Since the Budget, commercial property has become the default answer to almost every question a residential investor asks. Private buyers accounted for about 33% of the commercial market across 2026 to date (CommBank commercial property research, June 2026). Enquiry is up. Listings in medical, industrial and retail have all lifted. Buyer’s agencies that had never mentioned commercial before have quietly added it to their service pages.
We want to be careful about how we say the next part, because it is not a cheap shot.
Plenty of the commentary now recommending commercial property is written by people who do not own any. Not a character judgment, an observation about incentives. When a policy change strips the tax advantage out of one asset class, the advice follows the story. The fair test is to ask whoever is recommending it what they own, and that test applies to us too. And the part of the commercial market a residential-sized buyer can actually reach is the part under $1 million, which is also the part where the risk concentrates hardest.
We hold a mixed portfolio of residential and commercial property, which is the only reason we feel entitled to write this, and also the reason we can afford to tell you when the answer is no.
Why the money is moving
There are two real drivers and one widespread mistake.
Driver one: commercial is outside the negative gearing change. From 1 July 2027, net rental losses on established residential property acquired after Budget night can no longer be offset against your salary or business income. Commercial property is not caught by that. Losses on a commercial asset remain fully deductible against other income. This part is real, and it is the main reason money is moving.
Driver two, which is barely being discussed. On 10 August 2026, a restriction commenced on new limited recourse borrowing arrangements inside self-managed super funds. A fund can no longer enter a new borrowing arrangement to buy residential property. It can only borrow to buy property that qualifies as business real property, meaning land and buildings used wholly and exclusively in a business.
Follow that through. Commercial property has gone from being one option for SMSF borrowing to being effectively the only one. Existing arrangements are grandfathered, and refinancing is preserved, but for new arrangements, geared residential inside super is no longer available and business real property is the category that remains.
Whether that is relevant or appropriate to any particular fund is a question for a licensed financial adviser and the fund’s accountant. We are not licensed to advise on superannuation, and nothing here is a recommendation to establish a fund, borrow inside one, or use one to buy anything.
One thing to be careful about: business real property is a use test, not a zoning test. Commercial zoning does not automatically qualify. Mixed-use property with a residential component often fails despite looking commercial on paper.
Now the mistake. Much of the commentary going around says commercial escaped the Budget entirely. It escaped the negative gearing change. It did not escape the capital gains tax change.
From 1 July 2027, the 50% CGT discount is replaced with cost-base indexation plus a minimum 30% rate on the real gain, and that applies across all capital gains tax assets held by individuals, trusts and partnerships. Commercial property is a CGT asset like any other. And unlike a new residential build, there is no election available to keep the old 50% discount.
So the accurate version is: commercial keeps the deduction and loses the discount, the same as everything else. If someone is pitching you commercial as the asset class that dodged the Budget, they have read half of it.
So what can you actually buy under $1 million
This is where the brochures and the listings part company.
The commercial investments that get marketed to private buyers, the ones in the glossy portfolio auction catalogues with a national tenant on a ten-year lease, are mostly not sub-$1 million assets. Look through recent portfolio auction results, and the entry point for that product generally sits above $1 million, with the childcare and service station stock running to several times that.
What you can actually buy under $1 million is:
Small strata industrial units and warehouses. Currently the most accessible entry product, and in our view the one with the most straightforward risk profile. As at the June 2026 quarter, industrial was the only sector where yields sat lower in every capital city than they had twelve months earlier. Tenant demand is real and the buildings are simple.
Strata suburban offices. Often bought by small business owners who would rather own than lease. Reasonable if the tenant is you. Harder if you are relying on finding someone else.
Strip retail shops. Highly location dependent, and this is where the lease law traps live, which we will come to.
Indicative net yields sit somewhere in the 5% to 7% range for the kind of asset a first-time buyer is realistically looking at, as at 2026. Residential gross yields in the capitals have been running around 3.6% (Cotality). Be careful comparing those two directly, because one is stated after outgoings and one before, so the honest gap is narrower than the headline. Whatever the gap comes to on your own numbers, it is the entire pitch. It is also the compensation for a set of risks that do not exist in residential.
One sector to be careful with. National office vacancy has been sitting at its highest level since the early 1990s recession, with Melbourne at 18.9% as at July 2026 (Property Council of Australia). Office is not automatically a bad buy, but “office” and “small strata office in a suburban centre with a stable local tenant” are two very different propositions, and the headline numbers do not distinguish between them.
