Commercial vs Residential Investment Property After Budget 2026
Commercial vs Residential 2026 | Switchboard Finance
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Yields · Tax changes · Lending
Commercial vs Residential Investment Property in Australia (2026)
The 2026 tax changes are no longer proposals. They are law, and they land on residential and commercial property very differently. This is the comparison set against what the legislation actually says, with the yield and vacancy figures dated and sourced.
Quick Answer
Commercial and residential investment property now sit under different rules. The negative gearing limit reaches residential dwellings only, the capital gains changes reach both, and super fund borrowing has narrowed to business real property. Compare the settings before choosing a commercial property loan or a residential strategy.
Do commercial or residential properties yield more in Australia in 2026?
Commercial property yields more on published figures, but the two numbers are not measured the same way and the gap is wider than it first appears. Commercial yields are quoted net, after the outgoings a tenant reimburses under a net lease. Residential yields are quoted gross, before the rates, water and insurance the landlord carries. Any comparison that puts a net commercial figure next to a gross residential figure without saying so understates what actually reaches the owner.
The table below keeps the two conventions visible rather than blending them. Where a series has no comparable equivalent in the other column, it says so instead of inventing one.
Sources and as-of dates. Residential gross yield 3.7 percent nationally, Cotality Monthly Housing Chart Pack, data to July 2026, published 14 August 2026. Capital city dwelling spread of 3.0 percent in Sydney to 6.1 percent in Darwin, Cotality Home Value Index, data to February 2026, which is the most recent complete eight city table published. Prime industrial net yields, Knight Frank Australian Industrial Review Q1 2026, ranging Western Sydney 4.75 to 5.75 percent through to Perth 6.25 to 6.75 percent, on an assumption of a near new institutional grade asset. Prime CBD office yields, Knight Frank Australian Office Indicators Q2 2026, Sydney 5.70 percent through to Perth 7.90 percent, published without a stated net or gross basis and reproduced here as published. Office vacancy 16.1 percent nationally as at 30 June 2026, Property Council of Australia, released 6 August 2026. Industrial vacancy 3.2 percent for the first half of 2026, CBRE, released 7 July 2026, noting that JLL publishes 4.8 percent for Q2 2026 on a different methodology and the two should never be averaged. Residential vacancy 1.3 percent for July 2026, SQM Research, released 13 August 2026. Lease terms, Baker McKenzie Global Corporate Real Estate Guide, an undated standing legal reference. All figures are published market data as at the dates shown, not a forecast and not a return you should expect on a specific property.
From our broking, indicative
What we are seeing across our own files since the negative gearing change passed, offered as a read on enquiry flow rather than as market data.
- Investor enquiries that would previously have gone to established residential stock have shifted toward commercial and industrial assets under about 2 million dollars. Basis: our own enquiry and file mix, as of August 2026.
- On the financed deals we place, the net yield spread we typically see over residential sits around 2.5 to 4 percentage points. Basis: deals we have placed, as of August 2026.
Indicative only, based on deals we have placed and enquiries we have taken, not a quote and not an offer. Actual terms and returns depend on lender policy, the specific asset and your circumstances at the time of application. Not financial advice.
What did the 2026 tax changes do to negative gearing and capital gains tax?
They became law. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026, so anything still describing these measures as announced or proposed is out of date. Schedule 2 limits negative gearing on residential property, Schedule 1 changes the capital gains tax settings, and Schedule 5 restricts super fund borrowing.
The commonly repeated line is that commercial property sits outside both measures. That is only half right, and the half that is wrong matters. Commercial property is outside the negative gearing quarantine. It is inside the capital gains changes, and unlike an eligible new residential dwelling it gets no choice to stay on the old discount. The table below is the whole picture in one place.
Sources and as-of dates. Act and assent date, Federal Register of Legislation, C2026A00049, read 23 August 2026. Negative gearing scope, grandfathering at 7.30pm Australian Capital Territory time on 12 May 2026 and application from the 2027 to 2028 income year, Treasury second reading speech and Australian Taxation Office new legislation guidance. Capital gains scope covering all capital gains tax assets held by individuals, partnerships and trusts for at least 12 months, cost base indexation replacing the 50 percent discount, a minimum 30 percent rate on real gains from 1 July 2027, and the new build and affordable housing carve outs, Treasury second reading speech. Complying superannuation entity exclusion, same source. This is a comparison of the legislated settings and is general information only. It is not tax advice, and the treatment of any particular asset depends on facts this page cannot know. Confirm your position with a registered tax agent.
