Commercial property sentiment improves as conditions stabilise

Confidence across parts of the commercial property sector has begun to lift, with lower interest rates and improving economic indicators helping to steady activity after a subdued start to the year, according to Colliers.

Interest rates have been cut significantly over the past 18 months, which Colliers said had begun to stimulate wider economic recovery. Economic forecasts point to falling unemployment, easing inflation and improving GDP growth, which together suggest more favourable operating conditions for businesses over the next few years.

According to Colliers, vacancy rates in some commercial sectors have started to trend down as demand for workspaces gradually increases. However, this improvement is more of a “steady stabilisation” than a rapid turnaround.

Financial markets have also priced in interest rates staying at relatively low levels for the next couple of years, with the Reserve Bank of New Zealand expected to maintain a supportive stance as the recovery progresses. Colliers characterised this outlook as a period of stability rather than a short-lived boost.

Investor confidence improves, but pricing remains subdued

Colliers reported that commercial property investors are feeling more positive, with sentiment supported by lower borrowing costs. Enquiry levels have risen, but this has not yet translated into significant increases in sales prices.

The agency highlighted that interest rate reductions typically encourage a shift away from savings and towards higher-yielding assets. With a large share of term deposits due to reprice at lower rates in the next six months, some investors may reassess their financial plans. However, Colliers also acknowledged that returns vary widely depending on asset type and specific property characteristics.

Outlook remains dependent on broader economic trends

Colliers noted that financial markets are currently pricing the Official Cash Rate below 3% for the next couple of years. While this may provide support for commercial property activity, interest rate forecasts are subject to change, and future market conditions will depend heavily on economic performance.

Prospective investors are approaching the market with more interest, according to Colliers, but there’s also been an increase in buyers exploring their options rather than rushing into decisions.

Do any of your clients need clarity on how commercial finance works? If so, I’d be happy to speak to them.