As we move into 2025, we hold growing confidence in the outlook of the economic and commercial real estate landscapes which presents a mix of opportunities and, undoubtedly, some challenges. While global uncertainties persist, New Zealand is well positioned to capitalise on emerging trends.
Economic outlook
New Zealand’s monetary policy will play a pivotal role in shaping the economic year. The Official Cash Rate (OCR) is currently at 4.25 per cent, but leading economists expect it to drop to around 3.25% by December. This easing will lower short term interest rates, creating favourable borrowing conditions and supporting business confidence, investment and property value growth.
As term deposit rates reduce, investors are increasingly rebalancing their portfolios, moving away from cash into alternative yield and growth assets, including commercial property funds.
Globally, the US economy remains a wildcard. Donald Trump’s return to the presidency, coupled with Republican control of the Senate and House, introduces a mix of economic stimulus and uncertainty. Policies such as corporate tax cuts, looser regulations and global trade tariffs are anticipated to boost US economic growth in the second half of 2025.
However, US policies come with risks – they are likely to be inflationary and will do little to rein in a projected $2.5trillion budget deficit, at approximately 8% of GDP, with longer term borrowing costs likely to continue to rise as a result.
The shift from globalisation to protectionism continues to reshape trade dynamics. For New Zealand, this underscores the importance of diversification and resilience in international markets. Domestically, the economy is expected to regain momentum in the latter half of the year, buoyed by easing monetary policy and growth orientated government policy.
Commercial real estate
The commercial real estate market is considered at, or around, the bottom of its cycle, presenting a rare opportunity to invest at good value before the upswing. High inflation and interest rates have driven up construction costs while subdued consumer and business confidence have slowed the development of new buildings across most asset classes.
Although overall vacancies have increased, they have risen from record lows experienced during the pandemic, with prime space remaining in relatively short supply. As business confidence improves in 2025, demand for undersupplied, high quality existing properties will continue to grow, supporting rental income and property values. This positions commercial property funds for improved performance this year and beyond.
Value-add opportunities
The challenging economic environment during the past five years has placed financial pressure on poorly funded owners and passive landlords. Throughout 2025, active property and fund managers are poised to capitalise on the opportunity to acquire properties at good value and deliver value-add strategies such as renovations, retrofits or repurposing good properties with strong underlying fundamentals. These efforts aim to unlock higher rental income and drive long term growth in value.
Technology and innovation
Proactive landlords are increasingly leveraging technology tools to enhance building management. Real time data, actionable insights and improved building connectivity allows more efficient operations. This boosts both economic and environmental performance while also reducing costs for tenants.
Sustainability
Sustainability continues to be a defining trend in commercial real estate as the industry works to reduce carbon emissions. Tenant expectations for properties with improved environmental performance are growing. This makes features such as end-of-trip facilities, green and energy rating certifications, waste management programmes, energy efficient retrofits and renewable energy solutions increasingly prized.
Properties excelling in these areas are well positioned to remain competitive, attract (and retain) premium tenants and command higher rents.
With the market cycle shifting, it’s now an opportune time to take advantage of unique conditions which are unlikely to last. Growing demand and declining interest rates in the foreseeable future make commercial property funds offer exceptional opportunities to secure quality assets at attractive values.
Learn more at PMG’s Outlook 2025 event, February 27. Visit www.pmgfunds.co.nz/events for details.
Disclaimer: The information in this article is of a general nature and was current as at 28 January 2025. It is not intended to be regulated financial advice for the purpose of the Financial Markets Conduct Act 2013, and does not take your individual circumstances and financial situation into account. PMG does not provide financial advice on whether or not an investment in one of its funds is right for you. Please seek advice from a licensed financial advice.