How does lending differ between commercial and residential investment property?
The lender assesses a different thing in each case. A residential investment loan is priced to a product and tested against an estimate of market rent. A commercial loan is priced deal by deal and tested against the lease itself, which means the tenant, the remaining term and the quality of the covenant do real work in the credit decision. That is the summary. The mechanics live in their own pieces so this page does not repeat them.
For deposit and cash at settlement, see buying a warehouse or industrial unit. For where rates actually sit, see commercial property loan rates. For the higher leverage lane, see the 80 percent LVR commercial property loan. If you are weighing which security to offer, residential or commercial security on a purchase covers that trade off.
What did the SMSF borrowing change mean for commercial property?
It narrowed super fund borrowing to business real property, and it started well before the tax measures do. From 10 August 2026, being the forty fifth day after assent, a limited recourse borrowing arrangement can only be used to acquire real property where that property is business real property within the meaning of section 66 of the Superannuation Industry (Supervision) Act 1993. This is Schedule 5 of the Act, and it is the one measure that is already operating.
The shorthand in the market is a residential borrowing ban, and that is a reasonable headline but not the operative test. The rule is written positively: real property acquired under a limited recourse borrowing arrangement must be business real property. Residential investment property fails that test, and so can a commercial asset that is not used wholly and exclusively in one or more businesses, vacant land being the obvious case. Saying commercial is fine overstates it.
Arrangements entered into before 10 August 2026 are unaffected, as are refinances of them and contracts exchanged before that date even where settlement falls later. The non bank path for SMSF commercial property loans covers how these files are actually placed. This page does not deal with fund administration.
How do risk, vacancy and lease structure compare?
Commercial carries longer income and thinner liquidity, residential carries shorter income and a deeper market. That is the honest shape of it. Vacancy is the clearest illustration: residential vacancy nationally sat at 1.3 percent in July 2026 on SQM Research figures, while national office vacancy was 16.1 percent as at 30 June 2026 on Property Council of Australia figures and industrial vacancy 3.2 percent for the first half of 2026 on CBRE figures. An empty commercial suite can stay empty for a long time, and it stays empty while the outgoings keep running.
Against that, the commercial lease does more work for the owner. Terms typically run 3 to 5 years for smaller tenancies and around 10 years for major tenants, outgoings are commonly recovered from the tenant under a net lease, and the income is contracted rather than re-let every 6 or 12 months. Incentives are the offset most owners underestimate: Knight Frank put prime industrial incentives at 22.0 percent in Western Sydney and 20.5 percent in Melbourne in Q1 2026, and office incentives are higher again. An incentive is rent you do not receive.
Where commercial is stronger
- Income is contracted for years, not months
- Outgoings commonly recovered from the tenant
- Outside the negative gearing quarantine
- Still available to a super fund as business real property
- Small business CGT concessions unchanged where eligible
- Rent reviews are negotiated into the lease
Where commercial is harder
- Vacancy runs far higher and lasts longer
- Incentives can absorb a fifth of the rent
- Inside the capital gains changes with no new build option
- Thinner buyer pool when you sell
- Larger deposit and shorter loan terms
- Value moves with the lease, not just the market
Sources and as-of dates. Residential vacancy 1.3 percent, SQM Research National Vacancy Rates for July 2026, released 13 August 2026. Office vacancy 16.1 percent as at 30 June 2026, Property Council of Australia, released 6 August 2026. Industrial vacancy 3.2 percent for the first half of 2026, CBRE, released 7 July 2026. Prime industrial incentives, Knight Frank Australian Industrial Review Q1 2026. Lease terms, Baker McKenzie Global Corporate Real Estate Guide, undated standing reference. Outgoings recovery under net and gross leases, Queensland Small Business Commissioner, updated 2 July 2026. There is no published national figure for weighted average lease expiry, so none is quoted here; Knight Frank's Q1 2026 industrial valuation benchmark assumes an institutional grade asset with a WALE of 7.0 years or more, which is a valuation assumption rather than a market norm. Market data as at the dates shown, not a forecast and not a prediction for any specific property.
If the wider structuring question is what you are working through, the post Budget decision tree for investors and the property lending decision tree route the common cases, and the lender matrix shows who sits where.
