Six reasons commercial property offers investment safety in turbulent times

In periods of economic upheaval, investor sentiment often shifts away from risk and speculation towards assets that offer security, predictability and resilience.

While equities are often volatile, currencies fluctuate, and cryptocurrencies can experience sharp swings, commercial property is generally viewed as a more stable option for investors seeking reliable income and long-term value, despite its own set of risks.

Recent trends affirm this flight to stability.

According to KPMG’s June 2025 Commercial Property Market Update, Australia’s commercial property market has rebounded more decisively than many predicted. The retail and industrial sectors are now delivering positive total returns, while office markets, though still under pressure, are stabilising.

Notably, the KPMG Commercial Property Uncertainty Index has declined across all major sectors from late 2024 to early 2025, signalling a clear resurgence in confidence.

1. Tangible assets and predictable income streams

One of the most compelling reasons commercial property performs well in turbulent times is its tangibility. Unlike shares or digital assets, commercial property is a real, physical investment. Investors can visit it, lease it, improve it and derive income from it. That tangible connection to value matters more when intangible assets become volatile.

More importantly, commercial properties typically operate on long-term leases, often spanning three to ten years. These leases commonly include fixed annual rental increases or consumer price index (CPI) escalations, delivering stable and forecastable cash flows.

This kind of income consistency is highly prized when dividends are cut, cash returns dwindle and other investments lose reliability.

2. Inflation hedging and resilience to rate movements

Although inflation has eased in many advanced economies, it remains above central bank targets in regions such as the US and UK.

In Australia, inflation has only recently returned to the Reserve Bank’s 2-3 per cent target band, with underlying (trimmed mean) inflation sitting at 2.4 per cent as of May 2025.

This lingering price pressure continues to prompt investors to reassess how their portfolios respond to rising costs, particularly when traditional assets offer limited inflation protection.

Commercial real estate has historically served as a partial hedge, with long-term leases that either track the consumer price index (CPI) or include fixed annual increases. These structural features help rental income keep pace with inflation, preserving purchasing power over time.

While a 2023 global analysis reported a 0.38 correlation between commercial property returns and inflation, higher than most other asset classes, more recent market commentary continues to emphasise the inflation-aligned nature of commercial leases, especially in Australia’s logistics, retail and healthcare sectors.

Even amid interest rate hikes, well-located commercial properties with strong tenant covenants tend to remain resilient.

In many cases, rental growth has outpaced the cost of capital, particularly where underlying demand remains strong.

With inflation now moderating and rate cuts already underway, KPMG anticipates inflation in Australia will settle around 2.4 per cent in 2025, a trend that supports renewed investor confidence and strengthens the appeal of yield-focused commercial assets.

3. Yield premiums and flight to quality

Periods of uncertainty often sharpen investor focus on the yield differentials between commercial property and other asset classes.

In Australia, commercial property yields typically range from 5 per cent to 7 per cent, with some regional or specialised sectors exceeding 10 per cent. By contrast, residential property yields in capital cities are often between 2 per cent and 5 per cent, and term deposit rates struggle to beat inflation.

These reliable, higher yields attract not only private investors but also institutional capital in search of stable, long-term returns.

Uncertain environments amplify this trend, sparking a flight to quality, where assets with strong lease terms, low vacancy risk and essential service tenants are prioritised. Medical centres, logistics warehouses, essential service retail (supermarkets and pharmacies) and data centres have all benefited from this renewed focus.

4. Opportunity in distress and strategic repositioning

While uncertainty can deter some investors, it creates windows of opportunity for others.

Economic disruption often leads to distressed assets entering the market and those with the appetite for value-add strategies can unlock substantial upside through repositioning.

Following the pandemic, for example, investors who acquired distressed office buildings and converted them into medical suites or co-working spaces saw strong returns. Others focused on last-mile logistics or cold storage facilities, sectors that saw booming demand during and after the crisis.

In 2025, as some legacy assets continue to struggle, particularly older office stock, similar opportunities exist for adaptive reuse, redevelopment and refurbishment, particularly in fringe urban areas undergoing regeneration.

5. Diversification across asset classes and geographies

Commercial property is a diverse ecosystem.

Investors can access a broad spectrum of assets, from industrial sheds to childcare centres, retail strips, multi-use hospitality venues or suburban medical hubs. Each responds differently to market forces, offering avenues for sectoral diversification.

Geographic diversity is equally compelling. With population growth driven by migration and infrastructure corridors expanding into outer suburbs and regional cities, investors can capitalise on localised growth trends. For example, warehouse demand has surged in regional logistics hubs such as Geelong, Newcastle and Toowoomba, all benefiting from proximity to ports, roads and growing populations.

6. Tax advantages and depreciation deductions

Australia’s tax system provides additional support for commercial property investment through generous depreciation allowances.

Under Division 40 (Plant and equipment) and Division 43 (Capital works) of the Income Tax Assessment Act 1997, investors can claim deductions on building structures, fit outs and qualifying plant and equipment assets.

For example, a newly constructed commercial building can generate tens of thousands of dollars in depreciation deductions annually, reducing taxable income and boosting net returns.

In tighter economic conditions, when margins are under pressure, these tax advantages become even more valuable, helping investors to preserve cash flow and shield profits.

KPMG’s mid-2025 update offers robust support for the thesis that commercial property holds up in volatile conditions:

• income returns in the retail sector are now at their highest levels since 2016, with investor interest growing in mixed-use and experience-driven formats
• the industrial sector is delivering 3.3 per cent total returns and enjoying some of the lowest vacancy rates globally
• while still challenged by hybrid work trends, vacancy rates in the office sector are easing and rents are once again rising in prime markets.

KPMG’s proprietary Commercial Property Uncertainty Index declined across all major sectors between December 2024 and March 2025, another sign that investor sentiment is rebounding and volatility is receding.

This return of confidence supports the broader narrative that commercial property, while not immune to shocks, is increasingly viewed as a resilient and strategically valuable asset class in a shifting economic landscape.

These trends, coupled with macroeconomic tailwinds, including low unemployment rates stable at 4.1 percent so far 2025 and GDP growth of 1.3 per cent, reinforce the long-term strength of the asset class.

In a world grappling with shifting interest rates, inflationary uncertainty and geopolitical complexity, commercial real estate continues to deliver what investors crave most: stability, income and long-term value.

Whether through inflation-protected leases, global capital flows, distressed opportunities or tax-efficient structures, commercial property consistently proves its ability to absorb shocks and reward patience.

For investors looking to ride out uncertainty or even thrive in it, commercial real estate remains one of the most compelling strategies available.