The mechanics that catch people after settlement
This is the part that catches people, and it catches them after they have signed. Every figure in it is indicative and stated as at August 2026. Land tax thresholds, duty rules and lease legislation change, and they differ by state. Treat this as a list of questions to put to your accountant and solicitor, not as something you can act on.
Net versus gross leases. In a gross lease, the tenant pays one rent, and the landlord absorbs rates, insurance, land tax and maintenance. In a net lease, the tenant pays base rent plus a defined share of outgoings. The commonly repeated line that commercial tenants pay all the costs is true only to the extent the lease says so and the law permits it.
The retail trap is not the same in every state. In Victoria, section 50 of the Retail Leases Act 2003 prohibits recovering land tax from a retail tenant outright. In New South Wales, section 26 of the Retail Leases Act 1994 does allow recovery, but caps it on a single-holding basis, meaning you can only pass on what you would have paid if that property were your only landholding, and only where the lease provides for it and it was disclosed. Non-retail commercial, meaning offices, warehouses and industrial, has no equivalent statutory limit, so recovery there is purely a matter of drafting.
Whether you can recover your single largest outgoing, and how much of it, changes entirely depending on the state and on whether the premises are legally classified as retail. We have seen more than one buyer discover this after exchange.
Land tax. There is no principal place of residence exemption on commercial, and thresholds vary enormously. New South Wales has had a general threshold around $1.075 million. Victoria’s starts at $50,000, with a surcharge scale for trusts from $25,000. In practice, that means a Victorian commercial asset attracts land tax at essentially any price point a first-time buyer would consider, and if that asset is legally retail, none of it is recoverable. A permanent drag on your net yield, and in our experience the most under-modelled cost in the exercise. Thresholds reset annually, so check the current figures.
Victoria has also changed how duty works. Under the Commercial and Industrial Property Tax, duty applies once on the entry transaction, and ten years later the land attracts an annual charge on its unimproved value instead, with no further transfer duty on later sales. Whether the property has already entered that scheme changes your acquisition cost dramatically. Due diligence item, not a footnote.
GST and the going concern exemption. The sale of commercial premises is generally a taxable supply, so GST applies to the price. It can be sold GST-free as a going concern, but only if every condition is met, including that the buyer is registered for GST, both parties agree in writing, and the seller carries on the business until the day of supply. A vacant property generally cannot qualify, because there is no enterprise being supplied. Get it wrong, and two things follow. The temporary one is that you fund the GST at settlement and recover it as an input tax credit in a later BAS, a real cash flow and borrowing problem rather than a permanent cost. The permanent one is stamp duty, assessed on the GST-inclusive figure, so you pay duty on the inflated number.
Leases, options and incentives. Terms typically run three to ten years with built-in reviews, a different world from six or twelve month residential cycles. Understand that a five-plus-five lease is a five-year lease with a five-year option belonging to the tenant, not to you. Do not model it as ten years of income.
And understand incentives. On prime CBD office, they have been running between roughly 29% and 48% depending on the city (Knight Frank, Q1 2026). In Melbourne, a net face rent of around $767 per square metre converts to a net effective rent closer to $401. A yield quoted on face rent can be close to double the yield on what the landlord actually receives. Always ask which one you are being shown.
Finance is a different animal
Commercial lending is not residential lending with a different rate.
Loan-to-value ratios typically sit around 65% to 70% for standard commercial, so you are funding a 30% to 35% deposit. Specialised assets like medical or childcare can go a little higher. Vacant land goes much lower.
Serviceability is assessed on the property, not on you. Lenders work to an interest cover ratio, commonly requiring net rental income of at least 1.5 times the loan repayments. Some products require no personal financials at all, because the lender is underwriting the lease.
Facility terms are often capped at lease expiry and reviewed every year. This is the structural point most residential investors miss. If the lease has three years to run, your loan term may be three years. A short weighted average lease expiry does not just affect your valuation; it mechanically shortens your finance. On top of that, you will be asked for updated financials and tax portal access every year, which has no residential equivalent.
Director and personal guarantees are close to universal, including on products marketed as requiring no financials.
Rates run at a premium over residential investment lending, broadly half a percentage point to two percentage points depending on the lender tier and the asset. Valuations cost $2,000 to $5,000 and up, against a few hundred dollars or nothing on a house.
All lending is subject to lender terms, conditions and eligibility. We do not hold an Australian Credit Licence, and none of this is credit assistance. Talk to a commercial finance broker or your lender about what is actually available to you.
