The commercial property market is set to benefit from a significant boost in private investment, as tax reforms drive activity away from the residential sector.

Following changes to the capital gains tax (CGT) and negative gearing announced in the 2026–27 federal budget, the commercial property industry is set to surge and become the new asset of choice for investors.

The government’s latest budget featured extensive tax reforms targeting residential property investors, including the abolition of negative gearing for established residences and changes to the CGT to take effect in July 2027.

Additionally, the budget added additional support to the commercial real estate industry, making the $20,000 instant asset write-off a permanent deduction available to small businesses.

Raine & Horne executive chairman Angus Raine said that despite the intent of the changes, they would do little to strengthen the residential property market.

He said while the reforms were designed to level the playing field for first home buyers, discouraging investment would lead to tighter vacancy rates and higher rents, making it more difficult for Australians to save.

Instead, Raine said he expected the majority of new investors to flood into commercial assets and would likely do so at the middle to lower end of the market.

“Commercial property is already a very cost-effective investment as the tenant, rather than the owner, normally pays many of the ongoing costs associated with the property,” he said.

Similarly, Knight Frank‘s chief economist and head of research and consulting, Ben Burston, said the tax changes would prompt more investors to shift their focus from residential to commercial properties.

He said that while interest in commercial assets had grown in recent years due to the high-interest-rate environment, the tax reforms would further incentivise investors to target the sector.

“They will translate into demand not only for standalone investments, but also for other ownership structures with less upfront capital required, including real estate investment trusts and syndicates,” Burston said.

Burston said that investors who favoured commercial assets did so for higher income returns rather than capital growth, and that CGT changes only enhanced their appeal.

“In addition to the yield advantage, commercial investments are also still eligible for negative gearing, although this tends to be less commonly used given the typically lower gearing levels compared to residential investments,” Burston said.

According to Raine, CGT changes were deeply unfair to property investors, many of whom are families looking to support themselves into retirement.

“They may have owned their rental property for several decades, and now they find themselves facing a sizeable tax bill when they sell the place – potentially on the cusp of retirement,” he said.

However, with the budget making no mention of CGT changes applying to self-managed super funds, Raine said it could create a real opportunity for new investors to enter the market.

“The budget reforms could increase the appeal of commercial property among self-managed super fund (SMSF) investors,” he said.

Burston said the reforms were just the first step for the government if they hoped to increase housing supply in the long run.

“The government and industry will need to closely monitor not only the aggregate supply levels but also these compositional impacts and be prepared to adjust policy further if the changes have adverse impacts on the rental availability and pricing,” Burston concluded.

This article was first published on Real Estate Business, a sister-brand of Property Buzz.