrial) or up to 19% (office), against residential’s sub-1.5%. An asset sitting empty for months rather than weeks turns a tax strategy into a cash-flow risk, the deduction only helps if there’s rental income to offset in the first place.