Commercial real estate poised for post-budget shake up

While the reforms were designed to improve housing affordability and redirect investor demand toward new residential supply, agents and analysts across the commercial property sector say the unintended consequence may be a major reallocation of capital into commercial assets, particularly industrial property and regional investment markets.

From 1 July 2027, negative gearing will be limited to new residential builds, while the longstanding 50 per cent capital gains tax discount will be replaced by a cost-base indexation model and a 30 per cent minimum tax on net capital gains. Additional discretionary trust tax reforms will follow in 2028.

For many investors, the traditional residential investment equation has fundamentally changed.

“As Australians have traditionally understood it, residential property investment has largely been centred around capital growth first and yield second,” said James Linacre, CEO of RWC.

“The policy settings now emerging may well reverse that order of importance. And if that happens, commercial property could become one of the major beneficiaries of the next phase of Australian investment behaviour.”

Commercial agents across the country say investor conversations are already changing.

“I believe that the changes to negative gearing will push investors away from residential and into commercial investments where yield and cash flow will be king,” said Peter Vines, director of RWC Western Sydney.

“Commercial property is far more appealing given tenants often pay the majority of outgoings.”

Mr Vines also believes the reforms could accelerate subdivision and greenfield housing activity as investors and developers chase the remaining residential tax incentives tied to new construction.

“I also believe that it will drive the new housing and subdivision market. Hopefully the funds set aside for servicing infrastructure will open up more development opportunities which are still very feasible, affordable and sought after,” he said.

The Federal Government’s infrastructure commitments, including billions earmarked for enabling housing supply and regional infrastructure upgrades, are expected to support that development pipeline.

According to Vanessa Rader, head of research at Ray White, the Budget creates a meaningful incentive shift for investors reassessing portfolio strategy.

“For some private investors, this Budget may be the prompt to consider diversifying into commercial property for the first time,” Ms Rader said.

“The income yields are compelling, averaging above residential yields across most commercial assets, often with long leases and sticky tenants providing income certainty that residential investment rarely matches.”

However, she cautioned that the transition into commercial property is not without risk.

“Commercial property carries a meaningfully different risk profile to residential. Entry costs are higher, financing is more complex and often negative gearing is not possible, and lease vacancy or tenant default can have a more immediate impact on cash flow than a vacant residential property.”

On the ground, commercial agents say the investor response has been immediate.

“We expect the proposed Budget changes to push more investors toward commercial property, particularly as residential becomes less attractive from a negative gearing deductibility and yield perspective,” said Jackson Rameau, director of RWC Pacific Group based on the Gold Coast.

“Commercial assets continue to appeal because of stronger income returns, longer lease terms and the ability for tenants to often cover outgoings, creating a far more predictable investment structure.”

Mr Rameau said enquiry levels from private investors and self-managed superannuation fund buyers had already increased significantly.

“We are already seeing increased enquiry from private investors and SMSF buyers who are reassessing their long term strategy and looking more seriously at commercial property,” he said.

Industrial property remains one of the standout sectors.

“Industrial property across the Gold Coast remains extremely tightly held, with limited supply continuing to support pricing and buyer competition,” Mr Rameau said.

“In our view, the second half of 2026 could present one of the strongest selling windows before more stock potentially comes to market leading into the proposed 2027 CGT changes.”

That anticipated rush of activity ahead of the new tax regime is becoming a common theme nationally.

Regional commercial markets may also become unexpected winners under the reforms, particularly as investors search for stronger yields and lower entry points.

“With the Budget effectively isolating negative gearing to new residential builds from 1 July 2027, the comparative appeal of commercial property has never been stronger,” said Scott Timbrell, director at RWC Central West based in Orange, New South Wales.

“Unlike residential, commercial property retains full deductibility of losses against other income, which is a critical factor for portfolio optimisation.”

Mr Timbrell said regional commercial assets were increasingly attractive to investors who had historically relied on residential property for wealth creation.

“For the private investor who has historically used residential property as a wealth-building vehicle, the math has fundamentally changed,” he said.

“Commercial property in the Central West offers higher yields and full deductibility, and in that narrow sense, these regional assets have become significantly more attractive than established residential holdings in the city.”

He said recent transaction activity in regional centres demonstrated the depth of investor appetite already sitting on the sidelines.

“The speed of these transactions reflects a clear safe haven play where investors are willing to accept tighter yields for recession-proof certainty,” Mr Timbrell said.

The Federal Government’s regional infrastructure commitments were also expected to strengthen the long-term investment case.

“When the government invests in regional connectivity, it creates a value floor for industrial and retail assets,” he said.

“Projects that support new housing in the region naturally increase the demand for commercial services, creating a fundamental growth story that transcends temporary tax changes.”