How interest rate cuts are fueling a commercial property resurgence

News & Insights
10.17.2025
News & Insights
How interest rate cuts are fueling a commercial property resurgence

The Australian commercial property market is showing signs of a strong recovery, and interest rate cuts are the main driver.

For investors, this shift is creating some new opportunities, and recent data shows one surprising standout: the retail sector, according to a recent report published by realcommercial.com.au.

The article states, that according to REA Group senior economist Anne Flaherty, commercial property sales are surging as investors look to specific pockets of the market in search of higher returns on investment and stable returns.

Ms Flaherty says with more rate cuts on the way, a broad range of assets from childcare centres, service stations, swimming pools, laundromats and retail assets are changing hands as buyers take advantage of population growth, the low unemployment rate and favourable tax settings offered in some states.

The article breaks down each state in 20204/25 stating, South Australia emerged as a standout performer by percentage growth, recording $3.5 billion in commercial property transactions and achieving a remarkable 16.9% increase in dollar volume, which still represented an 11.5% decline in transaction numbers.

Why is retail a surprising winner?

The retail sector has had a tough few years, but it’s making a big comeback and is a favourite with investors right now. Why?

  • Local shops are thriving: They have the essential services we need – like supermarkets, chemists, convenience and food retailers – so they are always busy.
  • The rise of “experience” retail: Physical shops are becoming more than just places to buy things. They’re turning into places to hang out, eat, and have experiences you can’t get online. This keeps people coming through the doors.

What’s the impact of lower rates? 

When the Reserve Bank of Australia cuts interest rates, it sends a powerful signal through the economy. For commercial property, the effects are immediate and far-reaching:

  • Increased investor confidence: Lower interest rates make borrowing cheaper, directly improving the feasibility of property acquisitions and developments. This boost encourages investors to return to the market.
  • Cap rate compression: Lower rates reduce the return investors demand on their assets making commercial real estate a more attractive investment compared to lower-yielding alternatives like bonds or cash. This compresses yields (or cap rates) and drives up property prices.
  • Enhanced borrowing capacity: With a reduction in borrowing costs, buyers can afford to borrow more money. This leads to more sales and higher competition for good properties.
  • Stimulated economic activity: Rate cuts are designed to boost consumer spending. A more confident consumer base and a healthier economy translate directly to stronger tenant performance and, ultimately, increase demand supporting occupancy and rental growth.

In short, falling interest rates are giving the commercial property market a boost. While many sectors will do well, retail is a clear winner as investors look for reliable assets that are a key part of our everyday lives. If you are considering getting into the commercial property market, or expanding your portfolio, speak to the specialists at Broadway Property.