The commercial real estate (CRE) market in 2025 offers a landscape filled with both challenges and opportunities. As we navigate a market near the bottom of its cycle, evolving trends such as declining interest rates, sustainability, and technological advancements are opening the door for investors to secure quality assets at attractive values. Below, we explore the key themes shaping the CRE sector this year.
1. Investing at the bottom of the cycle
The commercial real estate market is currently considered at or around the bottom of its cycle, offering a unique window of opportunity to invest at good value before the next upswing. High inflation and elevated interest rates have driven up construction costs, while dampened consumer and business confidence has slowed the development of new buildings across most asset classes.
Although overall vacancy rates have risen slightly, they have done so from record lows reached in the wake of the Covid-19 pandemic (2020). Prime properties—high-quality, sought-after spaces—remain in limited supply. As business confidence rebounds in 2025, the demand for these premium, undersupplied assets are expected to grow, driving rental income and property values upward. This trend positions commercial property funds for stronger performance in 2025 and beyond.
2. Unlocking value-add opportunities
The challenging economic conditions over the past five years have intensified financial pressures on underfunded property owners and passive landlords. In 2025, proactive property and fund managers are well-positioned to seize opportunities to buy properties at good value. By implementing value-add strategies such as renovations, retrofits, or repurposing properties with strong underlying fundamentals, they can unlock higher rental income and drive long-term capital growth. These targeted approaches enhance asset performance and position portfolios for success in a recovering market.
3. Leveraging technology for smarter property management
Proactive landlords are increasingly adopting advanced technology to optimise building management. Real-time data, actionable insights, and enhanced connectivity enable more efficient operations, improving both economic and environmental performance while reducing costs for tenants.
Landlords who adapt to tenants’ evolving needs are better positioned to maintain income stability. As businesses encourage employees to return to the office, tenants are prioritising high-quality, appealing spaces. By collaborating with tenants to create attractive and functional workplaces, landlords can support community building and foster collaboration—key dynamics that virtual environments cannot replicate.
4. Capitalising on high-growth sectors
As the economy rebounds, demand for warehouses dedicated to storage, distribution, and manufacturing is expected to rise. Well-located, high-stud warehouses equipped for automation, drive-around access, and sustainable features are likely to experience strong growth.
In the office sector, rising occupancy costs are prompting tenants, including large multinational and national companies, to prioritise space efficiency and flexibility. Quality co-working spaces and flexible lease terms are increasingly favoured by forward-thinking landlords, addressing these shifting needs.
Large-format retail (LFR) remains an attractive and underdeveloped sector. New Zealand has one of the lowest levels of retail floor area per capita globally. With consumer confidence improving and a limited supply of new LFR developments, both occupancy rates and rental values are poised for growth.
Additionally, the rise of artificial intelligence and the growing demand for data centres are creating new investment opportunities. Changing demographics, including an aging population and challenges within the healthcare system, are driving the need for multidisciplinary healthcare hubs. Rapid advancements in technology are also opening doors for specialised life sciences precincts, offering significant potential for early adopters.
5. Driving value through 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, making features such as end-of-trip facilities, green and energy rating certifications, waste management programmes, energy-efficient retrofits, and renewable energy solutions increasingly essential. Properties excelling in these areas are well-positioned to remain competitive, attract (and retain) premium tenants, and command higher rents.
As the market cycle shifts, commercial real estate presents a rare opportunity to capitalise on current market conditions that are unlikely to persist. Declining interest rates, growing demand, and trends in technological innovation and sustainability provide a strong foundation for growth in 2025 and beyond. For investors, this moment represents a chance to secure high-quality assets at attractive values, leveraging the unique dynamics of the current market. By acting decisively and aligning with these key trends, investors can position themselves for long-term success in an ever-evolving landscape.
Disclaimer: The information in this article is of a general nature and was current as at 29 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 provider before making any investment decisions.
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