The 2026 Federal Budget has been more notable than past years’, particularly for its shake up of the Australian tax regime. The two biggest changes have been the removal of elements of negative gearing and the capital gains tax discount, both of which have caused a stir amongst property owners and investors in Australia.
The changes may drive higher investment into the commercial property market. Since the Covid-19 pandemic, investors have steered away from investing in commercial properties as more people worked from home and retail businesses have adapted to the digital economy. However, the 2026 Budget’s commercial property carveout may incentivise more residential investors into the commercial space, including office leasing, retail leasing, industrial leasing and medical premises leasing.
What Properties are Eligible for Negative Gearing from 1 July 2027?
Most residential properties will be eligible to claim negative gearing deductions from 1 July 2027, subject to small carveouts for new residential builds that genuinely add to the economy’s housing supply. (For example, a traditional knock-down re-build will not be entitled to claim deductions, however, a knock-down replaced by a duplex may be eligible. The same applies to homes built on vacant blocks of land which are genuine additions to the housing supply.
Under the reforms, commercial, industrial, medical, large format retail, and office spaces are eligible for negative gearing benefits, making them an attractive option for incoming investors, commercial landlords, and those considering commercial leasing opportunities.
Residential vs Commercial Property Management – How Different Can it Be?
As we see a shift in investor behaviour from residential to commercial property management, many investors might assume their responsibilities, obligations, and outgoing costs will remain the same, which may lead to trouble. There are several key differences that commercial landlords and investors must understand in order to avoid any rude surprises when dealing with commercial leases and tenants.
Firstly, investors must consider the increased length of vacancies in commercial properties. Residential properties are typically leased within 1 to 2 weeks in high demand areas, whereas commercial properties may sit vacant for 3 to 6 months. This is important for financial planning, where the property will produce zero profit whilst continuing to incur expenses for the period of its vacancy. For commercial property owners seeking the right commercial tenant, this vacancy period can have a significant impact on cash flow and lease planning.
Secondly, holding costs are generally higher for commercial properties than residential. This takes form in the following expenses that aren’t associated with residential properties:
- Commercial and Industrial Property Tax (if you’re in Victoria);
- Insurance is generally more comprehensive and expensive;
- Capital repairs and maintenance costs can be more significant and cumbersome (eg working at heights);
- Incentives such as rent-free periods and fit-out contributions which landlords must offer the tenant in order to secure the lease are common in commercial property transactions.
These costs stack up quickly, and must be considered in financial planning especially when revenue may be delayed for months.
Thirdly, there is more risk involved in dealing with a commercial tenant experiencing financial difficulties than a residential tenant in arrears. Unlike a residential tenant, a commercial tenant may be entitled to certain protections under the Corporations Act 2001 that make it harder for a landlord to recover rent.
Further, the extent of due diligence required in investing in a commercial property is much higher than the level required for a residential property. Detailed enquiries are usually carried out in relation to planning, construction and lease terms.
How Prevalent are these Risks?
The risks are real, and can trip up a lot of commercial property owners. We often see commercial landlords stuck in suboptimal arrangements due to a deficient understanding of the commercial property landscape.
However, they are easily avoidable with the right guidance and expertise. It is particularly important for commercial landlords to obtain advice when negotiating lease incentives, fit out contributions (including ownership) and other commercial leasing arrangements. When implemented correctly, commercial properties can be a lucrative and low maintenance investment.
Nevett Ford Lawyers has an experienced team that manages and advises commercial investors and tenants on commercial acquisitions and leases every day, including commercial landlords, commercial tenants, retail leases, office leases, industrial leases, medical premises and large format retail spaces. With competitive pricing options, we can guide you through the commercial investment journey with ease. For more information, contact our office 24/7 on 03 9614 7111 or submit an enquiry here to talk with our dedicated commercial leasing experts.
We would like to acknowledge Julia Zajac for her assistance in the preparation of this article and her valuable contribution to its development.
