ISSUE NO.47 October 2024
Investor update
Investment Outlook
As we approach the end of the calendar year, I've taken a moment to reflect on the cautious optimism we shared earlier in 2024. At the time, we were navigating an uncertain economic landscape shaped by the high inflation and high-interest rate environment. Despite these hurdles, we believed light was on the horizon, and we are now starting to see positive changes taking shape. This progress is positioning us well for renewed opportunities and growth as we head into 2025.
Recently, the Reserve Bank of New Zealand (RBNZ) lowered the Official Cash Rate (OCR) 0.50% to 4.75%, with many market commentators forecasting another 0.50% drop in November on a pathway to around 3.25% towards the end of 2025. These moves reflect the RBNZ’s response to cooling inflation, which has now returned to within its target range of 1-3%, and a desire to stimulate economic growth. As the OCR continues to reduce, we can expect term deposit savers to be affected with reducing returns, with the average deposit rate* for 12 months or more now sitting at 4.69%, leaving a net return of just 3.37% for those in a term PIE.
In contrast, PMG’s retail funds have delivered an average gross return of 5.16% and net returns of 4.42% over the past six months (acknowledging the difference in asset class and risk profile). This being said, we know our investors value regular monthly cash returns and growth in value over time. With interest rates expected to decline further into 2025, this return gap may widen, making commercial property an increasingly attractive option for long-term investors seeking regular income.
Inflation, once a major concern at the start of the year, has eased from 7% to 2.2%, providing a more stable economic outlook. Whilst households are still managing high costs of living, the downward trend in inflation is encouraging for both the broader economy and the real estate sector. Additionally, with interest rates continuing to decline, we expect we are now around the bottom of the property cycle, with tailwinds for property valuations in the coming years ahead. This points to a more favourable opportunity for investors seeking returns in commercial property, especially as the economic outlook continues to improve.
Looking ahead to 2025, we see it as a pivotal year, with the New Zealand commercial property market transitioning from a period of correction to renewed growth. Having likely reached the bottom of the cycle for most asset classes, now presents a prime opportunity for PMG investors. Lower interest rates are expected to be a key driver of increased fund profitability, the potential for value growth and potentially stronger investor returns.
What this means for PMG and our investors
Over the years, our strategic shift from standalone syndications to a funds management model has allowed us to adopt a more diversified approach, strengthening the income resilience of our portfolios. Why? Because a larger portfolio with multiple investments across various geographies, sectors, and property types not only reduces risk but also creates greater opportunities to proactively grow value throughout varying market conditions.
As interest rates decline and inflation stabilises, we see growth opportunities in New Zealand’s commercial real estate market for 2025. Our strong portfolio combined with our conservative borrowing strategy and proactive interest rate hedging, has positioned our funds well to capitalise on excellent strategic acquisitions, at good value, whilst continuing to remain focused on delivering sustaining fund performance.
Looking ahead, we remain focused on being proactive to maintain high tenant occupancy and continuing to drive rental income growth through our property partner of choice strategy. Our team are well placed to continue using our strengths to proactively manage our assets and ensure we are delivering on value-add initiatives that align with our strategy of growing value over the long term.
Thank you for your continued trust and support.
Sincerely,
Scott McKenzie, CEO & Director
*Straight line average of the 1 year to 5-year term deposit rates as at September 2024
LARGE FORMAT
RETAIL: A STRATEGIC COMMERCIAL REAL ESTATE OPPORTUNITY IN NEW ZEALAND
New Zealand’s large format retail (LFR) sector continues to stand out as a resilient and appealing investment option within the commercial real estate market. Driven by steady demand for household goods, home improvement supplies, and other large-scale items, LFR properties remain well-positioned for longterm growth. Population growth in New Zealand, which increased by 2.8% in 2023, and stable economic fundamentals in key cities like Auckland, Christchurch, and Hamilton, provide strong support for this sector.
LFR spaces attract retailers like Mitre 10 and Kmart, which require large areas to display goods that consumers prefer to purchase in person.
This hands-on shopping experience makes LFR properties particularly valuable, even in an increasingly digital world. Tenants in this sector have seen strong sales growth, underscoring the sector’s investment potential.
DRIVING ENERGY EFFICIENCY WITH SUNERGISE
At PMG, sustainability isn’t just a goal—it’s a key driver of value for our tenants and investors. Through our partnership with solar energy provider Sunergise, we’ve integrated renewable energy solutions across several commercial properties, reducing operational costs and carbon footprints without any capital outlay.
Solar panels at properties like Red Beach (early childhood learning centre) and Druces Road (warehouse building) in Auckland have delivered impressive energy savings, averaging 35% in just six months. These savings make our properties more attractive to tenants, boosting retention and therefore greater stability for investors.
By embracing renewable energy, PMG is creating environmentally friendly, high-performance properties that meet today’s business needs while delivering sustainable, regular returns and growth in value over the long-term for our investors.
Image is an indication only and includes renders.
GOODE BROTHERS OPENING AT BETHLEHEM TOWN CENTRE
We’re excited to announce a new partnership between PMG and Star Group to bring Goode Brothers to Bethlehem Town Centre in Tauranga. Goode Brothers offers a unique experience designed to bring people together—whether for a family-friendly meal, a night out with friends, or a casual catch-up. With a menu designed to both share and savour, a loaded roster of activities including handmade pasta classes, and an unrivalled kids’ club, Goode Brothers promises to become a go-to destination for all ages.
The addition of Goode Brothers strengthens Bethlehem Town Centre’s appeal as a key destination for locals and visitors alike. Importantly, it aligns with PMG’s long-term strategy to continually elevate the Centre’s offerings, attract more customers, and help increase turnover. This, in turn, supports our goal of growing income and long-term value for the Centre.
Opening soon, Goode Brothers will be a fantastic addition to our tenant mix, strengthening the Centre’s competitive edge and providing a top-tier dining option for the community.
LUKE KINNEY, INVESTMENTS MANAGER
Luke joined PMG in October 2021 as a contractor before transitioning to a full-time role in October 2022. Initially working as a Property Analyst, he moved into the Investments team in February 2024 as an Investment Analyst, and now Investment Manager.
Luke holds a Bachelor of Commerce, majoring in Finance and Economics, from Victoria University of Wellington, and he became a Chartered Alternative Investment Analyst (CAIA) charter holder in 2019. With nine years of experience in traditional and alternative investment management, Luke’s career includes roles at Nikko Asset Management and Milford Asset Management in New Zealand, and at the global hedge fund, Man Group, in London.
Luke’s responsibilities include assisting with the investment decision-making process, from initial scoping through to settlement. He also collates research material and feasibility studies, conducts detailed financial modelling, and leads a robust due diligence process. MEET
PMG SECONDARY MARKET SERVICE EXPLAINED
With over 30 years of expertise in commercial property, we understand that while market fluctuations occur, commercial property has proven to deliver competitive long-term returns. However, we also recognise that investor circumstances can change, and some may wish to buy or sell investments over time.
To accommodate this, PMG offers a secondary market matching service, allowing investors to trade shares or units in our funds with other interested parties. The time to complete a trade can vary based on supply and demand within the market, influenced by broader economic conditions. Learn more about this by watching our video.
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20 February 2025: Christchurch
25 February 2025: Outlook 2025: Wellington
26 February 2025: Outlook 2025: Auckland
27 February 2025: Outlook 2025: Tauranga
