16 Dec 2025
After an extended period of economic stagnation, New Zealand enters the second half of this cycle with confidence still fragile, but with conditions beginning to shift.
In our recent discussion with Kiwibank Chief Economist Jarrod Kerr, the economy has underperformed expectations. Many businesses entered the year anticipating renewed momentum, only to find activity levels weaker than even last year’s recessionary environment. That outcome has weighed heavily on confidence and investment appetite.
However, as we look ahead to 2026, the macroeconomic settings that matter most for investors are now moving into more constructive territory, particularly for commercial property.
For much of the past year, monetary policy has failed to provide meaningful support to economic activity. While interest rates began to fall, early cuts were not sufficient to stimulate lending, investment or growth.
A cash rate around 3% represents neutrality - neither restrictive nor supportive. As Jarrod notes, this effectively placed the economy in “neutral”, removing the brake without pressing the accelerator.
With the cash rate recently reduced to 2.25% since we recorded this interview, and further cuts possible, interest rates are approaching levels that historically influence real investment behaviour. These are the settings that lower borrowing costs materially, improve feasibility, and unlock both business lending and property investment activity.
For commercial real estate, this shift is significant. Debt servicing costs ease, valuations stabilise, and capital begins to move from defensive positions toward productive assets.
Geopolitical risk remains a feature of the global environment. Trade tensions, tariffs and conflict all contribute to heightened uncertainty, but their direct impact on New Zealand’s economy has, to date, been relatively contained.
Exports to the United States remain resilient, supported by strong demand for New Zealand food and beverage products and a weaker New Zealand dollar. In the near term, these dynamics are supportive.
Longer term, concentration risk remains. With China, the United States and Australia accounting for a significant share of New Zealand’s trade, diversification is essential. Growing economic engagement with India and broader Asian markets is therefore a positive and necessary development.
For global investors, uncertainty elsewhere often reinforces the appeal of stable markets. New Zealand’s transparent regulatory environment, strong legal framework and political stability continue to underpin its attractiveness as a destination for long-term capital.
Policy settings and market conditions are increasingly signalling that New Zealand is open for business.
Institutional capital is re-entering the market, partnering with local managers and iwi, while private capital is flowing through revised investor visa settings. These capital flows tend to arrive early in the cycle — well before confidence fully returns.
As Jarrod observes, it is often during periods of economic weakness that investors with a long-term outlook begin to position themselves. Falling interest rates, improved yield differentials and a lower currency combine to make New Zealand commercial property comparatively attractive on a global basis.
Perhaps the most telling indicator of improving sentiment is activity at the institutional level.
Capital is being deployed. Lending activity is increasing. Investors are repositioning in anticipation of improved conditions. These decisions are rarely made in anticipation of short-term gains - they reflect confidence in long-term fundamentals.
While recovery will not be immediate, the foundations are forming. As interest rates continue to ease and confidence gradually returns, the conditions that support commercial property investment are becoming more firmly established.
As we approach 2026, the message is clear: markets turn before sentiment does, and this phase of the cycle matters.
Watch our full interview here:
