Commercial Property Investment Market Outlook for NZ in 2025

April 2025

The commercial property market in New Zealand is expected to regain momentum in 2025, with the projected total value of the commercial real estate market anticipated to surpass $400billion¹. Market commentators are forecasting a gradual recovery in 2025, with moderate price increases driven by easing interest rates, stabilising economic conditions, and improving business confidence.

Adam Copland, Director of Investment and Transactions at Mackersy Property, and Mick Pannett, Finance and Treasury Manager, outline some of the trends they are monitoring to guide their actions and decision-making over the next 12 months.

Adam Copland’s 15+ years in the commercial property investment industry have seen him experience the highs and the lows of multiple property cycles.

2024 was the toughest year for the commercial property market in two decades. High interest rates, challenging economic conditions, and a cost-of-living crisis led to higher vacancy rates and tenant defaults, resulting in significant declines in sales and leasing volume. We’ve also noticed a ‘scrap for the last dollar’ attitude very much apparent in the current market across all contractual discussions, whether it be market rent reviews or closing out project work we've been involved in.

The market is starting to look better for 2025 and beyond. We are seeing all the major banks actively re-entering the market, seeking new transactions and protecting their existing clients. This is resulting in significant debt funding savings, which will be passed through to investors in the portfolio. I’m confident that we’ll start to see investor returns stabilise again, demonstrating why, as painful as it can be at times, taking a long-term view in commercial property is key. We are working hard to secure new transactions with high-quality real estate, and we believe the timing in the market now is bang on.”

Key Trends and Drivers

Economic Growth: New Zealand's economy is showing positive signs, with improving economic fundamentals expected to support the commercial property market. The government's pro-growth policies, including fast-track consenting legislation and initiatives to attract foreign investment, are likely to bolster this trend².
Foreign Investment: There has been a surge in foreign investment in New Zealand's commercial real estate sector. This influx of capital is expected to continue, driven by recent changes to immigration laws that support overseas investment, the country's stable economic environment and attractive business opportunities¹.
Sustainability and Modernisation: There is a growing preference for modern and sustainable properties. Investors and tenants are increasingly seeking buildings that meet high environmental standards, driving demand for new developments and the refurbishment of existing properties¹.
Sector-Specific Growth: The industrial property sector, in particular, rallied in late 2024 – early 2025, indicating continued recovery and growth, with increased demand for prime stock and industrial land²^.

Several unresolved challenges remain in the market. The regulatory landscape, particularly in relation to earthquake-prone buildings, remains a challenge. New legislation aimed at balancing public safety with the costs to building owners is expected to have an impact as it comes into being².

While the outlook is generally positive, global uncertainties and market volatility could pose risks. Investors should stay informed about broader economic trends³.

The Debt Story

As of 19 February 2025, the Official Cash Rate (OCR) in New Zealand was 3.75%⁴. The Reserve Bank of New Zealand (RBNZ) has indicated plans to reduce the OCR further, potentially reaching a "neutral" OCR of around 3.00% by mid-2025⁵. This reduction aims to stimulate economic activity by making borrowing more affordable and encouraging spending.

Mackersy Property’s Finance and Treasury Manager, Mick Pannett has daily contact with lenders and directors, giving him a unique insight into the position investors find themselves in.

“The rollercoaster of OCR hikes and interest rates appears to be slowing in momentum, much to the relief of many of us in the industry. It’s a cautiously positive outlook now with banks willing to renegotiate their margins to lower levels to get things moving again, albeit with a level of caution after the unprecedented actions of the last 24 months.

Mackersy Property and our syndicates undertook a balance of interest rate hedging and remaining on variable rates to balance out the impact of rising rates and capitalise on reductions to the OCR. Investors should see some interest rate relief as the 2025/26 cashflows are reviewed. This relief takes into consideration the renegotiations we’ve managed with some of our larger lending partners on bank margins, as well as the relief from wholesale interest rates, which paints a more positive picture for the year ahead.

Considerations for Investors

The past 24 months have taught even the brightest economists lessons on predicting interest rates. While the environment was unique, fund managers and investors will now focus on managing interest rate sensitivity and debt, with the recent past still fresh in their minds.

Lower interest rates will provide relief and are positive for commercial property investors who have tranches of floating debt or fixed-rate loans coming off, while also increasing property values by reducing the cost of financing. They can also lead to potentially higher prices for prime assets, which will be good news for sellers as the market continues to correct⁵.

The outlook for interest rates and the OCR in New Zealand for 2025 suggests a favourable environment for borrowers, with expected reductions in borrowing costs. This can have a positive impact on both personal and business debt, providing opportunities for growth and astute investment. However, investors should remain vigilant and adopt strategies to manage potential risks associated with interest rate fluctuations

Conclusion

Overall, the outlook for commercial property investment in New Zealand in 2025 is optimistic.

With strong economic growth, increased foreign investment, and reducing interest rates, the market is poised for development, which is great news for investors who are poised to take advantage of the turning market while momentum builds.