As we settle into 2024, industry experts are sharing their insights on what the year may look like for businesses, industries and the economy. In this article, Scott McKenzie, CEO of PMG Funds, shares his outlook and PMG’s journey in navigating an evolving economic landscape.
We are into the early throes of a new year already, marked by a gentle whirr of economic activity and a sense of optimism for 2024.
As we started the 2023 year, we faced high inflation, steeply rising interest rates, a turbulent macroeconomic landscape and a wholesale repricing of commercial real estate (amongst many assets classes). The tail end of 2023 marked a turn towards optimism with expectations growing for a reduction in inflation and interest rates, a change to a perceivably more business-friendly government, positive net migration and house prices on the way up.
Today's macroeconomic environment is arguably the most uncertain since the era of stability between 1987 and 2007. Post the Global Financial Crisis and COVID-19 pandemic, we've entered a new norm marked by continued market volatility, escalating geopolitical challenges affecting global trade, and a rapidly changing climate.
The overarching theme this year is likely to be the realisation that we will experience the bottom (or close to the bottom) of valuations for most asset classes, including commercial property. A significant capital pool is waiting for market leadership cues, and whilst we continued to see transactions from strategic contrarian investors in 2023, this year will likely represent a unique opportunity for a growing number of investors to secure quality assets at good value.
Acknowledging we can only control the controllables, there is much to be optimistic about this year:
1. Dropping of interest rates:
Whilst central banks were late in instigating monetary tightening (late to the inflation party) and had to move interest rates up at an unprecedented rate, many economic commentators are now indicating we’ll see aggressive rate cutting later in 2024 (early 2025) as inflation subsides.
2. Decrease in term deposit rates:
Term deposit rates are expected to follow suit, with most banks having already started reducing their headline rates. Throughout the year, we expect to see a growing number of investors holding on to too much cash and as a result, seeking out higher-yielding investments and growth assets.
Commercial property well positioned for growth
2024 is expected to deliver a more positive year for NZ’s commercial property market as it continues to wind its way through the tail of the down leg (and begin the upturn) of the investment cycle. With generally low vacancy across Prime and A-grade commercial property, and steady rental growth projected for the coming year, commercial properties in the right location are well placed to endure throughout this cycle.
The performance of the commercial real estate market is directly influenced by the rate of GDP growth or decline (i.e. the health of the country’s economy). As has been repeatedly demonstrated historically, when interest rates move downwards to stimulate growth, we are reminded that the current commercial property landscape may change for the positive a lot sooner than many anticipate.
Given the ongoing global macroeconomic and geopolitical factors at play, PMG's strategic shift a decade ago to diversified property funds with multiple properties diversified by geography, sector and type, and conservative bank borrowings has proven to be the correct strategy.
In 2024, our team’s unwavering focus remains on driving strong portfolio performance to enable regular returns for investors. PMG and our Funds are well positioned to navigate through this year and to take advantage of the opportunity to invest and acquire quality commercial property, that would be otherwise difficult to secure, at good value.
By taking advantage of the unique attributes commercial real estate offers investors in 2024, investors have the opportunity to participate in PMG’s Funds which offer regular cash returns (in a tax efficient manner) and the opportunity for steady growth in value, in excess of inflation, over the longer term.
Disclaimer: The information in this blog is of a general nature and was current on 1 February 2024. 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. Please seek advice from a licenced financial advice provider before making any investment decisions.
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