Commercial Property Lending in November 2026: What Five Rate Hikes Mean for Investors

What Five Hikes Have Cost Commercial Borrowers

Commercial facilities are usually priced on an interest-only or partially amortising basis, so each RBA hike flows through close to dollar-for-dollar. On a $1,000,000 variable commercial facility, the November hike alone adds roughly $2,500 a year. Across all five 2026 hikes, from January's 3.60% to today's 4.85%, the cumulative cost is approximately $12,500 a year, identical in dollar terms to an interest-only residential investment loan of the same size, since the underlying maths is the same simple interest calculation.

Separately from the rate itself, the Australian 10-year bond yield sat at 5.12% in late October, with the 2-year at around 4.90%. That narrow spread to the cash rate tells lenders the market does not expect rapid cuts, which is feeding directly into how conservatively they are pricing longer commercial terms right now.

Business Confidence Has Hit a Five-Year Low

NAB's Monthly Business Survey for September 2026 showed confidence falling four points to -13, the third consecutive monthly decline and among the weakest 5% of readings in the survey's history. Business conditions turned negative for the first time since September 2020. NAB attributes the weakness to a "triple squeeze" of higher interest rates, global uncertainty, and elevated fuel and diesel costs.

Capacity utilisation, a measure of how stretched businesses are running their existing operations, eased only slightly to 82.3% in September, still around a percentage point above its long-run average. NAB's own economists note this has remained elevated for roughly four years despite conditions weakening through 2026, a sign that businesses are not yet retreating from investment decisions even as sentiment sours.

Lender Appetite Has Split Sharply by Sector

The headline cash rate is identical for every borrower. What is not identical is how lenders now treat different property types, and that gap has widened materially through 2026.

Industrial and logistics assets remain the standout. National industrial vacancy sits near 3.5%, and Western Sydney alone accounted for a record 78% of Sydney's industrial investment volume, around $5.8 billion, in the year to September. Prime Western Sydney yields have compressed to 5.00-5.75%, the tightest since early 2020.

Retail tells a more nuanced story than its reputation suggests. Shopping centre vacancy nationally sits near 4.4%, the lowest since 2018, and regional centres are even tighter at around 2.0%. CBRE reports neighbourhood centres, typically anchored by a supermarket, delivered sector-leading 10-year returns of 9.4% per annum. The key differentiator for lenders here is tenant covenant strength, a centre anchored by a major supermarket is treated very differently to one reliant on discretionary retail.

Office is the clear laggard. National office vacancy has reached 16.1%, a post-pandemic high.

Melbourne is the weakest major market at 19-20.5%, with negative net absorption recorded in the June quarter. Sydney has actually improved to 13.3-13.9% on the back of several consecutive quarters of positive net absorption, while Brisbane leads the country at 10.6%. Lenders are responding by differentiating sharply within the sector itself, not just between sectors, prime assets in strong locations are financeable; older secondary stock increasingly is not.

How Lenders Are Structuring Deals Right Now

Loan-to-value ratios have become the clearest expression of lender confidence by sector. Strong industrial assets can still secure up to 80% LVR from select lenders, while secondary office in a weak market can struggle to clear 55%.

Serviceability is being assessed more conservatively too. Market commentary now recommends stress-testing commercial deals at around 5.10%, a meaningful buffer above today's typical starting rate, and treating any rate relief before the second half of 2027 as upside rather than a base case to plan around. In practice that means lenders want to see rental income comfortably cover interest at a rate higher than what you will actually pay on day one.

Non-bank lenders are filling some of the gap the major banks leave on riskier sectors, typically at a rate premium of 0.5 to 1.5 percentage points over bank pricing, but with more flexibility on serviceability and loan structure for borrowers who do not fit standard bank criteria.

SMSF Commercial Lending Remains a Steady Channel

While new SMSF borrowing for residential property was banned from August 2026, commercial property LRBAs are completely unaffected and remain a popular structure, particularly for business owners buying their own premises. Rental income inside an SMSF is taxed at a concessional 15%, and capital gains on assets held longer than 12 months are taxed at an effective 10%, with no capital gains tax at all if the fund has moved into pension phase at the time of sale.

SMSF commercial LRBA terms typically run 15 to 25 years with maximum LVR of 65-70%, and rent must be paid on arm's length, market terms even when the tenant is a related business. This remains one of the few corners of the lending market where sentiment has barely shifted through the rate cycle.

What Investors Should Do Now

• Stress-test at 5.10%, not today's rate. Make sure the deal still works with a meaningful buffer above current pricing, not just the headline rate you have been quoted.
• Favour tenant covenant over property type alone. A well-let secondary asset can out-finance a vacant prime one, lenders are pricing the income, not just the address.
• Be selective on office. Prime, well-located assets remain financeable; ageing secondary stock in weak markets like Melbourne is increasingly difficult regardless of price.
• Consider non-bank lenders for harder-to-finance deals. The rate premium can be worth it for the flexibility, especially on transitional assets or unconventional security.
• Review SMSF commercial structures if you own your business premises. The tax treatment remains attractive and the lending channel has not tightened the way residential SMSF lending has.