Rates on hold again as the RBA continues to exercise caution

The Reserve Bank of Australia has decided to keep interest rates on hold at its meeting today, dashing hopes of an early Christmas present for mortgage holders.

In a widely anticipated decision, the RBA has once again cited persistently high inflation as the reason for the pause. While acknowledging inflation has fallen substantially since it peaked at 7.8 percent in December 2022, the board said in a statement that there was still work to be done.

“Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,” the RBA board said in a statement. “Measures of underlying inflation are around 3.5 percent, which is still some way from the 2.5 percent midpoint of the inflation target.

“The most recent forecasts published in the November Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026.”

In further signals that a rate cut is still some way off, the board noted that the economic outlook remained ‘uncertain’ both in Australia and overseas, where some central banks have made cuts to their cash rates in recent months.

“There remains a high level of uncertainty about the outlook abroad. Most central banks have eased monetary policy as they become more confident that inflation is moving sustainably back towards their respective targets,” the board said.

“They note, however, that they are removing only some restrictiveness and remain alert to risks in both directions, namely weaker labour markets and stronger inflation. “Geopolitical uncertainties remain pronounced.”

CoreLogic research director Tim Lawless said the RBA board’s decision to stick to its ‘steady as she goes’ approach was finely balanced.

“Tight labour market conditions, juxtaposed with a combination of low productivity growth, weak economic conditions and high inflation demonstrates the ‘narrow path’ the RBA is traversing, keeping rates high while avoiding a recession or blow out in the unemployment rate,” Mr Lawless said.

“So far, the RBA has held to this path; the economy has staved off a recession, albeit largely due to population growth and government spending.

“Similarly, households are battling through a seven-quarter ‘per capita’ recession that has been compounded by a period of negative real income growth and a depletion of savings, yet we haven’t seen mortgage arrears rise beyond 2 percent.”

He noted that, despite the lack of movement in the cash rate, home values were up 5.5 percent over the past year, although there was now evidence the heat was coming out of the market.

“Home purchasing is winding down, total listing numbers rising, the clearance rate is falling and homes are taking longer to sell,” he said. “Affordability may increasingly see buyers drop out of the market amid high interest rate settings.”

Based on the data, he said it was still likely mortgage holders could see a rate drop in the first half of 2025. The RBA board will meet again in February.

Falling interest rates are sparking a rebound in interest in commercial property. However, for many first-time investors, commercial property can feel very intimidating. With commercial property, there are typically numerous different numbers, complex leases, and unfamiliar terminology.

But once you understand what to look for, the pathway into commercial becomes much clearer and far more achievable than most people realise. So, what does a smart entry point into commercial property actually look like?

If there’s one standout option, it’s typically an industrial property with value-add potential.

Why industrial is the right place to start

Among all the commercial sectors, industrial is currently the most stable and accessible. Demand is being driven by the trades, small manufacturers, logistics operators and e-commerce businesses, many of which are growing rapidly and need practical space to operate from.

Unlike retail and office properties, industrial assets are typically simpler to understand. They’re often lower maintenance, easier to lease and more resilient to changes in the economy. This makes them well-suited to first-time investors who want to enter the market with confidence.

The importance of value-add potential

When looking at entry-level opportunities, many investors make the mistake of prioritising presentation. But it’s generally not the flashiest property that delivers the best returns. It’s the one where you can create the most upside.

That might mean buying a property where the current rent is well below market value. When the lease ends, you have the opportunity to negotiate a new lease at a higher rate, instantly increasing the property’s value.

In other cases, it may be a warehouse with a short-term lease in a high-demand area, providing you the opportunity to renegotiate the terms and secure a better return. Even basic improvements like repainting, improving access, or updating signage can make a big difference to tenant demand.

Don’t chase yield for the sake of it

A common trap for first-time commercial buyers is chasing the highest yield on offer. While yield is an important consideration, it shouldn’t be the only one. A high yield can sometimes signal a risky investment, one with a poor location, limited tenant demand, or low capital growth prospects.

Instead, smart investors focus on balance. A net yield of six to seven per cent in a strong, established area with reliable tenants and good fundamentals is often a far better outcome than a nine per cent yield in a declining market.

Yield is only part of the story. A good commercial investment is one where the income is sustainable, the asset has growth potential, and the risk is well-managed.

The risks of starting with retail or office

Retail and office properties can be suitable for experienced investors, but they’re often more complex and carry higher risk, especially for those just starting out. Retail in particular has faced significant changes in recent years, with e-commerce altering the way consumers shop.

Unless the property is in a high-traffic, local strip with essential services like medical, food or personal care, vacancy risk can be high. Office space is still adapting to the post-COVID shift towards remote work, and in many cases, demand has softened. If you’re entering the commercial market for the first time, it’s better to stick to simple, functional industrial assets in proven locations.

Where to look, and why

For first-time investors, some of the best opportunities can be found in outer-metro industrial precincts or larger regional centres.

Suburbs in places like Geelong, Logan, Toowoomba or Altona North offer a compelling combination of affordability, strong tenant demand and relatively low vacancy risk.

These areas often have diverse local economies that don’t rely on a single industry and offer entry points between $600,000 and $1 million, a sweet spot where competition from institutional investors is limited and owner-occupiers are still active.

What a good entry deal looks like

Imagine purchasing an industrial shed for $750,000 with a tenant in place and a current net yield of 6.5 per cent. The lease has about 18 months left, and you know the current rent is around $10,000 below market.

Once the lease expires, you can renegotiate or re-lease at the correct rate, increasing the income and, by extension, the value of the asset.

That’s a textbook example of a good commercial entry point. The property is tenanted, it generates income from day one, and it has a clear path to growing your equity within 12 to 24 months.

Abdullah Nouh is the founder of Mecca Property Group, a boutique buyer’s agency in Melbourne helping Australians build wealth through strategic property investment.