The 2026 Budget is poised to change everything for residential landlords. However, we aren’t expecting an overnight pivot to commercial.
I’ve been selling and leasing commercial property on Sydney’s city fringe for many years. In that time, I’ve watched countless residential investors eye off warehouses, retail strips and office suites, only to walk away muttering something about “too complicated” or “not for mum and dad investors.”
The 2026 Federal Budget just handed commercial property its biggest marketing opportunity in a generation. Still, I’m not expecting my phone to ring off the hook. Here’s why, and what we can do about it.
If you’ve been anywhere near a news feed lately, you’ll know the Albanese government proposed significant changes to how residential investment property is taxed. Here’s a quick rundown of changes should they pass into legislation.
Negative gearing restrictions
From 1 July 2027, negative gearing will be limited to new builds only. If you buy an established house or unit after budget night (12 May 2026), you can still claim rental losses, but only against other residential property income or future capital gains on that property. You can no longer use those losses to reduce the tax on your salary. Existing landlords are grandfathered. If you held the property before budget night, nothing changes for you on that asset.
Capital gains tax overhaul
The familiar 50% CGT discount is being replaced with an inflation-indexed discount, plus a new minimum 30% tax rate on capital gains from 1 July 2027. Investors in new builds can choose between the old 50% discount or the new indexed arrangement.
The government’s stated aim is to redirect investment towards new housing supply. Whether it achieves that is food for thought. However, what matters for our purposes is this: the tax advantages that made negatively geared residential property attractive for decades are being wound back. Our government wants us to view residential property more as shelter rather than an investment vehicle.
Logically, you’d expect more experienced investors to look at these changes and think, “Right, residential just got less attractive. What else is out there?”
Commercial property has always offered compelling yields, often two to three percentage points higher than residential. Tenants typically pay outgoings. Leases run for years, not months. And here’s the key issue: none of these budget changes affect commercial property. Negative gearing, the CGT discount, depreciation – all of it remains untouched for commercial assets.
However, given my experience, I believe the pivot won’t happen quickly. The single biggest barrier is perceived complexity.
Residential property feels familiar. Most Australians have rented a flat or bought a home. They can easily understand the Residential Tenancies Act even if they’ve never read it. They know what a property manager does. The process feels familiar.
Commercial property, by contrast, seems like a black box. Different legislation. Different lease structures. GST. Make-good clauses. Bank guarantees. Permitted use. The jargon alone is enough to send people running back to a two-bedroom unit in Marrickville.
Here’s the thing: it’s not actually that complicated. It’s just unfamiliar, and unfamiliarity breeds hesitation.
Let me walk you through the key steps and explain this the way I’d explain it to a client sitting across my desk.
This part isn’t too much different from residential. You’ll work with a commercial agent (like me), inspect properties, review contracts, and engage a solicitor or conveyancer. The due diligence is more intensive. You’ll want to understand:
Your solicitor will review the contract of sale and any existing lease documentation. If there’s a tenant, you’re buying the property subject to that lease, which means you inherit both the income and the obligations.
Commercial leases in NSW are governed by the Retail Leases Act 1994 if the premises are retail (under 1,000 square metres) or by common law for other commercial premises. Retail leases come with more tenant protections and disclosure requirements. Non-retail leases offer more flexibility but require careful drafting.
Key lease concepts you’ll encounter include:
Net lease vs gross lease: In a net lease, the tenant pays base rent plus a share of outgoings. In a gross lease, outgoings are included in the rent. Most commercial leases in Sydney are net.
Rent reviews: Leases specify how and when rent increases. Common mechanisms include fixed percentage increases, CPI adjustments, or market reviews.
Options: A tenant may have the right to extend the lease for additional terms. This affects your flexibility but also provides income security.
Make-good: At lease end, tenants are typically required to return the premises to a specified condition. This clause matters more than people realise.
Bank guarantee or security deposit: Tenants provide security, usually equivalent to three to six months’ rent plus outgoings plus GST.
Permitted use: The lease specifies what the tenant can do on the premises. The type of use should align with the zoning.
Commercial rent is subject to GST. If you’re registered for GST (which you will be if your turnover exceeds $75,000), you charge GST on the rent and remit it to the ATO. You can also claim GST credits on expenses.
When you buy a commercial property with a tenant, it may qualify as a “going concern” and be GST-free, provided certain conditions are met. You should discuss this with your accountant and solicitor to guide you through this.
Banks treat commercial property differently from residential. Expect:
The flipside is that strong tenants and long leases can make financing easier. A five-year lease to a listed company is a very different proposition from a month-to-month residential tenancy.
This is where a competent property manager earns their fee.
Commercial property management involves:
A good commercial property manager understands the lease inside out, maintains strong tenant relationships and protects your income. They’re not just collecting rent. They’re managing a contract.
Everything I’ve described above can be learned. It’s not harder than understanding residential property. It’s just different.
Investors who thrive in commercial real estate are the ones who treat it as a business, not a passive investment. They read their leases. They understand their tenants’ businesses. They budget for vacancies and capital expenditure. And critically, they surround themselves with good advisers: solicitors who specialise in commercial property, accountants who understand GST and depreciation, and property managers who know the market.
The 2026 Budget has created a genuine upheaval in the property market. For the first time in decades, the tax system is no longer tilted quite so heavily towards residential investment. Investors who can get past the unfamiliarity of commercial property will find genuine opportunity on Sydney’s city fringe, where yields remain strong, vacancy is manageable, and quality tenants are looking for well-located premises.
However, most investors won’t make the leap quickly. They’ll wait, research, hesitate, and watch. Some will eventually move. Many will stick with what they know.
If you’re ready to explore sooner rather than later, that’s where the opportunity lies.
As always, when considering an investment in property, you should take into account your financial circumstances and seek advice from your financial adviser before acting.
Let us help you with your Sydney city fringe commercial property
As dedicated local commercial real estate agents, we can help you extract more value from your commercial property. Please get in touch to discuss your circumstances and assets so we can give you personalised advice. Whether it’s commercial leasing, management or sales, we’re here to help you with your Sydney-based commercial property.
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