Commercial Property Market 2025 — Australia

1) Sector snapshot: what matters to lenders

This page is not investment advice. It’s a lender “credit lens” view of the commercial property market: how changes in vacancy, incentives, cap rates and tenant demand flow into valuation, LVR, DSCR and loan conditions.

Quick next step: run a conservative scenario in the Commercial Property Calculator, then get a lender-fit view from a Commercial Mortgage Broker (or use the Business Loan Eligibility Check to triage your starting point).

What changed after the stop–start 2024?

The big story isn’t a single number — it’s uncertainty in assumptions. When markets are calm, lenders are comfortable with “standard” valuation inputs. When markets feel choppier, the same asset can be valued (and funded) very differently depending on how a valuer treats incentives, vacancy timeframes and required returns. That’s why borrowers are seeing more situations where purchase price and valuation diverge, or where credit asks for more documentation and buffers than expected.

Across sectors, “flight-to-quality” is showing up in different ways: industrial tenants want functionality and access; office tenants gravitate to amenity-rich, efficient space; and retail outcomes can split sharply based on tenant mix and catchment strength. This is exactly the type of environment where modelling downside DSCR (not just best-case rent) becomes the difference between a clean approval and a late surprise.

If you want the full mechanics of commercial lending (DSCR, covenants, valuation process, timelines), read the Commercial Property Finance Guide.

2) Industrial & logistics: still preferred, but lenders are underwriting the next leasing event

Industrial remains one of the most financeable sectors because many assets are functional and broadly re-lettable. But lenders now focus less on the “headline rent” and more on the next leasing event: what happens if the tenant leaves, what incentives might be required, and how long a vacancy could last.

How lenders think about industrial risk

Industrial underwriting is often “simple” compared to office — but it’s still rigorous. Credit wants to see that the asset is standard enough to sell (liquidity), and that the cashflow is likely to stay stable (income durability). Where industrial gets harder is when the property becomes specialised, the tenant is weaker, or the local market is thin. In those cases, lenders may reduce acceptable LVR, increase the DSCR buffer, or add conditions.

• Credit positives: deep occupier demand in many corridors, standard leases, and strong comparable evidence for valuation.
• Credit frictions: short WALE, specialised improvements (cold store, heavy power), thin regional markets, or anything that shrinks the buyer/tenant pool.
• What wins approvals: clean lease documents, realistic market evidence, and DSCR buffers under a stressed rate.

Borrower checklist (industrial)

Bring (1) executed lease + rent schedule + outgoings, (2) tenant background and expiry profile, (3) a downside DSCR run (rent -10% and a vacancy period) in the commercial loan calculator. If the downside DSCR is tight, that’s a signal to adjust deposit, structure, or lender tier before you lodge.

3) Office: WALE, incentives, and “obsolescence risk” drive credit outcomes

Office lending is typically “two-speed”. Prime, well-located, amenity-rich assets with credible tenants can still attract strong funding. Secondary assets are where assumptions (incentives, vacancy duration, capex) become conservative and leverage tightens.

From a lender’s perspective, office is less about today’s rent and more about the cost of keeping the building leased. That includes incentives, make-good, fit-out costs, and the risk that a vacancy lasts longer than expected. When those costs rise, valuers tend to be more cautious — which flows into LVR and covenant risk.

• WALE + expiry cliff: lenders care about the next 12–24 months, not just the average.
• Effective income: incentives and fit-out contributions reduce effective rent; valuers and lenders price that risk in.
• Capex: if the building needs upgrades to compete, expect tougher leverage unless the capex plan is funded and credible.

Borrower move: assume valuation variance and design the loan so you still feel comfortable if the lender re-tests at review. If you need the plain-English rules, start with the finance guide, then talk to a Commercial Mortgage Broker about lender appetite for your specific asset grade.

4) Retail: financeability is a tenant-mix story (and a re-letting story)

Retail isn’t “unfinanceable” — it’s selectively underwritten. Lenders want durable income, a strong catchment, and a credible plan if a key tenant leaves.

The cleanest retail submissions focus on the basics: who pays the rent, how predictable the income is, and how re-lettable the space is if something changes. Retail can also be slower at valuation if leases are complex (turnover rent, unusual outgoings clauses, disputed make-good), so clean documentation matters.

• What lenders like: essential services / convenience exposure, strong catchment fundamentals, and diverse, stable tenancy.
• What tightens credit: weak tenant concentration, short leases without realistic re-letting options, or high vacancy/value-add plans without buffers.
• What to prepare: executed leases + evidence of rent payment + clarity on outgoings and any rent-free/incentives.

If the deal is borderline, it’s usually faster to identify the real constraint (valuation vs DSCR vs lease risk) by modelling the downside and then comparing lender policy. That’s the practical value of a commercial property broker.

5) Capital & lending: how “market mood” becomes policy

Beyond interest rates, lenders adjust assumptions. In uncertain conditions, valuers may be more conservative on market rent, vacancy, incentives and cap rates. That can reduce valuation and lift your effective LVR. Lenders also stress DSCR (often at a higher assessment rate) and may haircut income — which is why buffers matter.

Why two lenders can give two different answers

In commercial lending, “yes/no” is often driven by policy details: acceptable LVR by asset type, how the lender treats WALE and tenant risk, and how they stress serviceability. Major banks, second tiers and specialist lenders can all play — but the best fit depends on your asset and story. A lender-fit approach reduces rework, valuation surprises and “we need more documents” delays.

For a smoother process, treat your application like a “deal room”: up-to-date financials, clear entity structure, the full lease pack, and a simple one-page summary of the asset, tenants and use of funds. When lenders can see the story quickly, they rely less on conservative assumptions and more on evidence. If you need a checklist and timelines, the finance guide breaks it down step-by-step.

Practical rule: build the deal you can live with if the valuation is 5–10% lower and the lender re-tests DSCR at review. If you want help selecting the right lender tier and structure up front, speak with a Commercial Mortgage Broker Australia.

6) What lenders are sensitive to right now

These are the common “deal friction” points that trigger tighter LVR, higher pricing, more conditions, or a decline.

If you’re unsure where you sit (full-doc vs lease-doc, entity complexity, security type), do a fast triage first: Business Loan Eligibility Check. It’s a quick way to avoid wasting time on the wrong lender path.

7) How market conditions flow into approvals, covenants and pricing

8) Borrower playbook: de-risk your deal before you apply

Most commercial “problems” are predictable. The goal is to surface them early (valuation risk, lease risk, DSCR risk), then structure around them. These steps cover the majority of avoidable delays and declines.

1. Model conservative numbers: DSCR under a stressed rate and a realistic NOI (not perfect occupancy forever).
2. Get the lease evidence right: executed lease, rent schedule, outgoings, options, rent reviews, and incentives.
3. Plan for valuation variance: decide now what you’ll do if the valuation is 5–10% lower.
4. Choose a structure that survives review: avoid “max leverage” if it leaves zero covenant buffer.
5. Use proof to sanity-check complexity: see lender logic in our SMSF case study.

If you want a lender-fit view on your specific asset and lease profile, speak with a Commercial Mortgage Broker.

9) Tools & next steps

General information only — always confirm legal and tax details with qualified professionals.

FAQs