Market Commentary: Spring 2025
For those of us who haven’t managed to escape to sunnier climates, this winter has felt particularly long and dark. The first green shoots, cherry blossoms and slightly warmer temperatures are all very welcome – and hopefully a sign of better economic conditions ahead.
NZ is doing it tough (and not just the All Blacks)
From an economic perspective, the past few months have underlined just how challenging the last couple of years have been for New Zealand.
Recent data paints a sobering picture:
- GDP:
- June quarter growth -0.9% (vs. -0.3% forecast and negative figures for 3 out of the last 5 quarters)
- Auckland Unemployment:
- 6.1% in the June quarter (highest since 2009–2013)
- Housing:
- Auckland median price in July 2025 still 36% below the 2021 peak
- National Unemployment:
- Expected to peak at 5.3% by year-end (highest since 2016)
- Manufacturing PMI (Aug):
- 49.9 (below 50 signals contraction)
- Services PSI (Aug):
- 47.5 (also contracting)
Enough gloom? We thought so too. Forget “survive till ’25” – we need to “stay in the mix till ’26.”
Green Shoots – Or another false start?
There are some genuine bright spots. The farming and export sectors are leading the way, with strong domestic production and buoyant global commodity prices driving dairy, meat and other agriculture exports. Despite tariff headwinds, the primary sector continues to forecast resilience and growth.
Travel and tourism revenues are back to pre-COVID levels, even though visitor numbers remain below earlier peaks. This is helping restore confidence across Central Otago and more regional economies.
Despite the weak June GDP figures, forecasts for September point to positive growth – highlighting the economy’s resilience, particularly in farming and tourism, and the stimulus provided by recent OCR cuts.
It feels as though the past few months may mark the trough of the cycle. Everyone has been doing it tough – so what’s changed?
Monetary Policy Reset – A welcome boost
The RBNZ’s main lever is the Official Cash Rate (OCR). After a turbulent year – including senior leadership changes – the August meeting finally acknowledged the continued weakness in the economy.
A 0.50% OCR cut is now widely anticipated by the big 4 banks in October with a further 0.25% OCR cut to follow in November, potentially taking the OCR to a low of 2.25% by year end.
Does anyone else feel interest rate moves have been too volatile in New Zealand these past seven years? Dropped too low, then ramped up too high, and now sliding down the other side again – no wonder a small, export-driven economy so heavily linked to residential real estate is at sixes and sevens.
In the US, after pausing throughout 2025 so far, on 17 September the U.S. Federal Reserve pivoted back to an easing bias, pushing wholesale rates lower globally.
This filters through to mortgage relief and more disposable cash for households and businesses alike – thank goodness.
With interest rates now heading lower, there’s a realistic chance the green shoots we’re seeing are here to stay.
Commercial Real Estate – Glass half full
It’s a “glass half full” market for commercial property. The sub-$10 million investment sector has held up well this year, and with term deposit rates tumbling alongside interest rate cuts, the relative appeal of commercial property is rising again.
Assets with A-grade facilities, strong tenant covenants and longer lease terms are leading the way.
Leasing activity has been subdued over the past three years, but there are early signs of increased enquiry. Portfolios that have maintained occupancy through this downturn are well placed, but landlords still need to be proactive – offering sensible capex support and incentives to help tenants adapt and grow.
Overall, optimism is building that 2026 could mark a genuine turning point – a year when positivity finally returns to the commercial property market.
The Investment Boost
The New Zealand Government’s 2025 Budget introduced the Investment Boost, a landmark tax incentive designed to stimulate long‑term business investment.
The policy targets one of New Zealand’s persistent challenges – low business investment compared with OECD peers – by encouraging greater capital deployment into the productive economy.
Government modelling confirmed that targeted tax relief was the most effective way to achieve this.
The Investment Boost provides businesses and investment funds with a 20% upfront tax deduction on qualifying new capital expenditure. This sits alongside standard depreciation rules, effectively allowing investors to bring forward deductions in the year an asset is placed into service.
Eligible assets include new commercial buildings, fit‑outs, plant, and equipment first available for use after 22 May 2025. Exclusions apply for residential dwellings, second‑hand domestic assets, and non‑depreciable land.
A Simple Example
If a fund invests $10 million into a new commercial building and fit‑out, it can claim an immediate $2 million deduction in that financial year. The remaining $8 million depreciates under normal rules.
This structure frees up cash in the crucial early years of ownership, easing the most capital‑intensive stage of a project and smoothing returns for investors.
Why It Matters for Commercial Property Investors
For developers, the Investment Boost makes new projects more attractive by providing immediate deductions on commercial buildings – previously ineligible for depreciation. Repositioning and value‑add projects also benefit, with upfront claims helping to offset the short‑term yield drag typical of seismic upgrades, fit‑outs, or other major improvements.
Portfolio managers gain further advantages, as recurring capital expenditure across diversified holdings compounds into meaningful tax deductions year after year. High‑net‑worth families also stand to benefit, with PIE structures amplifying after‑tax outcomes and reinforcing their role as one of the most tax‑efficient vehicles for long‑term wealth building.
Opportunities for First Light Capital Investors
At First Light Capital, we view the Investment Boost as an additional lever for value creation – supporting development syndicates, enhancing outcomes in repositioning strategies, and lifting portfolio performance over the long term. For wealth‑focused investors, it strengthens already efficient structures, helping to maximise after‑tax returns.
While the policy presents clear advantages, prudent investors must remain mindful of potential risks: future government policy changes, exclusions on certain asset classes, and the need for projects to remain cash‑flow resilient despite receiving upfront benefits.
Our focus at First Light Capital is to turn opportunities like the Investment Boost into lasting value. By applying detailed scenario testing and rigorous due diligence, we ensure every investment is positioned to generate sustainable, tax‑efficient returns for our investors.
First Light Capital – 100% occupancy through active management
We’re fortunate that across our wider portfolio of syndicates and funds at First Light Capital we’re currently at 100% occupancy. This result is no accident: it reflects the hard work of our asset management team – with special acknowledgement to David Annan – who works tirelessly with tenants to navigate issues and secure early lease renewals and extensions.
Just in the last quarter we’ve seen two of our tenants go through business sales. Given how tough business conditions have been, it’s not surprising to see some tenants under pressure. Successfully working with incoming owners to transition leases, maintain full rental payments and preserve lease terms is a complex but critical element of active asset management.
Tenants are also increasingly focused on operational expenses (OPEX) almost as much as on rent. While insurance and council rates are largely outside our control (and, frankly, increasingly “out of control”), we can act on sustainability measures – such as lighting and HVAC upgrades – to reduce OPEX costs. These initiatives are now both noticed and expected.
Finally, as we’ve mentioned before, sustainability and ESG credentials are becoming essential for larger corporate tenants. One of the key factors they consider when selecting or renewing a site is whether the building holds a NABERSNZ rating. We’re pleased to report that all but one of our commercial properties already hold NABERSNZ ratings, and we’re well advanced on achieving a positive rating for the remaining asset through ongoing LED and HVAC upgrades.
As we move through spring, lower rates, stronger exports and renewed tenant demand hint at recovery ahead. Staying focused on quality and sustainability will be key as the market transitions from winter to summer and potential growth that is expected with the economy forecast to improve.
For more updates on our sustainability initiatives and asset management approach, sign up to our NZ Property Market Update.