BRIEF | OCTOBER 2025

Tascott
Nov 5
4 min read

Updated: Nov 5

MARKET |

Observers interested in commercial real estate may have noticed increasing levels of market activity as more and more properties are listed for sale. This activity is driven principally by the lowering of the prevailing interest rates in New Zealand markets which has had the effect of reducing interest rates on alternative investments such as bonds and bank deposits. When this happens investors become more keen to put money into property, at rates of return lower than might have previously, only very recently, been the case.

But, as interest rates fall and competition for real estate increases, is this a good time to invest in commercial real estate? Generally speaking there's no bad time to buy property, rather it's the price paid that needs to be considered. It's here where there are heightened risks of making poor investment decisions.

Simply stated the demand for property described is the 'opportunity cost of capital' in action, one of three main pillars which underpin the pricing of real estate assets. The other two pillars are risk and expectations of rental growth. Together, these three pillars help to understand price and are the determinants of the 'cap rate', a common term used to easily compare price across properties of differing type and size.

Acknowledging the opportunity cost of capital theory it's easy to understand why cap rates continue to fall (compress) as interest rates reduce. But does the reduction in cap rate, and the corresponding increase in price expectations, fully reflect the three pillars? Has the likelihood of growth increased. Has risk reduced? Arguably not. Recent monetary policy decisions are designed to provide stimulus to a failing economy, an economy characterised by high unemployment, low business confidence and investment intentions. So, at this point in time, economic conditions, acknowledged by recent interest rate reductions, seem antithetical to the growth and decrease in risk required to increase property value.

In the last month the outlook from economists has been bleak -

"A year on from the deep and destructive recession we were in in 2024, the Kiwi economy has slammed back into reverse. The GDP numbers for the June quarter were far worse than anyone had expected and proved once again that the RBNZ has not yet delivered the appropriate monetary policy setting. Weakness remains broad based with 10 out of the 16 industries in decline. And over the year the economy has shrunk a further 0.6%. It’s simply not what you’d expect a year after the severe recession. We should be recovering by now. But we're not. And the weakness demands more rate relief."

Business liquidations are also on the increase and will reportedly surpass 2024's ten-year highs with a 12% year on year increase and, according to Deloitte, there's more pain to come.

How should investors respond? Should they blindly pivot from bank deposits to significantly more risky assets simply because there are marginally better returns available? Many investors will recall receiving, in the not too distant past, suspension of distribution letters from some real estate investment managers, which should serve as a reminder of why not to do just that. So in short, no. Investors should carefully consider all three pillars of real estate value; understand risk in an asset, understand that the risks identified are priced correctly, and understand if opportunities for growth can reasonably be expected, either from the 'green shoots' rate reductions herald, contractually, or from where a particular asset sits within its own market.

BANK DEBT |

Competition between New Zealand's funders has evidently returned. We map and monitor debt pricing for a variety of assets we are directly involved with and from analysis of the wider market. Recent tenders have resulted in significant savings on debt funding costs for our clients. More favourable metrics are available and loan covenant/condition requirements have eased. The availability of refinancing and repricing opportunities is high at present.

MARKET REPORTS |

This quarter we've attached two reports: the first from Colliers which provides excellent insights into key markets across our home region of Otago/Central/Queenstown Lakes. The second, a report from JLL which explores "New Zealand's foundational strengths, examining the country's world-class business environment and supportive regulatory framework, which together create a fertile ground for long-term returns in the property sector". Both excellent and well worth reading.

CAPABILITY STATEMENT |

We have set out the full range of services we can provide in the attached Capability Statement. We provide a broad range of commercial real estate services including pre-acquisition due diligence, acquisitions, debt funding, transaction management and ongoing asset and investment management. Our services are geared towards clients that don’t have local representation, and clients who don’t wish to deal with the daily tasks of asset management but do want to remain in control of their investments.

To discuss these services or any of the subjects above please get in touch:

Toby Scott | Director

Email: office@tascott.co.nz | Telephone: 027 5299 8799 | Website: www.tascott.co.nz