The Shift from Residential to Commercial: Scott O'Neill on Post-Budget Property Strategies

After months of post-budget commentary discussing changes and struggles with the residential property market, this week’s Follio Property Podcast examines where capital is actually flowing. Joined by commercial investment expert Scott O’Neill, the team discusses the dives and friction in Australia’s residential real estate market and why investors are pivoting towards commercial property investment.

Key Takeaways & Market Insights 

• The Residential Slowdown Caused by Tax Pressures: Ongoing tax pressures and negative market sentiment have broken residential investment equations as we know them, causing volume contractions across residential markets.
• The Power of Cash Flow: With tax perks scaling back, holding reliable income is more important than ever, even more than banking on future price growth.
• Sub-$1.5M Commercial Market Has Become Overcrowded with Buyers: A huge wave of first-time commercial buyers has rushed into the sub-$1.5 M price bracket; however, finding high-quality assets with stable tenants has become difficult.
• Investing Syndicates Are Providing a Lower-Barrier Commercial Entry Point: For investors who don’t have the large upfront deposit that a whole commercial building requires, syndicates are offering a way to get started in commercial investment.

Why Are Standard Housing Investments Stalling?

Standard housing investments in Australia are stalling as recent budget and tax changes take a heavy blow to the Australian residential property market. This has created an environment in which future growth now feels uncertain. According to Scott O’Neill, investors are no longer able to justify buying houses if there is no short-term growth, especially as mortgage costs and taxes continue to climb.

“What’s happening with resi (residential) is not good for us. We’ve seen about 80% drops in volume, revenue, whatever you want to call it. It’s definitely tougher out there because I guess the old equations don’t work anymore because you’ve got to account for more tax. It’s not even just about that. It’s also the negative sentiment, which is really weighing down on the future capital growth prospects. So if you’re not going to get growth over the next year or two, why would you buy? And that’s the thinking.” – Scott O’Neill – Commercial Investment Expert

 

The Advantages of Investing in Commercial Property in 2026

Unlike residential property, which relies on heavy capital growth and government tax concessions, commercial property is focused mostly on income from commercial tenants. Commercial returns traditionally sit higher than loan interest, meaning commercial property can cover itself without relying on subsidies.

“Commercial is quite different. I’m calling it a once in a generation shift towards commercial from ready to commercial. And that’s because yield is just more important than ever.” – Scott O’Neill – Commercial Investment Expert

While commercial property can come with risks of long-term vacancy periods when tenants leave, doing proper background checks and research, as well as keeping cash buffers, can manage the downside.

What Type of Commercial Property Should You Invest In? Retail vs. Office

When looking across the different types of commercial spaces throughout Australia, choosing the right sector is critical. Scott says not all commercial assets perform equally, and market conditions can vary dramatically across retail and office property,

“The best one (type of commercial property) right now is large format retail. That’s your Pet Barns, Bunnings, all that type of stuff. They’re not building enough of this stuff. Those businesses are still going well. A lot of online sales still, (and) the foot traffic’s there, profit margins are there as per the ASX reports. So the tenants are just taking up spaces. And as a result, investors are putting more money into that space. So we’re seeing a lot of growth in that.” — Scott O’Neill

The office sector, on the other hand, can’t be treated as a single class of assets, with market performance split depending on the type of office and location.

“You go to the flip side, which is the worst market in Australia, the secondary office. That’s like your 30-year-old tower in the CBD. They’re gone. No one’s going to rent them. Even if you drop the rent 50%, you still can’t get tenants in many of those cases. And there’s areas where you’re seeing 30% vacancy rates, with one in three buildings empty. That’s a scary thought. Pretty bad scenario.” – Scott O’Neill

Future Predictions & Market Outlooks

• Rental Growth Returns: The property market has moved away from artificial price spikes to a genuine rental growth cycle.
• Securing Long-Term Tenants Will Continue to Be Important: Success in commercial property relies entirely on verifying the long-term health and payment history of the business renting your space.
• Commercial Demand Will Remain Elevated: With a large wave of residential investors shifting their investment focus due to tax and budget changes, capital inflow into the commercial sector is projected to create tighter caps rates.
• Commercial Office Divergence Will Persist: Secondary CBD office buildings are forecast to be challenged with high levels of vacancy, while prime office assets with secure government leases are expected to hold strong.

Track Commercial Portfolios with Follio and PropStac

Evaluating commercial property opportunities requires consistent clarity over numbers. In order to help investors navigate the commercial market shifts, Follio has launched PropStac. PropStac is our comprehensive tracking platform covering every suburb in Australia, keeping you in the know on how your properties are performing.