After months of speculation, the Reserve Bank of Australia has delivered a long-anticipated rate cut, lowering the official cash rate by 25 basis points to 4.1%.
With borrowing costs easing, confidence in the commercial property sector is beginning to build.
The question now is: Will this be the boost the sector has been waiting for?
New Growth Cycle Ahead
For the first time since 2020, the RBA has cut rates in response to cooling inflation, which dropped to 2.4% in the December quarter – comfortably within its target range.
The move aligns with broader global trends, as central banks ease monetary policy to stimulate economic growth and price stability.
Knight Frank’s Chief Economist, Ben Burston, said it was a pivotal moment for commercial property markets.
“The RBA’s decision signals a turning point for commercial property markets nationally, indicating that the devaluation cycle is ending and that we are turning the corner to a new growth cycle,” Mr Burston said.
“The move validates the shift in sentiment experienced in the second half of 2024 off the back of cuts from other central banks around the world and will help to restore confidence and liquidity throughout 2025.”
Who Stands to Gain First?
The rate reduction is expected to boost market confidence, positioning the Australian commercial market as an attractive growth opportunity for investors.
However, the pace of recovery will vary across sectors and locations.
According to Knight Frank’s Australian Horizon 2025 report, well-located core assets in Sydney will lead the charge, with industrial properties benefiting first, followed by prime CBD office spaces.
“Industrial assets have largely been resilient over the past two years due to strong rental growth,” Mr Burston said.
“Core CBD offices will be most sought after, reflecting the shifting pattern of tenant demand, while non-core CBD and suburban offices will take longer to recover.”
As the recovery progresses in Sydney, other cities are expected to follow suit.
“Brisbane will likely be next in line, benefitting from the strong economic growth of South East Queensland and lower supply levels compared to Melbourne,” he said.
Beyond the First Cut
While the cut provides immediate relief, the long-term direction of interest rates remains uncertain.
Financial markets are monitoring developments closely, with expectations of up to four more cuts by the end of 2025.
Mr Burston said that while the initial cut was encouraging, investors must focus on the broader economic landscape.
“Investors need to look beyond the timing of the first cut to the cash rate and instead tune into the evolving debate on the neutral interest rate and what it means for long-term interest rates, ensuring their strategy is adaptable to different scenarios,” he said.
Nick Materia, CEO of Ready Media Group, said the rate cut was a positive signal for the sector.
“The commercial property market has been waiting for this shift, and the next few years are likely to be dynamic as we move into a new growth phase,” Mr Materia said.
“The rate cut has been welcomed by agents and purchasers alike, and we are already seeing significant enquiry across the board.
“As confidence rebounds and liquidity starts flowing more freely, we are anticipating a steady rise in market activity.”
