Market Commentary: Winter 2025
As we pass the halfway mark of 2025 and leave the shortest day of the year behind us, there are early signs of renewed momentum in the New Zealand economy. While the road to recovery remains challenging, a sense of cautious optimism is beginning to emerge.
Global Backdrop
The first half of the year has been marked by significant geopolitical and economic volatility. The return of President Trump in February sparked a wave of protectionist policy announcements, culminating in the sweeping tariffs unveiled on “Liberation Day” (2 April).
Markets reacted sharply, with global equities initially tumbling and growth forecasts revised down across the board. Inflation concerns have resurfaced, and the flow of unpredictable policy decisions from Washington continues to unsettle markets.
Despite the turbulence, U.S. equity markets have rebounded to near record highs – a perplexing contrast to the underlying uncertainty.
Ongoing global conflicts have also dominated headlines. The war in Ukraine drags on, violence in Gaza remains unresolved, and the brief but intense “12-Day War” involving Iran has added to instability.
Energy markets remain on edge, with oil price volatility still a risk despite recent ceasefires.
The Outlook in a Word: Uncertainty
With such a constant stream of global headlines, it’s difficult to isolate a single theme.
But one message is clear – uncertainty remains elevated, and uncertainty dampens confidence.
New Zealand Economic Overview
Domestically, economists are broadly forecasting a slow but steady recovery in the second half of 2025.
This is expected to be driven by:
- Lower interest rates
- Stabilising inflation expectations
- Supportive government policies
GDP growth is forecast to rise to around 2.1% in FY26, while the RBNZ remains well-positioned to make further OCR cuts if needed. However, global headwinds continue to cast a shadow.
One bright spot has been the agricultural sector, particularly dairy and meat exports. The recent Fieldays event – widely seen as a bellwether for rural and regional confidence – offered some encouraging signs for the year ahead.
Commercial Real Estate (CRE) in New Zealand
The commercial property sector is poised for gradual recovery through the remainder of 2025 and into 2026. While recent years have been shaped by high interest rates and post-Covid shifts in office demand, we are seeing more stability emerge.
The sub-$10 million market has shown resilience, buoyed by private investors seeking stronger yields than currently available through bank deposits.
That said, liquidity and buyer depth decline as property values increase, which has continued to suppress valuations due to limited transactional evidence.
Encouragingly, several larger transactions have completed recently – a positive sign that institutional and larger CRE players are re-engaging with the market.
Foreign Investment & Immigration
A promising development has been the overhaul of New Zealand’s Active Investor Plus (AIP) immigration policy, designed to attract offshore capital and talent. Coinciding with a pullback in similar Australian pathways and growing U.S. investor discontent, NZ is now seeing a notable increase in interest.
While only 50 applications were approved between 2022 and early 2025, the new framework (effective from 1 April) has already generated close to 190 new applications – implying around $1 billion in inbound investment.
Although restrictions remain in place for residential property purchases, expectations are growing that these may be eased. For an economy of NZ’s size, these investment inflows will be significant, wherever they ultimately land.
First Light Capital Portfolio Update
We recently completed the AGMs for all FLC funds and syndicates. Thank you to those who attended in person or online – this year saw the strongest participation yet.
Common themes raised included:
- Single tenant risk
- Liquidity constraints
- Softening valuations
We appreciate this engagement and are actively working to address these concerns across the portfolio.
On the ESG front, we’re pleased to report that all properties previously rated under NABERSNZ have been successfully re-certified, with most seeing improved scores.
Sustainability continues to gain importance for major tenants – and for many, is now a baseline requirement. All but one of our commercial office buildings are now NABERSNZ rated.
The only property with no current NABERSNZ rating has recently undergone a full LED lighting upgrade, and a significant lease extension has been secured as part of this process.
This paves the way for certification in the near future, something that we know will resonate well with this particular tenant.
We continue to negotiate with all of our tenants to secure longer lease terms and are committed to offering ESG-aligned incentives that meet evolving expectations and protect long-term value.
Banking & Interest Rate Management
We’ve also made strong progress on the financing front. Colliers Debt Advisory was recently engaged to help refinance two single-asset syndicates, resulting in improved terms from alternative banking partners. While we continue to enjoy a strong relationship with our primary bank, increased competition ultimately benefits investors.
In addition, a number of interest rate swaps have been implemented across the portfolio, with hedging levels ranging from 50% to 75% depending on the entity. These swaps lock in interest costs and reduce the risk of further rate volatility, providing greater certainty for future distributions.
In Summary
While 2025 continues to present a complex and evolving landscape, the fundamentals of New Zealand’s economy and commercial real estate market are gradually improving.
At First Light Capital, we remain focused on navigating these conditions with discipline, adaptability, and a long-term perspective – always with our investors’ interests front of mind.
For more updates on our sustainability initiatives and asset management approach, sign up to our NZ Property Market Update.