Sydney's economy in spring 2026: where things stand

A year ago, after three cuts to interest rates, the debate in Sydney was about how much further rates would fall. That conversation has turned around. Inflation picked up again in the second half of 2025, and the conflict in the Middle East that began at the end of February sent global oil prices sharply higher. The Reserve Bank has raised the cash rate four times this year, most recently to 4.60% on 29 September, the highest level since 2011.

This is our reading of where the Sydney economy stands this spring, written for owners and operators rather than for financial markets. We look at inflation and the Reserve Bank in more detail in a separate article.

Change in Sydney home values over the year to September

−7.0%

Cotality

RBA cash rate target, the highest since 2011

4.60%

RBA

Consumer sentiment in October, where 100 is neutral

80.4

Westpac-Melbourne Institute

Sydney industrial vacancy, first half of 2026

3.5%

CBRE

Housing: values falling from a high base

Cotality's home value index shows Sydney values fell 1.4% in September and are 7.0% lower than a year ago, leaving them 8.6% below their February peak. Nationally, values fell 1.1% in September and are unchanged over the year, and 97% of capital city suburbs recorded a fall over the three months to September. Cotality points to higher interest rates, stretched affordability, high living costs and weaker sentiment.

The falls have been led by more expensive homes. By the end of August, upper quartile house values in Sydney were 10.7% below their peak, a much larger fall than at the lower end of the market. Buyers also have more to choose from: national listings were 18.1% higher than a year earlier in Cotality's September chart pack, while capital city sales over the year to August were down 5.2%.

Rents are still rising. The rent component of the consumer price index rose 3.6% over the year to August, the same annual pace as in May.

For businesses, falling home values matter mostly through confidence, because households that feel less wealthy tend to be more careful with discretionary spending. Westpac's October survey does suggest some buyers see an opportunity: its index of whether it is a good time to buy a home rose 3.4% to 88.4, although that is still 8.3% lower than a year ago.

Households: spending more, but carefully

Household spending was 6.8% higher in August than a year earlier, according to the ABS, with discretionary spending up 7.2%. Much of that reflects higher prices rather than more activity. With inflation at 4.0%, the real increase is much smaller, and spending did not grow at all between July and August.

Confidence has fallen further. The Westpac-Melbourne Institute index of consumer sentiment dropped to 80.4 in October from 84.4 in September. A reading below 100 means pessimists outnumber optimists, and the gap widened sharply after the Reserve Bank's decision.

Sentiment fell sharply after the September rate rise

Westpac-Melbourne Institute consumer sentiment index, October 2026 survey. Below 100, pessimists outnumber optimists

1. Surveyed before the decision86.9
2. Surveyed after the decision67.2
3. All respondents, October80.4

Fuel is the most immediate pressure. Average pump prices were above $2.30 a litre nationally when the survey was taken, up nearly 25% since the start of the year, and more than 80% of people surveyed after the decision expect mortgage rates to rise again over the next 12 months.

Business: conditions turn negative

NAB's monthly business survey for August put business conditions at minus 1, the first negative reading in six years and the lowest since August 2020. Profitability fell to minus 9, its weakest since the pandemic, and businesses reported purchase costs rising 2.3% over three months while their own prices rose 0.8%. In other words, costs are rising faster than many businesses can pass them on.

NSW was a relative bright spot: business conditions fell in every state except NSW and Tasmania.

Business failures remain high. ASIC figures show 14,152 companies entered external administration or had a controller appointed for the first time in 2025-26, only slightly fewer than the 14,722 of the year before. We look at what is behind the squeeze, and what is working for operators, in how inflation is reshaping business in 2026.

Commercial property: plenty of offices, scarce warehouses

The commercial property market is split.

Office space is easy to find, industrial space is not

Vacancy rates, per cent, mid 2026

1. North Sydney offices25.8%
2. Offices, national16.1%
3. Sydney CBD offices13.3%
4. Sydney CBD premium offices7.7%
5. Sydney industrial and logistics3.5%

National office vacancy rose to 16.1% in the six months to June, a post-pandemic high. Sydney CBD vacancy fell from 13.8% to 13.3%, and vacancy in premium buildings fell from 8.9% to 7.7%, as tenants moved to better space and left older buildings behind. In North Sydney, one in four square metres of office space is empty, a vacancy rate of 25.8%. Closer to home for us, the Property Council's report showed vacancy tightening in St Leonards and Crows Nest.

Industrial space remains scarce, although Sydney's vacancy rate rose to 3.5% in the first half of the year, with the rise concentrated in the outer south west, where several existing vacancies remain unleased. For a business that needs a large, open floor, that scarcity still shapes rents and the time it takes to find a site.

What keeps Sydney growing

The cycle is only part of the picture. NSW had 8.67 million residents at 31 March 2026, about 97,000 more than a year earlier, and Greater Sydney added 75,230 people in 2024-25. Nationally, unemployment has edged up to 4.6% from 4.4% in mid year, but employment rose by 39,500 people in August and the participation rate, at 67.1%, shows a large share of adults still in work or looking for it.

Capacity is still being added. Western Sydney International Airport is due to open to passengers on 25 October, the metro is being extended to Bankstown, and the state's four year infrastructure program runs to $116.7 billion. None of this stops a downturn, but it does mean the city is adding customers, workers and connections through it. We set out the longer term case in why we invest in Sydney.

The scorecard

Taken together, the measures in this article give a mixed but readable picture.

What we are watching

• Inflation and the Reserve Bank. The next inflation figures, due late this month, and the Reserve Bank's November decision will show whether rates have further to rise.
• Fuel. Prices depend on events in the Middle East far more than on anything in Sydney, and they flow quickly into transport, freight and household budgets.
• Jobs. Unemployment has risen gradually. A sharper rise would change the outlook for spending more than any single rate decision.
• Housing. Values levelling out would help confidence. Further falls, particularly in the more expensive suburbs, would weigh on discretionary spending.
• The new airport. Its first months of operation should show how quickly a new centre of activity forms in the west.

Conclusion

Sydney goes into the summer with a cooling economy inside a growing city. Higher interest rates are doing what they were meant to do, and fuel prices have added to the pressure: home values are falling, confidence is low and businesses are finding it harder to pass on their costs. At the same time, the population keeps rising, the new airport is about to open and the state is spending heavily on transport and water.

For business owners, the practical conclusion is to treat the two separately. Manage the cycle tightly, with conservative budgets, close control of costs and a plan for a weaker few months. Keep investing where the long term growth is. Our own response is the same: plan on conservative numbers, keep fixed costs under control, and stay close to our first investment as it prepares to open.