Outlook for the residential vs commercial property market in WA

Western Australia’s property market is a landscape shaped by its unique economic cycles; booms driven by the mining industry and sharp corrections during downturns. As investors navigate this shifting landscape, choosing between residential and commercial property means understanding how each performs under pressure.

RSM has teamed up with Jarra, a seasoned commercial property developer and fund manager based in Balcatta, drawing on our combined expertise to assess the WA property market and explore how residential and commercial investments are holding up in 2025. 

Between us, we’ve seen firsthand how these markets respond to rate cycles, tax reform, and policy shifts - and how smart structuring can either cushion or compound risks. As regulatory changes and further interest rate cuts loom, we examine how these factors are impacting property strategies across WA and what investors should keep in mind moving forward.

Key highlights:

• WA residential market shows strong resilience due to tight supply and growing demand.
• Commercial sector performance is mixed, with standout strength in childcare and industrial assets.
• Upcoming policy and tax changes may significantly impact CGT treatment and investor strategy.
• Interest rate cuts are reshaping investor behaviour and lifting demand.
• Structuring and professional advice remain critical to maximising returns and managing risk.

Market resilience: Residential vs. commercial property

Both residential and commercial properties in WA show resilience, but in different ways and under different conditions.

Residential property has historically been a stable performer. WA’s residential property market is experiencing strong demand, particularly in Perth. We are seeing record-low vacancy rates driven by population growth, a resilient local economy, and a persistent supply-demand mismatch. This tight rental market has led to rising rents and increased competition for affordable housing. For investors, this means consistent occupancy and reliable income, key pillars of market resilience.

Commercial property is facing a more mixed outlook. Office and retail assets are under pressure. Remote work and shifting consumer habits have driven up vacancy rates, challenging traditional assumptions about these assets' reliability. But resilience hasn’t vanished – it’s just shifted.

One of the strongest-performing commercial sectors in recent years is childcare.

Despite recent rate hikes and a pullback from some institutional investors, yields in childcare property have held firm. That’s thanks to long lease terms, secure tenant profiles (often national operators), and consistent government support for early learning services. These fundamentals have made childcare centres a magnet for high-net-worth individuals seeking steady, income-generating assets. With demand for childcare on the rise and policy support remaining firm, institutional interest is expected to return.

More broadly, industrial property has also shown resilience, especially logistics and warehousing assets aligned with e-commerce growth. Here, too, long-term leases and strong tenant covenants have underpinned value.

Financial stability and cash flow

From a financial stability perspective, commercial assets often have the edge. Holding costs, such as council rates and maintenance, are typically passed on to tenants through net leases. Long-term leases with fixed or CPI-linked rent increases offer predictable income streams, while fewer break clauses and renewal options increase investor confidence. These structural advantages not only support cash flow but also improve financing prospects.

In contrast, residential investments involve higher turnover, shorter leases, and greater management intensity. Agent fees, frequent inspections, and additional costs like garden maintenance, pools, and appliance replacements can eat into returns. While occupancy may be high, the net yield can be lower once all costs are accounted for.

That said, residential assets offer lower barriers to entry, strong ongoing demand, and consistent occupancy. Commercial property offers greater income stability but also requires higher upfront investment and a higher tolerance for vacancy risk.

Ultimately, resilience depends on the strategy. For those seeking long-term income, such as retirees, commercial properties with secure tenants may offer better financial certainty. For investors looking for simplicity and strong demand fundamentals, residential still holds strong appeal.

When assessing risk, consider tenant quality, lease terms, location, property condition, and financing structure. The right investment is not just about returns but how reliably those returns can be sustained.

Key trends in WA’s residential property market

• Australia’s housing shortage is worsening.
• Construction costs are up.
• Median house prices in Perth up 41% since 2020.

Key trends in WA’s commercial property market

• Growing interest in alternative asset classes such as childcare and healthcare
• Investor focus shifting to asset lifecycle and capital efficiency
• Key drivers of perfoance include:
  • Lease terms (length, rent structure, review mechanisms)
  • Investment and capital structure
  • Property fundamentals (location, infrastructure, desirability)
  • Sector performance
  • Macro and market conditions

Will the recent federal election outcomes affect the property market?

Following the most recent federal election, the property sector remains firmly in focus. Commitments to build more housing and invest in infrastructure could benefit both residential and commercial markets. However, ongoing cost pressures and delivery delays mean many of these impacts will take time to materialise.

On the commercial side, continued support for early learning has strengthened demand for purpose-built childcare centres. The Federal Government has backed wage increases and quality improvements in this sector, which supports long-term tenancy and income security for investors.

