Commercial real estate’s positive spread is underscoring increased activity in the market, with encouraging deal numbers in Q4 2024 signalling a more robust year ahead for investors, according to Bayleys.

Bayleys national director commercial and industrial, Ryan Johnson says the money tap has been turned on again for commercial real estate.

“The emerging attractive positive yield-to-debt spread in 2025 and evidence that Real Estate Investment Trusts (REITs) are switching from being net sellers for most of the past 24 months, to active net buyers as they rebalance and recapitalise their asset books, are among encouraging signs that the market is rebalancing.

“Overall, buyers are more inquisitive and creative with flexible deals around debt structuring and settlement dates allowing deals to be stitched together.”

Johnson says greater interest from REITs and wholesale investors in value-add assets where entities can utilise management expertise to generate higher returns rather than buying core assets with elevated cost of debt, is significant but activity across all asset classes and sectors is tracking up.

“This is being driven by lowered cost of debt against declining deposit rates. The classic interest rate curve with lower costs at the short end and higher at the two to five-year mark is returning – largely off the back of central banks and US dynamics.

“Soaring traffic to the Bayleys website when Trump was elected and again when the greater Los Angeles wildfires broke out is proof that New Zealand’s safe haven status has traction for offshore capital, despite the fact that entry to the property market has significant thresholds to be met.

“Money out of Asia and Australia, which has a smoother pathway to ownership, was very active through 2024 and we expect that to continue as the repricing of core assets makes investment appealing in a global context.”

The property fund market has been reignited, and the listed sector is also well-positioned to move forward with some confidence, says Johnson.

On the funding side, MaxCap Group NZ chief investment officer Nick Bullick says a boost to confidence is the key short-term change following OCR drop announcements but cautions that improved sentiment won’t immediately result in value rises.

"It might give some buyers a push to pay just that bit more without the fear that they’ll be overpaying for something that’s going to drop in value. I think there will be some good deals still available as the changes filter through.”

Bullick says with continued regulatory pressure, banks will remain conservative towards commercial real estate debt meaning opportunity for financier MaxCap.

“While construction funding will always be a large part of what we do, we also see great opportunity in the investment value-add space where real estate assets across all sectors are being transitioned.

“Our view is that banks will always be there for borrowers once leases have been renegotiated and capex work completed, but it is in the one to three-year period before the asset is stabilised where Maxcap can step in.”

In the capital, Bayleys Wellington Commercial director Mark Hourigan says although public sector workforce contraction has impacted confidence and office space requirements, and commercial property values have softened, there are some bright spots.

“Leasing activity has largely held up overall with good quality industrial stock in high demand, private investors including family trusts still see value in suburban and satellite commercial property, and property developers are inching back, with residential development picking up pace.

“However, well-documented dysfunction within the Wellington City Council, and cycle-lane construction and congestion bringing parts of the city to a standstill, are handbrakes.

“Wellington will bounce back, general sentiment will improve and until then, there are some compelling property deals to be done, and we expect to see some standout stock come to the market this year.”

There was a momentum shift in the Christchurch commercial property market by the latter part of 2024, as interest rate cuts and money coming off term deposit took effect, according to William Wallace, Bayleys general manager South Island commercial and industrial.

“Bucking the national trend, Christchurch saw capital and rental growth and there were some encouraging acquisitions made during the year – including Willis Bond’s purchase of Eastgate Shopping Centre.

“Banks are reaching out to let us know that they’re actively lending, so I’m feeling good about 2025 and what it will mean for Christchurch landlords, occupiers and investors.” Referencing the quarterly sentiment survey (December 2024) across the Bayleys network, head of insights and data Chris Farhi says the majority of residential agents now perceive the market to be in a neutral state due to lower interest rates – an improvement on the weaker sentiment noted earlier in 2024.

“By contrast, commercial sales remain a mixed bag with agents picking the market somewhere between weak and neutral. However, 45 percent of our commercial sales brokers perceive the market is getting stronger.

“Last year interest rates were a major pressure point for buyers – now the issue is largely the availability of finance, alongside generally less urgency to transact.”