Commercial property has been at the centre of economic discussions over the past year, with regulatory shifts and economic recovery shaping investor sentiment. As the market adjusts, investors are reassessing their strategies for the year ahead.
Scott McKenzie, CEO of PMG Funds, examines how market-shaping forces are influencing the sector, and how investors are re-evaluating their portfolios as asset class performances shift.
Globalisation makes way for protectionism
A global shift toward protectionism is creating headwinds for New Zealand’s economy, adding uncertainty for investors.
“This is a profound shift, and Trump is a wild card,” says McKenzie. “It might not necessarily be the time to take big risks and gear heavily – we need to be prudent and keep to our core strategy. But we need to look through this geopolitical and macroeconomic volatility. It won’t change what we’re doing day to day.”
On the upside, positive signs of local economic recovery mean that McKenzie is, overall, optimistic about the outlook for commercial property over the next 12 months.
“For us it’s about having a ‘glass half full’ perspective. We’re seeing green shoots out there already,” says McKenzie. “Interest rates are on the way down. It looks like we’re at – or past – the bottom of this property cycle. There are some tailwinds for asset price growth, especially for commercial property.”
McKenzie takes a pragmatic approach: you can only control what’s controllable, so a focus on the fundamentals should set you up for success. Commercial property is a steady performer in the long run, with compounded annual growth of 4.3% over the past 30 years – plus cash returns on top.
“The forecast is that the worm is turning, and there will be a lift from here, particularly in the second half of the year,” McKenzie adds. “With the low returns on cash in the bank as term deposits come down, it makes sense to consider allocating cash to alternative options, including commercial real estate.”
Scott McKenzie, CEO of PMG Funds
Vacancies rise, but high-quality properties remain in demand
Vacancy rates for commercial property are up from the lows of 2022, but the market remains divided. Lower-quality buildings are harder to tenant, while modern, high-quality commercial properties continue to perform. There’s an undersupply of prime, premium and A-grade properties, which McKenzie believes will ultimately drive increasing demand, contributing to stable rental yields and capital retention. This underlines the importance of maintenance – investing in upgrades to keep buildings in optimal condition pays off in ease of leasing and rent level. Renovations, refits, or repurposing can unlock improved rental returns and long-term capital growth.
“We’re driving performance through rolling our sleeves up and doing a good job,” says McKenzie. “Our average occupancy rate is 98% across the whole portfolio. We’re not relying on the market to deliver returns.”
Sustainability boosts tenant demand and retention, plus values
There’s been a trend towards sustainability for the past few years, but is it on the wane? Not according to McKenzie, who says high-quality tenants are, if anything, stepping up their list of must-haves in this area.
“Despite the rhetoric you might hear out of the US, sustainability remains an important strategy for businesses,” McKenzie says. “They want to see enhanced building performance, energy efficiency, waste and emissions efficiency – you can expect good tenants to be asking all these questions before they sign a lease.”
Sustainability isn’t just about tenant preference – it’s now a key driver of asset performance. Energy-efficient buildings, green certifications and waste management programmes are directly influencing rental yields, valuations and long-term investment returns.
AI is driving efficiency, productivity and performance
The year ahead will also see tenants and landlords investing in AI to support greater efficiency and performance.
“For business management, AI is removing those lower-level tasks, freeing people up to do more value-added work,” says McKenzie. “It’s also providing us with better information to improve our critical decision making and how we manage real estate.”
AI is also being integrated into building management systems, optimising mechanical and electrical systems, including the air conditioning, lighting and energy systems. With real-time data, you have the information to make tweaks to these systems, cutting costs and reducing emissions.
“The more data we have around performance and the way humans interact with buildings, the better decisions we can make to improve and fine-tune performance,” notes McKenzie. “Plus, AI will be a strong tool for improving cybersecurity, which is an important element for any business.”
Increasing investor appetite for alternative investments
As returns on term deposits have fallen over recent months, investors are considering different ways to maximise their returns. McKenzie says his team has experienced rising interest from investors who want to discuss potential yields from investing in commercial property.
In the face of global turmoil, the message for investors remains constant: you need a long-term outlook, direction from your financial advisor, and to keep a cool head.
“We see conditions improving in the second half of 2025,” McKenzie adds. “There are still challenges of course, and we’re under no illusion that it will all be roses from here on. But there’s increasing interest in investing in commercial property, and there’s a feeling of confidence that New Zealand’s economy will continue to grow.”
For more information about commercial property investment opportunities: pmgfunds.co.nz
Disclaimer: The information in this article is of a general nature and was current as of March 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.
