New Tenant Health Index from Re-Leased reveals that Australia’s commercial property sector has returned to robust rent collection levels, marking a full recovery from the pandemic-induced low of 67% in April and May 2020.
Developed by Re-Leased, the THI assesses the stability of occupiers across the Industrial, Hospitality & Leisure, Office and Retail sectors. It found that tenant retention, the percentage of occupiers remaining after 12 months, stood at a 78% during this period.
The rent retention rate, a measure of rent paid by retained tenants compared to the previous year, averaged 86% across all sectors. Additionally, all asset classes showed a positive variance — the difference between rent retention and tenant retention — which highlights how much more (or less) retained tenants are paying compared to the previous year, indicating rental growth.
The Index comes amid evidence of nuanced market conditions for Australian commercial property.
Retail presents a complex picture, leading the rent collection recovery with a rate of 98.62% — a significant rise from 51% in 2020. However, it also has the lowest tenant retention rate, alongside an 83% rent retention rate. This indicates that remaining tenants are paying more, with a notable lease-to-rent variance of 10.42%, likely due to rent increases, larger spaces, or investments in premium locations. This trend highlights a segmentation within retail: prime tenants are absorbing rising rents, while many traditional retailers face growing challenges.
This corresponds with earlier research findings from Re-Leased:
The Industrial sector remains strong with an 86% rent retention rate, though certain precincts are experiencing a slight softening in demand. The industrial sector shows positive rent-to-lease retention rates at 7.4%, with tenants in high-demand hubs often paying premium rents due to competitive conditions. However, in some precincts, vacancy rates are creeping up, which is dampening rent growth off a high base. This variance suggests landlords in prime locations are capitalising on demand, while others are adjusting to increased availability and incentives to attract tenants.
JLL’s latest Q3 2024 Australia industrial data shows that "vacancy rates are starting to gradually trend upwards in some precincts across Australia’s metropolitan areas, partly driven by the increase in sublease availability in larger warehouse facilities. This has resulted in a gradual uptick in incentives. A combination of these factors has resulted in Australian industrial prime net effective rents decreasing by 1.8% over the quarter to Q3 2024, although effective rents are still up 3.1% over the past year. It’s important to note that industrial demand levels remain robust, so in precincts where there is stable demand and low levels of supply completions, positive rent growth is still being recorded."
The Office sector continues to feel the impact of the shift toward hybrid work models; however, tenants are increasingly willing to pay a premium for quality spaces. Despite a lower tenant retention rate of 76%, rent retention remains high at 85%, indicating that remaining tenants are paying more. Many occupiers are choosing flexible, high-quality spaces at higher rates, reflecting a "flight to quality" as tenants prioritise modern, adaptable workspaces or prime office locations that align with specific business needs.
JLL Head of Research – Australasia, Andrew Ballantyne said, “Organisations have been observing changes in workplace patterns and have more confidence in what their occupational footprint will look like moving forward. We see more conviction in decision-making and the positive net absorption result highlights the net balance of organisations are seeking more office space.”
This is further enhanced by Re-Leased's State of Leasing report earlier this year, highlighting leases of 1-3 years and 3-5 years have seen a 10% increase, while shorter leases (12 months and under) have declined by 9%. This indicates a growing preference for moderate-term leases amidst ongoing economic uncertainty.“The Tenant Health Index reflects a strengthening of occupiers across Australia’s commercial property sector, with rent collection rates now returning to pre-COVID levels,” said Tom Wallace, CEO of Re-Leased. “Industrial remains strong, though some areas are experiencing softened demand. Hospitality & Leisure is showing healthy tenant retention as it rebounds, while Office and Retail sectors continue to adapt to structural shifts, with occupiers willing to pay premium rates for prime locations.”
About the Index:
The Tenant Health Index analyses three main metrics: rent collection, tenant retention, and rent retention it provides a detailed view of tenant dynamics. High rent collection rates indicate reliable cash flow. Strong tenant retention (the percentage of tenants remaining after 12 months) reflects long-term stability. Robust rent retention shows the preservation and growth of rental income. The TMI also looks at the retention variance, the difference between rent retention and lease retention. A positive variance indicates that retained tenants are paying more and landlords are seeing rental growth. A negative variance would suggest retained tenants are paying less and rental incomes are declining.
The Re-Leased platform captures live rental collection data directly from over 80,000 unique leases from across the country. The report looks at the Australian picture and also provides segmented analysis across major property asset classes (Office, Industrial, Retail and Hospitality).
This report does not rely on surveys or secondary collections, and the data has been collected, anonymised and aggregated in line with the Re-Leased Terms and Conditions as at the time of publishing.
