Insights into New Zealand’s Commercial Property Landscape

As we navigate through 2025, New Zealand’s commercial property market presents an evolving landscape for investors. CBRE’s recent market outlook highlights several key trends and opportunities that are shaping the investment environment, driven by economic factors, sector-specific dynamics, and shifting investor preferences.

ECONOMIC

BACKDROP & INTEREST RATES

The Reserve Bank of New Zealand (RBNZ) has adopted a more accommodative monetary policy stance, with significant interest rate cuts expected throughout 2025. This approach has already started to stimulate economic activity, with consumer spending anticipated to continue to lead the initial rebound. Business investment, particularly in productive capacity such as commercial spaces, is projected to pick up more substantially in 2026 as the economy absorbs existing excess capacity.

Brent McGregor, CBRE New Zealand’s Executive Chairman, notes, “The RBNZ’s February monetary policy review not only delivered another 50bps reduction to the cash rate but also strongly signalled an ongoing commitment to lowering short-term interest rates in contrast to some other central banks”. This positive economic outlook sets the stage for a favourable investment environment in the commercial property market.

SECTOR-SPECIFIC INSIGHTS

The office market is witnessing a small bump in investor preference after a period of subdued interest. This renewed interest is largely driven by the sector’s value proposition at current yield levels plus a big delta between A-grade rentals and economic rents for new development. Hybrid working remains a key feature, but its impact on reducing office footprints has worked itself through. Occupier sentiment surveys indicate that consolidation pressures are easing, suggesting a stabilising demand for office spaces.

Brent McGregor comments, “Groups wanting to look at NZ Office opportunities, still have time; the rebound won’t be fast. Quality assets are in the cross hairs for a few investors who haven’t managed to pick up Sydney assets over the past 18 months, and NZ is increasing becoming appealing relative to the Australian states which have introduced fresh property taxes.

Although retail has been out of favour in recent years, there is a noticeable positive shift in investor sentiment. Our investor survey shows that the proportion of investors targeting retail has more than doubled since 2023 and we see this investment sector being poised for recovery as supply peaks and occupancy rates improve over the next 18-24 months.

The industrial sector continues to attract strong investor right across the board. Vacancies have increased but are still negligible and although cap rates have expanded out, market rental increases have offset most of the impact. This sector has been the bright spot over recent years and is set to continue to make up a large slice of the transaction volumes chart.

INVESTMENT RETURNS & YIELD MOVEMENTS

In 2025, yield movements are expected to contribute positively to investment returns. The lack of rental growth in 2024 limited capital and income-based returns, but historical cycles suggest that a slowdown in rental growth often precedes a recovery. By 2026, both rents and yields are forecast to contribute positively to capital returns, with total returns potentially reaching double digits.

Brent McGregor explains, “We forecast yields firming moderately in 2025 as investor confidence and liquidity lift, and interest rate falls filter through”. This scenario is encouraging for investors looking to capitalise on the evolving market dynamics. This doesn’t mean that we’ll see valuations increase however, as on average there still remains a decent gap between valuations and bid pricing across most assets.

OPPORTUNITIES & CHALLENGES

Existing quality assets offer significant potential for capital growth, particularly those where replacement costs would demand rents substantially higher than that indicated for the built stock. Proactive asset management and well-judged capital expenditures are proving effective in enhancing occupancy and rental performance.

Location remains a critical factor in attracting lessee and buyer interest. Proximity to public transport, broader amenities, and appealing streetscapes remain key.

Developers are increasingly focusing on boutique prime-grade residential projects, targeting discerning buyers less affected by economic cycles. This niche market offers opportunities for high-quality developments that cater to lifestyle and life stage preferences.

New Zealand’s commercial property market in 2025 offers a compelling landscape for intelligent investment. With accommodative monetary policies, sector-specific opportunities, and a positive outlook for yield movements, investors can navigate this market with confidence. By focusing on strategic asset management, prime locations, and emerging residential opportunities, investors can position themselves to capitalise on the evolving dynamics of New Zealand’s commercial property market.

Brent McGregor summarises, “We’ve been through the trough now and all signs are pointing towards an improved environment for asset funding, construction and rental growth. We’re starting to see international investors engaging again and CBRE is anticipating a year-on-year 50% bump in transaction volumes during 2025.”

READ MORE

Scan for the full ‘2025 New Zealand Real Estate Market Outlook’.

From James Parry

Head of Office

+61 408 553 000 james.parry@cbre.com