The great investor reshuffle continues to play out across Australia's lending landscape.
Brokers are reporting a growing shift in investor interest towards commercial property, as some reassess where to deploy capital following changes to the tax treatment of residential investment properties. Under the updated regulatory framework, negative gearing benefits for residential property have been limited to new builds, reducing the appeal of purchasing existing investment properties.
"It's a bit of a tsunami, an influx of inquiries into the commercial property space," Jake Sgarbossa, associate director at Melbourne-based My Mortgage Choice, told Australian Broker. "More typical residential investors are now calling me to explore a different asset class, commercial property, to see how it works, because residential and commercial investments are very different."
In May, the Labor Party revealed changes to the 2026 to 2027 federal budget that limited negative gearing for residential investment to newly-built dwellings. Investors who purchase an existing residential property after the reforms took effect in the new financial year are no longer able to claim rental losses against their salary or other income. Existing investment properties were grandfathered. The government said the reforms were designed to encourage investment in new housing, with the aim of increasing housing supply and improving affordability.
However, rather than simply shifting into new-build residential properties, some investors are reassessing where they deploy their capital. For some, that has meant taking a closer look at commercial property, where these residential tax changes do not apply and the yields are higher.
"Prior to the changes, residential investors would typically be attracted to residential investment despite the low yields of 2% to 3%. But they were comfortable with that because of the negative gearing benefits," Sgarbossa explained. "But now, because that's no longer the case, they can't negatively gear, they're now turning to commercial property, which typically has stronger yields. The yields can range from 5.5% to 7%. I've seen some investors achieve 7% on their commercial investments."
Another major draw is cash flow. Depending on the state and property type, commercial property owners can pass on some or most of a property's operating costs to tenants through the lease structure. Unlike residential property, where landlords are typically responsible for expenses such as council rates, building insurance and strata levies, many commercial leases require tenants to cover these outgoings in addition to rent. Depending on the lease, this can include council and water rates, insurance, strata levies, land tax and maintenance, potentially saving owners tens of thousands of dollars each year. While retail leases are generally subject to different rules under the Retail Leases Act, office spaces and industrial properties typically offer greater flexibility.
"You can structure the lease in a way where, effectively, the tenant is paying 100% of the outgoings of the property," Sgarbossa said. "So from a cash flow perspective, commercial property is proving to be a very strong investment."
The shake-up has also extended to self-managed super fund (SMSF) lending.
In June, the Labor party said it would prohibit SMSFs from using limited recourse borrowing arrangements (LRBAs) to purchase residential property. The move was part of Labor's deal with the Greens to secure passage of the 2026 to 2027 federal budget through the Senate. The legislation, which received Royal Assent on 26 June, provides a 45-day transition period before the ban on new residential SMSF LRBAs takes effect on 10 August. Existing residential arrangements are grandfathered.
"However, commercial [property] is untouched," Sgarbossa said.
"In the resi space, an occupier can't lease their own SMSF property. And they can't use it for personal gain," he explained. "But in commercial, a business can rent their premises from their SMSF. So effectively, if you have a business, you can buy a commercial property in your SMSF and have your business sign a lease agreement with your SMSF and rent the property from your self managed super fund. You're then generating and creating wealth because the rental payments that you're making from your business are deductible. Those rental payments are going to your self-managed super fund, which is being taxed at the concessional rates. And you're effectively building your wealth in retirement, not someone else's."
While commercial property is more complex than residential lending, that complexity also creates an opportunity for brokers who are willing to build expertise in the space. As investors increasingly reassess where they deploy capital, brokers with a strong understanding of commercial property finance can position themselves as valuable advisers, helping clients navigate different asset classes, lending structures and ownership strategies. The shift also opens the door for brokers to deepen existing client relationships by supporting investors who may be exploring commercial property for the first time.