The received wisdom that commercial property escaped the 2026 changes is half right. It is outside the negative gearing quarantine, and business real property is still reachable inside a super fund, which are two real advantages that residential investors no longer have. But commercial is squarely inside the capital gains changes, and it is the one asset class with no new build option to keep the old discount, so the tax gap between the two narrows rather than widens once you hold past 1 July 2027. The yield comparison is also less flattering than it looks in reverse: commercial yields are net, residential yields are gross, and the true spread on what reaches you is wider than the headline. Vacancy is the price of that spread.
Key takeaway: commercial wins the income and negative gearing comparison, residential wins on liquidity and vacancy, and neither escapes the capital gains changes.Frequently Asked Questions
Neither is better in the abstract, and in 2026 the two sit under different rules. Commercial property is outside the negative gearing quarantine that now applies to residential dwellings, and it remains available inside a self managed super fund where the property is business real property. Residential property is easier to finance and has a deeper buyer pool, so the choice usually turns on your holding period, your entity and your tolerance for vacancy rather than a headline yield.
The 2 percent rule is an American rule of thumb that says a rental should return 2 percent of its purchase price in monthly rent, and it does not describe the Australian market. National gross rental yields on Australian dwellings were 3.7 percent a year in July 2026 on Cotality figures, a long way from the 24 percent a year that the 2 percent rule implies. Use published yield data for the asset class you are actually buying, and see our commercial property loan rates piece for how lenders read the income side.
Outlook statements are forecasts rather than facts, so treat them that way. CBRE's Pacific Real Estate Market Outlook 2026 edition forecasts industrial vacancy to peak at 3.6 percent in the second half of 2026, while the Property Council of Australia reported national office vacancy at 16.1 percent as at 30 June 2026 with premium grade space tightening to 10.2 percent. The split between prime and secondary stock matters more to a lender than the national average, which is the subject of our commercial valuation piece.
No. Schedule 2 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 quarantines losses relating to the using or holding of residential dwellings as residential accommodation, so losses on a commercial asset are not caught. Treasury's second reading speech states that commercial property and other asset classes such as shares remain subject to existing arrangements for that measure. This is general information about the settings rather than tax advice, and you can see how the financing side differs on our commercial property loans page.
Yes, if you last acquired it before 7.30pm Australian Capital Territory time on 12 May 2026. Properties held at that point are grandfathered and can continue to be negatively geared until they are sold, there is no cap on how many grandfathered properties an investor holds, and acquisition runs from the contract date rather than settlement. Properties contracted after that moment fall inside the quarantine from the 2027 to 2028 income year unless they are eligible new builds.
Yes, and this is where the asymmetry runs the other way. The capital gains changes apply to all capital gains tax assets held by individuals, partnerships and trusts for at least 12 months, so commercial property is inside them, with cost base indexation replacing the 50 percent discount and a minimum 30 percent rate on real gains accruing from 1 July 2027. Buyers of eligible new residential dwellings can choose between the old discount and the new treatment, and commercial buyers cannot. Complying super funds, including self managed funds, sit outside the change entirely.
Yes, where the property is business real property within the meaning of section 66 of the Superannuation Industry (Supervision) Act 1993. From 10 August 2026 a limited recourse borrowing arrangement can only be used to acquire real property if that property is business real property, which rules out residential investment property and can also catch commercial assets not used wholly and exclusively in a business. Arrangements entered into before 10 August 2026, refinances of them, and contracts exchanged before that date are unaffected. Our SMSF commercial property piece covers how those files are placed.
Because the two numbers are not measured the same way, and the real gap is wider than the headline rather than narrower. Commercial yields are usually quoted net, after the outgoings a tenant reimburses under a net lease, while residential yields are quoted gross, before the rates, water and insurance a landlord carries. Comparing a net commercial figure with a gross residential figure understates what actually reaches the owner, which is the most common error we see in property lending conversations.
WALE is the weighted average lease expiry across a property's leases, weighted by income or by area, and it tells a lender how long the rent is contracted for. There is no published national norm, though Knight Frank's Q1 2026 industrial benchmark assumes an institutional grade asset with a WALE of 7.0 years or more. A single tenant on a short remaining term is a different credit question from a diversified rent roll, which is one reason a commercial property loan is assessed deal by deal rather than to a product grid.
More than for a residential investment property, and the exact figure depends on the asset, the lease and the borrower. We cover deposit and cash at settlement in our warehouse and industrial unit deposit piece, and the higher leverage lane in the 80 percent LVR commercial property loan piece. Both sit alongside this comparison rather than inside it.
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