The RBA Just Raised Rates Again. Here's What You Do Now.
- Team CapStack
- May 6
- 5 min read
The cash rate is now 4.35% - the third consecutive RBA hike in 2026, with more potentially on the way. For Australian commercial real estate investors and owners, the margin for inaction has closed. This is your playbook.
If you hold commercial real estate in Australia - a retail strip in Melbourne, a warehouse in the Western Sydney industrial corridor, a mixed-use site in the inner suburbs - yesterday's RBA decision was not a surprise. It was a warning. The question now is not whether rates are high. It's what you're doing about it.
The RBA's monetary policy board voted 8-1 to lift the official cash rate to 4.35% on 5 May 2026 - the third consecutive increase this year. The Middle East conflict is adding fuel to an already hot inflation picture, with headline CPI hitting 4.6% in the year to March. Westpac is forecasting two further hikes in June and August, which would push the cash rate to 4.85%. The CAMA RBA Shadow Board puts a 70% probability on rates needing to go higher still.
For commercial property owners and investors across Australia, this is not a background risk. It is a front-and-centre challenge to asset performance, refinancing capacity, and deal underwriting. Here is what the sharpest operators are doing right now.
Strategy 1: Audit Your Debt Stack - Today, Not at Maturity
The single most dangerous position in a rising rate environment is passive optimism - assuming your loan terms are fine until you're forced to look at them. Whether you're holding a fixed-rate facility approaching expiry or sitting on a variable loan that has repriced multiple times this year, a forensic review of your debt stack is non-negotiable.
Action Required
Map Every Loan Across Your Portfolio. For each facility across your portfolio, document: the current rate, the next repricing or maturity date, the LVR at current valuations (not 2023 valuations), and the interest coverage ratio at today's rate. For commercial, industrial, and mixed-use assets in Melbourne and Sydney, valuations have moved. Run your ICR at 4.35%, then rerun it at 4.85%. If either number is uncomfortable, you need to act before your lender does.
Development site owners face a compounded version of this pressure. Construction finance rates have moved materially, pre-sales thresholds are tighter, and feasibility metrics built on 2024 assumptions are broken. If your development approval is live but your construction finance hasn't been locked, close that gap immediately.
Strategy 2: Refinance Offensively - Not as a Last Resort
The window between "comfortable" and "distressed" in commercial real estate debt has compressed dramatically at a 4.35% cash rate. Owners who treat refinancing as something to manage at maturity are operating on peacetime logic in a wartime market.
Priority Move
Approach Non-Bank Lenders and Private Credit. The major banks are applying tighter serviceability overlays across commercial, retail, and industrial assets in 2026. Non-bank lenders and private credit funds are actively deploying capital into the gap - often at rates that, while headline higher, come with structuring flexibility, faster execution, and less restrictive covenants. For assets with near-term catalysts or value-add potential, this can be the more viable path.
Watch: LVR Compression. Rising cap rates across secondary commercial and retail assets are compressing valuations. If your loan was written at 65% LVR two years ago, it may be sitting at 72–75% LVR today on a current valuation. Know this number before your bank does.
Strategy 3: Industrial and Logistics Holders - Protect Your Position, Then Press It
Australian industrial and logistics assets - particularly in Sydney's outer west, Melbourne's southeast, and Brisbane's trade coast - remain among the most fundamentally supported asset classes in the country. Vacancy rates across prime logistics corridors are near structural lows, and rental growth continues to outpace every other major CRE sector.
Opportunity
Use Rental Growth to Reset Your Debt Metrics. If you hold well-leased industrial assets with rent reviews pending, execute those reviews aggressively. Strengthened passing income directly improves your debt serviceability narrative with lenders and, in a forced valuation scenario, supports cap rate compression against the market trend.
For investors looking to deploy capital, quality industrial assets with weighted average lease expiry (WALE) below three years are being priced by vendors who can no longer carry the debt - creating disciplined entry points for well-capitalised buyers.
"In a high-rate environment, rental income is the only metric that protects everything else. If your leases aren't working as hard as your debt, that's the first problem to fix." - CapStack
Strategy 4: Commercial and Retail Owners - Lease Structure Is Now a Financing Instrument
For owners of commercial office and retail assets across Melbourne's CBD fringe, Sydney's suburban office markets, and high street retail strips, the income story is everything in 2026. Vacancy - whether real or anticipated - triggers valuation haircuts, which triggers LVR breaches, which triggers conversations you don't want to have with your financier.
Defensive Strategy
Lock In Tenure, Even at a Cost
A below-market lease renewal that extends WALE by two to three years is worth more than the rental delta. It provides evidence of cash flow durability that supports your refinancing position, protects your valuation, and signals asset quality to potential co-investors or buyers. In the current environment, weighted average lease expiry has become a currency of its own.
Strategy 5: Mixed-Use and Development Sites: Syndicate or Hold Intelligently
The viability equation for mixed-use developments in Melbourne's inner and middle ring, and across Sydney's urban renewal corridors, has shifted materially at 4.35% cash rates. Construction cost escalation, tighter presales requirements, and compressed feasibility margins are testing even experienced developers.
Capital Strategy
Consider Equity Syndication to Right-Size Your Debt Exposure
Bringing in co-investors - whether institutional, wholesale, or through a structured syndicate - can reduce the loan-to-cost ratio on development projects to levels that are viable at today's debt costs. This is not a dilution of your position; it is a recapitalisation that may be the difference between a project that proceeds and one that stalls. Sophisticated equity partners with access to patient capital are actively looking for well-structured mixed-use deals in Australia's major metros.
For owners of development sites sitting on DA approvals without construction finance in place, consider whether a structured land sale or JV with a builder-developer could unlock value that a pure hold strategy cannot - particularly if the next rate decision goes the wrong way.
Strategy 6: Re-Underwrite Your Portfolio for a 4.85% World
The most valuable thing you can do this week is not call your broker. It is to sit down - with a spreadsheet - and model your entire portfolio at 4.85%. That is Westpac's central forecast for August 2026. If any asset in your portfolio is insolvent, illiquid, or materially impaired at that number, that is your first priority to resolve.
Scenario Planning
Build Three Scenarios: Base, Bear, Stress
Model cash rates across three scenarios: 4.35% (current), 4.85% (Westpac forecast), and 5.35% (stress case). For each scenario, stress-test your ICR, your LVR on current cap rates, and your ability to refinance at maturity. Assets that fail the stress case are candidates for disposal, syndication, or deleveraging now - before the market knows they need to move.
The commercial real estate investors who emerge from this rate cycle in the strongest position will not be those who waited for certainty. They will be those who moved with urgency while others were still processing the news.
Rates are restrictive. Inflation is above target. The RBA has left the door open to more hikes. And your debt is already repricing. The time to act is not at the next board meeting - it's now.
Ready to Review Your Capital Stack?
CapStack works with commercial real estate owners and investors across Melbourne, Sydney, and Australia's major markets to structure, optimise, and execute capital solutions in any rate environment.
General information only. This article does not constitute financial, investment, or legal advice. You should seek independent professional advice before making any investment or financing decision.
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