Commercial Property is Alive and Kicking

Despite the current climate, commercial property is thriving for investors, says Scott McKenzie, CEO of PMG Funds, where the flagship Pacific Property Fund Limited is about to buy three more industrial properties.

It has certainly been a disruptive few years for New Zealanders as we’ve contended with a global pandemic as well as increasing interest and inflation rates. However, it’s during these times that many of us will be thinking about the future and how to protect your hard-earned wealth. One of the ways we can do that as investors is through commercial property, which continues to thrive as a defensive asset class throughout inflationary times. At PMG, we own over $900 million in quality commercial property across our five well-established funds, from retail to office to industrial buildings, located from Whangārei to Invercargill. Our occupancy rate is 99% across our portfolio, returns remain strong, and rents are on the rise.

Industrial sector is booming

Right now, some of the most defensive assets can be found in the industrial and logistics sectors. That’s why we’re undertaking a capital raise for Pacific Property Fund which currently owns 20 properties around Aotearoa, with 64 tenants, and which is currently valued at $437 million. The raise will see us buy three more properties, located in Hamilton and Whangārei. All three are leased to Keith Andrews Trucks, which sells vehicles to the logistics sector. Logistics has been one of the fastestgrowing industries since the start of the pandemic in 2020, with no sign of slowing down as online spending gathers momentum. To buy these three properties, and reduce the fund’s proportion of borrowing, we’re looking to raise up to $85 million. That will help us further strengthen the fund’s resiliency during the current high inflation and high interest rate environment. Our forecasts predict returns of 5.3% annually, after expenses but before tax, for the next few years – although of course these are not guaranteed. Tangible assets like property have traditionally been defensive against inflation, and that remains true in this economic cycle. And as a PIE fund, this fund continues to be an appealing option for high-earning investors.

The office is alive and kicking

There will always be demand for high quality office space for people to connect and collaborate, and the office is facing a bright future. Most metro areas have vacancy levels below 3% for prime and A-grade office spaces. Wellington is strong, Christchurch is solid, and Auckland’s vacancies are focused on a few specific buildings. Humans are innately social creatures. Working from home is an important trend and it will continue to have an impact on demand for

4 Ruffell Road, Te Rapa, Hamilton. One of the three acquisition properties in the current investment offer that will join the Pacific Property Fund assuming the successful completion of the current raise.

offices. But ultimately that just means the owners of office buildings need to evolve to meet the desire for new ways of working. We’ve been proactive in making our spaces work for tenants, particularly through sustainability initiatives, including showers so people can cycle to work, EV chargers and improved waste efficiency. Our office buildings are 99% occupied and there has been no subletting by our tenants, which is a good indicator that the spaces are working for them.

Large-format retail remains buoyant

Our retail tenants have been encouragingly positive, perhaps because they’re longestablished brands that have been through many economic cycles before. For example, we own several properties leased to Farmers department stores, which has strong balance sheets and is effectively pivoting to become an online giant as well as a trusted bricks-and-mortar brand. There will be challenges for smaller retailers, particularly when it comes to staffing and supply chain issues, but for now the big players seem to be weathering the storm successfully.

Look through the headwinds and out the other side

The current challenges are a natural part of the ups and downs of investing – it’s vital that you look through the shortterm headwinds and see the long-term advantages of investing in solid, wellmanaged assets. With that long-term approach and by embracing diversity, you will get growth. You must have your eye on the future and not be distracted by reports of short-term market movements.

Spring is soon here, the sun will come out again.

If you’re interested in investing in a diversified commercial property fund, Pacific Property Fund Limited’s share offer is now live and you can visit www.pmgfunds.co.nz/invest for more information and a copy of our Product Disclosure Statement now. This article is not, and none of Pacific Property Fund Limited, its related entities, or their personnel provide, financial or investment advice.