2 Sep 2025
As reporting season draws to a close, this quarterly Market Update brings together insights from our latest fund reports, policy developments, and the broader market themes discussed at our Annual General Meetings (AGMs).
While global uncertainty continues to test confidence, signs of recovery are strengthening. Capital is re-engaging, sustainability and design are defining value, and well-positioned assets are leading the way. For investors, the lesson is to look beyond short-term volatility and focus on disciplined strategies that protect capital and deliver regular returns.
Policy and macro outlook
The Reserve Bank of New Zealand has cut the Official Cash Rate to a three-year low of 3.00%, with further reductions likely in the months ahead. While uncertainty is still holding back a full recovery, there are reasons for optimism. Mortgage rates are easing, consumer spending has proved resilient, and the Government retains fiscal levers that could support activity.
The recently introduced Investment Boost incentive, which provides an additional 20% tax deduction on eligible asset costs, also has the potential to underpin long-term value, particularly for new builds and sustainable infrastructure.
Market dynamics and investor behaviour
During COVID, many investors turned toward cash assets. Now, with the OCR and interest rates moving lower, smart capital is starting to flow back into higher-yielding opportunities such as commercial property. We’re seeing more competitive bidding, indicating that investors are positioning themselves to take advantage of an expected uplift.
Our listed peers are reinforcing this shift. Property for Industry Limited (PFI) recently announced a higher dividend and signalled that its trading discount has narrowed to around 5% – a sign of renewed confidence in income resilience. Chief Executive Simon Woodhams also noted he expects the gap between PFI’s share price and net asset value to close within the next 18 months, underlining improving sentiment toward the sector.
Encouragingly, capital is following this logic. Offshore investors are showing renewed interest in New Zealand as a stable, attractive destination, supported by initiatives such as the Active Investor Plus visa, which has already generated $1.6 billion in commitments this year.
Domestic capital pools are also expanding. KiwiSaver funds, now exceeding $130 billion, are allocating more to property and private markets, creating both valuation support and new partnership opportunities. With term deposit and bond yields falling, commercial real estate is once again being viewed as a bond proxy – a stable, inflation-hedged income generator.
Sustainability as value creation
Sustainability continues to shape both tenant demand and asset value. Buildings with strong credentials consistently command higher valuations and deliver lower operating costs, while those without a clear strategy risk tenant loss and value erosion.
The focus now extends well beyond energy efficiency. Carbon-neutral buildings, access to green financing, and intelligent, flexible workplaces are becoming fundamental to future-proof assets, protecting income streams and underpinning long-term value.
Technology and the workplace
We previously explored the increasing influence of technology on commercial property, and it remains a key theme shaping the sector throughout 2025 and into 2026.
Artificial Intelligence (AI) is enabling professionals to shift their focus to strategy, collaboration and client engagement by automating compliance-heavy, process-driven tasks. This shift is already visible in workplace design, with many new tenants allocating less space to general desks and more to collaborative, specialised and flexible areas. The outcome is not just efficiency but also a stronger focus on culture and connectivity.
However, while AI may lift productivity, it also reinforces the importance of human connection. Workplaces that enable collaboration, creativity and community will remain critical in attracting and retaining talent.
Outlook
Looking ahead to 2025/26, the signals suggest we have moved past the bottom of this property cycle, with large-format retail, industrial and childcare sectors already showing renewed strength. While the office sector has been disproportionately impacted by the structural shifts brought on by COVID, we’re confident in the sector, particularly as we’re already seeing a shift in demand for high-quality, well-located assets. With short-term rates and term-deposit yields expected to fall further, we anticipate more capital rotating away from cash and back into resilient, income-generating property.
Globally, uncertainty remains. In the US, expansionary fiscal policy, tariff pressure, lighter regulation, and business tax cuts are expected to lift momentum into late 2025. This sits against a highly stretched fiscal position, with debt-to-GDP around 130% and a deficit projected at $2.5 trillion. Bond markets are already beginning to price this reality, raising upside risks of inflation and longer-term interest rates. We therefore expect bouts of volatility in global markets for some time to come.
Beyond the US, the shift from globalisation to protectionism continues to create new trade frictions. While New Zealand is not immune, falling rates and rebuilding confidence should support stronger domestic growth through the second half of 2025 and into 2026.
Against this backdrop, scale, diversification and prudent fund management are critical. PMG’s funds have demonstrated resilience, underpinned by our focus on hands-on management, and a commitment to preserve capital and provide investors with regular returns.
Disclaimer: The information in this article is of a general nature and was current as at June 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. As with any investment, commercial property carries risks, including the risk of loss of capital. Past performance is not a guarantee of future results. PMG does not provide financial advice about whether 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. PMG’s secondary market matching service operates on a queue system, and there is a fee. The time it takes to move shares or units can vary depending on the number of sellers in the queue and the level of demand.