The risks that do not exist in residential
Vacancy is measured in months, sometimes years. A residential vacancy is a bad few weeks. A commercial vacancy on a specialised asset can run for a year or more, and the whole time you are paying the mortgage, the rates, the insurance and the land tax with nothing coming in.
Tenant business failure is terminal to the income. A residential tenant who loses their job finds another one, or the next tenant moves in. A business that fails does not resume paying rent, and its replacement may not exist locally, particularly for specialised premises.
Re-letting can cost more than a year of gross rent. Between rent-free periods, fit-out contributions, leasing commissions and legal costs, the true cost of losing a tenant is not the vacant months. It is the vacant months plus the incentive you pay to fill it.
Capital expenditure has no residential parallel. Industrial air conditioning, fire systems, specialised electrical. These fail expensively and usually urgently.
The correlated triple hit. A commercial valuation is driven by the lease, not by comparable sales. So when the tenant leaves, three things happen at once: your income stops, your valuation falls because the income that supported it is gone, and your borrowing capacity falls with the valuation, potentially breaching a covenant at your next annual review. In residential, a vacancy does not revalue your asset. In commercial, it does.
Illiquidity and concentration. A sale typically takes months, into a buyer pool a fraction the size of the residential one. And under $1 million you almost certainly own a single-tenant asset, which means your occupancy rate is binary. It is 100%, or it is zero. There is nothing in between and nothing to average it against.
Specialised fit-outs cut both ways. A purpose-built medical suite or childcare fit-out narrows your replacement tenant pool to operators in that one sector. If there is no operator, the asset is close to unlettable at any rent.
Regional versus metro
Regional commercial yields higher, and the premium is real. On industrial assets, it has typically run somewhere between 30 and 150 basis points above the metro equivalent (Opteon, via API Magazine).
So is the reason for it.
Fewer replacement tenants when your one goes, and weaker covenants behind the ones there are. Greater exposure to a single local industry, so a tenant default correlates with the local economy rather than being an isolated event. Thinner exit liquidity and a wider spread on price when you sell.
Higher yield in commercial is almost always compensation for something specific. Before you take it, work out what you are being compensated for and whether you can carry that risk for the years it might take to show up.
When commercial makes sense, and when it does not
This is the rough framework we use in conversations. It is not an assessment of your situation, because no article can do that.
You are probably ready when:
- You have a residential base already built, and this is diversification rather than a first move
- You have genuine cash reserves to carry a vacancy of twelve months or more without distress
- Your deposit is real equity, not the last of your borrowing capacity
- You can read a lease properly, or you are paying a solicitor who can, and you have budgeted for that
- You have a reason to own this specific asset beyond the yield number on the listing
There is one clean exception to all of that. If you are a business owner buying premises your own business will occupy, most of the risk in this article changes shape, because you are the tenant.
You are probably not ready when:
- This would be your first or second investment property
- The deposit stretches you, and the buffer is thin
- The yield is the entire thesis
- Your numbers only work if the property is tenanted continuously
- The appeal is that commercial sounds more passive than residential
On that last point, we want to be direct. Commercial is not more passive. You will go years without a problem and then have a very expensive one. Residential gives you small problems often. Commercial gives you large problems rarely. Those require completely different balance sheets and completely different temperaments.
And the honest sequencing point, which is what we told our own network when the Budget landed: very few people can go from zero straight into commercial. Most investors will still need to build a residential base first, because that is what teaches you how to hold an asset through a bad year, and because the sub-$1 million commercial end carries meaningfully more risk than the marketing suggests.
Where we sit
We own commercial property ourselves, and when the timing and strategy are right, we also help our clients identify and purchase the right asset. The negative gearing carve-out is real. The super fund change has narrowed where a fund can borrow, which is why business real property is being discussed more than it was a month ago. Industrial is the part we watch most closely, because the tenants are usually simple businesses in simple buildings, and when one goes, the replacement is usually someone doing something similar down the road.
We are also not going to tell a first-time investor that a single-tenant asset under $1 million is a safe way to start, because it is not, and because when an asset class becomes popular this quickly it is worth asking anyone recommending it, including us, what they hold and how long they have held it.
Strategy first, then structure, then what the cash flow has to do. The asset class is the last decision, not the first.
If you want to talk through where commercial sits against your own plans, book a call with us. We are a buyer’s agency and property advisory firm, not a licensed financial adviser, tax agent, credit provider or law firm, so anything to do with your super fund, your structure, your lending or a lease will need the relevant specialist. If we think you are three properties away from this being the right conversation, we will say that.