Looming Tax Shake-Up Drives Yield-Hunting Investors Towards Commercial

A great exodus has begun. Investors are fleeing residential property, tearing up the playbook and pouring their money into commercial real estate. Once considered all but bulletproof, residential markets have been battered by capital gains tax changes in the 2026-2027 Federal Budget, rising interest rates, and spiralling construction and development costs. What began as a trickle of investors moving into the commercial market is fast becoming a flood. Major funds manager Charter Hall Group is among those to note the change. It told the ASX last week that investors were increasingly diversifying holdings and seeking “tangible, income-focused property investment products”. Charter Hall chief executive David Harrison said that he expected self-managed super funds and private investors who have traditionally leaned towards Australian residential markets to head towards commercial real estate. ▲ Stonebridge Property Group partner Tom Moreland: Move to CRE a recalibration. Stonebridge Property Group partner Tom Moreland—whose firm has transacted $164.7 million across 29 assets since May 2026—says the move to commercial real estate (CRE) is a recalibration towards income security, growth and security of tenure. “Historically there’s been a lot of capital growth in residential, but based on some of the recent government changes, people who are more capital-growth driven are going to be impacted.” This means that the more constant and annuity-style income growth areas are likely to draw investors in, he says, with the national freestanding investment market (including petrol stations, retail and medical standalone sites, childcare and fast-food) valued at $2.68 billion in the 2026 full year. Knight Frank predicted that the capital gains tax (CGT) changes—to be implemented from July 1, 2027—will significantly reshape investment flows between different property markets. ▲ Knight Frank chief economist Ben Burston: Residential less attractive. Knight Frank chief economist Ben Burston says the existing residential market has become just slightly less attractive to investors as a result. “But the implications for commercial are different and certainly not negative,” Burston says. And even a small number of investors allocating funds to CRE could cause considerable ripples in the comparatively modest commercial market. “It potentially provides a meaningful boost for some of the smaller sectors because the amount of stock in those markets is much less than what we’re used to seeing in the residential market,” Burston says. The appeal of commercial property Total investment returns across all of the major asset classes have been relatively similar during the past 30 years, averaging around 8 to 11 per cent, according to Knight Frank. But the CGT changes are refocusing investor priorities and calculations. Moreland says that commercial property provides a security of tenure, especially when linked to some tenant groups and industries. “Those that are viewed to be bulletproof, recession-proof or Covid-proof have stood the test of time through different property cycles and provide built-in rental growth,” Moreland says. Private investors looking to move away from the previously “safe” residential markets tend to be smaller, he says, generally investing in the $2 million to $4 million bracket. ▲ Quick service restaurant chains such GYG have proven a solid long-term bet. “But people will gradually gain more comfort with any sector or any investment, they will get used to collecting rent, and then they might come back again for something in the $6 million to $7 million range in the medium term.” Major areas of interest are childcare, large format retail and fast food—especially fast-growing chains such as ASX-listed Guzman y Gomez —offering long term lease security of as much as 20 years. “Couple that with the fact that a lot of the buildings are new or near new means there’s no real concern about capex over the short to medium term, that’s a lot of the attractiveness to those fast food outlets,” Moreland says. Capital Gains Tax changes Historic performance indicates that commercial property is likely to be taxed more lightly under the proposed inflation indexed CGT than under the existing 50 per cent discount, according to Knight Frank, while the opposite is true for residential property. Capital growth has been below 4.5 per cent in commercial property, while residential assets have exceeded 4.5 per cent per annum, so will be taxed at a higher rate under the new indexation method, it said. “The government wanted to make investment in established residential property a little bit less attractive, but the natural flow-on effect is then that investors in that market will then be looking at alternatives,” Burston says. The challenge is that commercial markets can require more specialist knowledge of issues like lease structures and supply dynamics. ▲ Stonebridge sold Newport’s Saltwater Preschool for $16 .01 million at a record 4.37 per cent yield. “For residential, people haven’t needed to put a lot of capital down in the first instance and it’s open as an investment strategy to a very broad pool of both mum-and-dads and more sophisticated private investors as well.” CRE can be harder to access, with smaller loan-to-value ratios and more initial capital to put down. “It requires more capital upfront and so that is a natural limit,” Burston says. “But there are likely to be family offices, private wealth and wealthier, older cohorts that will be more likely to be looking at commercial.” For a manager such as Charter Hall, the private investor class—which has tended to lean towards residential and only makes up 9 per cent of its $94 billion funding pool—is expected to grow. “It’s challenging for developers to bring stock forward at the moment because of high construction costs and the like. So over time, you’d expect to see more of that investor demand flowing into new build residential and commercial,” Burston says. “But that line of demarcation between commercial and residential investors is becoming blurred.”

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Clare Burnett
Tue 25 Aug 26

Looming Tax Shake-Up Drives Yield-Hunting Investors Towards Commercial

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