On the residential side, initiatives such as Labor’s Help to Buy scheme aim to improve affordability and access. Shared equity programs like this could stimulate housing demand in key growth corridors, which may also benefit adjacent commercial sectors such as construction, retail, and logistics. Government support for first home buyers through the First Home Super Saver Scheme may also be expanded, potentially increasing demand from younger or lower-income buyers.

Zoning reforms and infrastructure investment will continue to shape where investors focus. Higher-density zoning can unlock new development potential and improve returns, particularly in urban infill areas. Major infrastructure projects, such as transport links, schools, and health facilities, not only lift the appeal of nearby residential areas but also boost demand for related commercial services. For example, increased population density often fuels the need for retail, medical, and childcare facilities, making those commercial assets more attractive to investors.

While no immediate tax changes have been introduced, the Federal Government has flagged a potential review of capital gains tax concessions and negative gearing. Any reform in these areas could significantly impact investor behaviour and structuring decisions. As always, policy signals are key: investors should stay alert to government priorities, as they often indicate future growth patterns and funding trends.

Capital gains tax and investment structuring

Capital gains tax (CGT) outcomes vary significantly depending on how a property is owned. Whether an asset is held individually, jointly, through a trust, within a company, or inside a self-managed superannuation fund (SMSF), each structure has different tax implications. With potential policy changes under discussion, choosing the right structure is more important than ever. The right structure can reduce tax, improve flexibility, and protect assets. The wrong one can increase liabilities and limit options.

It is important to take into account structuring advice from your accountant when considering any investment opportunities. 

Primary residence exemption

Individuals who buy and live in their property as a primary residence may be exempt from CGT entirely. However, this is provided the property is used solely as a home and has not been used to generate income, subject to the ‘6-year absence rule’.

For investment purposes, both residential and commercial properties may qualify for the CGT discount under Division 115 of the Income Tax Assessment Act 1997. Eligibility criteria are: 

The CGT discount (Section 115)

• Asset must be held for over 12 months
• Must be held under eligible structure
• Not available to companies
• Individual or trust structures benefit most
• Applies to both residential and commercial properties

Whereas individuals and trusts can generally discount a gain by 50%, this may be increased to 60% for residential property used as eligible ‘affordable housing’ 

Potential change: This discount is under review. If removed, investors could face significantly higher tax bills, especially those relying on long-term capital growth.

Small Business CGT Concessions (Section 152)

Additional CGT relief may be available through the Small Business CGT concessions under Division 152 of the same Act. These provisions can offer major tax benefits but are subject to strict eligibility criteria, including business use, asset size, and turnover limits. These are typically relevant for business owners rather than passive investors.

These rules are highly specific and require professional guidance to apply correctly.

SMSFs: Tax-efficient but under review

SMSFs, while offering a low tax environment, are also under increased scrutiny. SMSFs typically pay 15% on capital gains, and 0% when in pension phase, making them a popular vehicle for long-term investment. However, the introduction of Division 296 may alter their advantages.

Proposed reform: Assessing unrealised capital gains within SMSFs that exceed certain thresholds. This could result in tax being payable before assets are sold, potentially forcing funds to liquidate holdings to meet liabilities. This would directly impact members using SMSFs for long-term property investments, especially those relying on rental income or holding illiquid assets.

Investors considering SMSFs should seek specialist advice and understand the risks tied to these potential changes.

There is no one-size-fits-all approach to CGT planning. With reforms being considered and tax implications varying across structures, it is essential to seek professional advice before entering the market or restructuring an existing portfolio.

Final thoughts: What investors should watch

Our core advice is simple: get professional advice early. Tax rules, lending conditions, and market dynamics are always changing, and what works today may not hold tomorrow. Investors should stay flexible, take a long-term view, and avoid costly mistakes by planning ahead.

To stay agile, diversify your portfolio, monitor policy changes, and stay informed on interest rate trends. Focus on sectors with consistent demand, like childcare and healthcare, which tend to perform well across market cycles. Above all, ensure your investments are held in the right structure for effective income distribution, tax efficiency, and succession planning. Liquidity also matters. Make sure assets can be converted to cash when needed.

Sound advice and a well-considered structure can mean the difference between growth and missed opportunity. 

For more information:

If you would like to learn more about structuring your investments to maximise returns and manage risk, reach out to Keiran Sullivan or your nearest RSM adviser.

Note: past performance is not an indicator of future results.

As everyone's circumstances are different and this article doesn't take into account your personal situation, it is important that you consider the above in light of your financial situation, needs and objectives, and seek financial advice before implementing a strategy.

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