Commercial property market set to improve after rates cut.
At its February 2025 monetary policy meeting, the Reserve Bank of Australia (RBA) cut the official cash rate, bringing interest rates down by 25 basis points to 4.10% and marking the end of one of the steepest rate hiking cycles on record.
This decision, the first rate cut since November 2020, was influenced by a notable decline in inflation and a desire to stimulate economic activity.
Soon after, many lenders, including the big four banks, passed the cut on to borrowers, lowering their interest rates too.
This monetary policy adjustment, and any more to come, will likely have implications for the commercial property sector and its stakeholders.
Impact on buyers
Reduced borrowing costs
A lower cash rate typically leads to decreased interest rates on loans, making borrowing more affordable. For commercial property buyers, this can translate to reduced mortgage repayments, improved cash flow and potentially increased attractiveness of property investments.
Increased investment activity
With borrowing potentially becoming more accessible, there is an expectation that commercial property transactions will increase in 2025. According to CBRE’s 2025 Pacific Market Outlook, this growth could be as high as 15%. Following the release of the December 2024 quarter inflation results – which saw annual underlying inflation fall to 3.2% – CBRE noted market sentiment had already improved in anticipation of rate cuts.
Impact on commercial property
The news of a rate cut will have varying impacts on the commercial property market, depending on location and sector.
In some cases, consumer-facing sectors could see a boost as Australians become more positive about the economy as a whole.
Retail
For instance, Australia’s retail sector is already facing record-low new supply, with the development pipeline for 2024 and 2025 representing only 21% of the 10-year average, according to JLL. On the demand side, a growing population and stabilising household incomes have led to growth in the sector.
Interest rate cuts typically encourage consumer sentiment, further fueling demand in the retail sector. Investors may be well-placed to take advantage of this as retail property values grow.
Industry and logistics
Similarly, industrial and logistic property is poised for growth. According to Anne Flaherty, senior economist at the REA Group, growth in the logistics sector has been driven by rising e-commerce. As a result, vacancy rates are likely to remain low, putting further upward pressure on prices. CBRE forecasts the industrial and logistics vacancy rate for 2025 to be 2.5%, one of the lowest globally.
Residential
Lower interest rates typically increase borrowing capacity, fueling demand for residential property purchases. However, with ongoing affordability challenges and tight rental markets, many Australians will remain renters.
As a result, the demand for well-located build-to-rent (BTR) developments and rental housing is expected to stay strong. According to CoreLogic, national rental vacancy rates remain at historic lows, hovering around 1.1%, with cities like Brisbane and Perth experiencing even tighter conditions.
For investors in sectors like student housing, co-living spaces and serviced apartments, a rate cut may improve asset performance by boosting occupancy rates and rental yields.
A rebound in international student arrivals and increased migration will further drive demand for well-located residential accommodation. According to CBRE, the volume of international students is still growing, despite caps on numbers. The firm estimates that the pool of unmet demand for purpose-built student accommodation is likely to persist despite these caps.
As a leading commercial buyer’s agency, Costi Cohen helps investors acquire premium properties in key markets nationwide. Contact us today to find out how we can support your investment goals on [email protected] or 02 8934 3414.
