With negative gearing gone and the CGT discount disappearing, residential investors are turning to commercial. Here's why industrial is poised to absorb the bulk of it.
Australia's property market was already shifting on rumour. The federal budget made it concrete. "I'm looking at a warehouse strata unit in Yatala," Renee told me yesterday. 32 years old, she and her partner own a home in south Brisbane and had been planning to buy their first investment property. Twelve months ago the conversation would have been about a unit in Woolloongabba. Now, with negative gearing on established residential gone, the maths doesn't work the way it used to. She's looking for an investment she can run on the lease income alone.
It's not the first call I've had from someone looking to finance a commercial property for the first time. Renee isn't a sophisticated investor. She's a primary teacher with a partner in the trades, a deposit they've spent five years building, and a list of research questions written out on the back of a Bunnings receipt. As Australia's specialist commercial property finance brokerage, when investors start looking past residential, our phone tends to be the first one they ring. I suspect it will be the start of many.
Why commercial, why now
The rational answer to "where do I put my next investment dollar?" has changed. Negative gearing on residential, gone. The 50% CGT discount, gone. That's why people are turning to commercial property's three structural advantages: higher yields, longer leases, and tenants who pay the outgoings rather than the owner.
None of those advantages are new. What's new is that they suddenly matter, because the residential side of the ledger has just lost the feature that made it palatable to a generation of investors who were carrying the difference between rent and repayments out of their own pay packet every month.
Knight Frank's and Raine & Horne's have both flagged the same pivot. The commercial research desks are pointing in the same direction we are. Industrial.
Why industrial in particular
The case for industrial isn't a feeling. The numbers were already strong before the Budget changed anything else.
National industrial vacancy sits at 3.2% per the NAB Commercial Property Survey, and Cushman & Wakefield is forecasting a 46% drop in speculative supply over 2026 and 2027 compared with the previous two years. That's a structurally undersupplied leasing market in the making. Yields hold up well against the other commercial classes. CoreLogic's Q2 2025 figures had industrial averaging 6.1%, with office at 5.2% and retail at 5.7%. KPMG had industrial total returns at 6.4% for the September quarter 2025, the fourth straight positive quarter after the 2023-24 correction, and CBRE's medium-term outlook puts prime industrial returns at around 10% per annum.
The leasing economics are the part that catches first-time commercial investors off guard, in a good way. Industrial leases typically run three to ten years. Tenants pay the outgoings. Rental escalations are CPI-linked or fixed at 3 to 5% annually. From a serviceability angle, that's a fundamentally different cash flow profile to a residential rental where the owner wears council rates, insurance and maintenance, and the tenant can give 30 days' notice.
The Yatala property Renee has her eye on is a 280sqm strata-titled warehouse listed at $1.2m. It has the usual amenities, a small air-conditioned mezzanine office, and a tenant on a five-year lease with options. It yields 6.2%, and her bank can underwrite the serviceability without leaning on her PAYG income. The deal still has to stack up on its own merits, and we'll go through that together next week. But the impulse to walk away from the residential market and look here instead is structurally rational, and it's the impulse that's going to repeat itself across Australia over the next twelve months.
Where the residential investor actually enters
What residential agents reading this should picture, when they think about who's making these calls, isn't a high-net-worth investor swapping a portfolio of houses for a $5m industrial estate. That investor was already in commercial.
The new entrants we talk to look more like Renee. They've been buying $750k to $1.2m residential units & houses for the last decade, or were planning to. They'll enter commercial at the bottom of the market. Small-format industrial units between roughly $500k and $1.5m, in outer-metro logistics corridors like Yatala, Truganina, Eastern Creek or Hazelmere, or in regional industrial parks. A meaningful share will buy through a self-managed super fund.
That entry tier is where lender appetite is strongest right now. Owner-occupier activity for sub-10,000 sqm spaces has been climbing through 2025, and that depth of owner-occupier interest is part of what keeps secondary industrial values resilient when institutional capital steps back.
The hold-and-refinance dynamic
The investor making the call isn't always a Renee. The 50% CGT discount stays in place for assets acquired before Budget night, which means a large slice of existing residential investors are about to decide that holding is materially better than selling into the new regime.
For selling agents, that might change the rhythm of investor relationships. The investor who was a frequent residential transactor will pivot toward refinancing, restructuring, and releasing equity to build a commercial portfolio. Agents who treat those clients as long-game relationships, not near-term listings, are the ones who get the call when the residential sale eventually comes.
For industrial, that longer cycle very often starts with a single warehouse acquisition. Specialist warehouse property loans sit at the accessible end of commercial lending for first-time commercial buyers, and that's likely to be the most active corner of the market over the next twelve months.
The bottom line
Industrial wins because the fundamentals already supported it, the entry point is accessible, the financing works for private investors, and the Budget pushed the rational decision toward an asset class many residential investors were already curious about. The shift won't show in transaction data for six to twelve months. But the calls are starting now.
Nadine Connell is co-founder and director of Smart Business Plans, a national specialist commercial property finance brokerage based on the Gold Coast.