The RBA’s decision to cut the official cash rate by 25 basis points, from 4.35% to 4.1%, today signals a turning point for commercial property markets nationally, according to Knight Frank’s Chief Economist Ben Burston.

The decision today was widely speculated, following lower than expected inflation in Q4 last year.

Headline inflation increased by just 0.2% over Q4 2024, resulting in annual headline inflation dropping to 2.4% over in the December quarter, down from 2.8% in the September quarter.

The headline inflation rate is now comfortably within the RBA’s target band, which led to the decision to drop the official interest rate today for the first time since October 2020. The cash rate has sat at 4.35% since November 2023.

Knight Frank’s Chief Economist Ben Burston said: “The RBA’s decision signals a turning point for commercial property markets nationally, indicating that the devaluation cycle is ending and that we are turning the corner to a new growth cycle.

“After an extended tightening cycle, the move validates the shift in sentiment experienced in the second half of 2024 off the back of cuts from other central banks around the world and will help to restore confidence and liquidity throughout 2025.

“Past cycles have shown that the market responds positively to a shift in the stance of monetary policy, and investors will increasingly come to the view that the Australian market now represents good value with strong prospects for cyclical recovery and long-term growth, although the pace of recovery will differ for different locations and sectors.”

Knight Frank’s Australian Horizon 2025 report launched at the end of last year predicted that the Australian property market was set to turn the corner to growth this year, with a recovery predicted to begin in mid-2025.

As the market returns to growth well-located core assets in Sydney are expected to lead the way, with industrial first, followed by prime CBD offices.

The Knight Frank report found the strength of the cyclical market recovery will be guided by the extent of interest rate cuts once the RBA shifts stance to start easing policy.

With the widespread belief that the inflationary challenge has now largely been tamed and the RBA should cut rates to help boost economic growth, markets are now pricing in the expectation of three to four rate cuts by the end of the year.

Mr Burston said: “Investors need to look beyond the timing of the first cut to the cash rate and instead tune into the evolving debate on the neutral interest rate and what it means for long-term interest rates, ensuring their strategy is adaptable to different scenarios.”