The best time to invest in commercial property

As interest rates continue to fall, inflation cools, and global conditions shift, many investors are asking the same question: what next?

While uncertainty persists — particularly following recent tariff tensions — New Zealand is showing early signs of recovery. The Official Cash Rate has dropped by 225 basis points to 3.25% since August 2024 and is expected to fall further by year-end, while income-generating assets like commercial property are gaining momentum.

PMG General Manager Investor Relationships, Matt McHardy shares his thoughts on current market conditions, and why investors shouldn’t let short-term uncertainty cloud long-term opportunity.

“There’s no question this is a tricky spot in the cycle,” says McHardy. “Interest rates have been volatile, inflation has dominated headlines, and global markets have been hard to read. But in New Zealand, we’re starting to see real signs of recovery.”

He’s not alone in that view. A growing number of economists and institutional investors are pointing to a consistent, albeit gradual, upturn. ¹

Signs of recovery

“This upturn is becoming evident at PMG, where we’ve seen an average 2.4% increase in property valuations across our portfolio over the last 12 months. It’s not a dramatic bounce-back, and that’s a good thing,” says McHardy.

“A slow, steady recovery is often where the best opportunities sit. It’s less about hype, and more about fundamentals.”

When it comes to fundamentals, long-term resilience is key. Commercial property continues to demonstrate this, with long lease terms, rental growth and strong tenant retention help support stable cashflow even in uncertain conditions.

“Commercial property funds have the unique advantage of diversification, which makes them less vulnerable to geographic or topographic risks, as well as tenant industry and property type risks,” says McHardy.

Why unlisted funds?

For investors looking to diversify, unlisted commercial property funds like PMG offer several advantages over direct ownership or listed property stocks. They provide access to institutional-grade assets, professional management, and the ability to invest at scale, without the administrative burden or exposure to daily market movements. This means that investors can potentially achieve a return profile that performs like the underlying assets it owns, which in commercial real estate should mean income and less price volatility.

McHardy points to the tax efficiency of PMG’s PIE fund structure as one of the key benefits for long-term, income-focused investors.

“The PIE structure can result in materially better after-tax outcomes for many investors compared to direct investment,” he says. “That’s a big part of what makes our funds attractive in the current environment. Additonally, each month there is typically a portion of the funds’ returns which are paid tax free. This can potentially improve net returns paid to investors over other asset classes where you pay tax on the entirety of the return.” 

The after-tax outcome for individual investors will depend on their personal tax position.

How can you access PMG's products?

While much of the attention is on new investment offerings, McHardy points to another under-utilised opportunity, unique to the unlisted sector: buying units on the secondary market. 

“We understand that investors may wish to buy units/shares in our funds at times when we don’t have a formal offer available. To support this, we facilitate a secondary market matching service to connect those looking to acquire PMG shares/units with other investors who want to sell.”

The secondary market is subject to demand and availability, and there may be delays or instances where units are not matched. But McHardy encourages those looking to diversify, or simply take advantage of stable, income-producing assets, to explore what’s available.

“If you’re focused on long-term income and want to invest in high-quality assets already delivering value, this is a smart time to take a closer look,” says McHardy.

To find out more about available shares/units or to speak with the team, visit www.pmgfunds.co.nz or reach out directly at invest@pmgfunds.co.nz

Sources:

¹ HSBC
Economists at HSBC forecast a lift in GDP in 2025, supported by lower interest rates and increased household activity.
Westpac
A recent Westpac economic update points to 2.5% growth in New Zealand this year, with signs of acceleration expected in the second half.
ASB
According to ASB’s March 2025 forecast, steady recovery is underway, helped by easing rates and solid export performance.