Low interest rates set to unleash capital into commercial property

Falling interest rates are setting up a decisive shift of capital out of bank deposits and back into commercial property, with syndicators and property funds likely to re-enter the market in force. 

As term deposit rates retreat, ‘mum & dad’ investors are searching for higher-yielding alternatives, with commercial property syndicators and fund managers likely to be the main beneficiaries of this capital shift.

Jorge Chang Urrea, Research Manager at CBRE, said the company’s latest analysis puts the current average commercial and industrial property yield in New Zealand at around 7%. 

This compares favourably to one-year bank term deposit rates, which have settled at around 3.4% to 3.5% (as at October 2025) after peaking at just over 6% in October 2023. 

As pricing expectations converge in the commercial property market, more aggressive bidding is likely to come from syndicators and funds, but also from private investors as they look to put their capital to work, said Tim Rookes, Managing Director of CBRE Christchurch. 

“One of the biggest handbrakes on transactional activity in the past few years has been the persistent value perception gap between vendors and buyers. Vendors have been reluctant to meet buyers’ perception of value, while buyers have been unwilling to meet vendor expectations while debt costs were high. That equation is changing as the cost of debt reduces, prompting buyers to bid more sharply.”

Alex Nikolaou, CBRE’s Director of Debt & Structured Finance, said the lending market is also finally opening up for commercial property investors and developers. “Banks and non-bank lenders are more willing to review deals than they were a few months ago. Interbank competition is increasing, and the prospect of 5% debt cost is shaking up the lending market.”

Market expectations for the OCR point to another 25bps cut, with the rate then potentially holding for the next 12 months, he said.

“Lower debt costs should improve interest cover metrics and broaden the pool of bankable transactions, particularly for quality assets with stable income,” Nikolaou said. “The theme now is deployment, with syndicators and funds moving from watching to acting. Increased engagement from lenders is the catalyst the market has been waiting for.”

Investment metrics look particularly healthy in the South Island, where many individual buyers are buoyed by the strong performance of primary industries. This local capital is active and seeking investments of scale, which is expected to result in increased commercial property transaction volumes across key South Island centres, said Rookes. 

“With more investors shifting out of deposits, syndicators and property funds will be back in the market pursuing assets that offer resilient income and the prospect of capital growth. The combination of cheaper debt and a persistent need to place capital points to a much more competitive buy-side over the coming months.”