4 Sep 2023
In a challenging and dynamic economic environment, investing wisely demands strategic thinking and adaptability. And with continuously growing investment options, commercial property is known to provide long-term stability and attractive returns.
With PMG’s well-established 30-year track record in commercial property investment, we’ve learned to structure our strategies in a way that enables us to navigate market cycles efficiently. In the current market for instance, we’re honing our focus on expanding investments within the New Zealand wholesale capital markets.
Diversification is a cornerstone of our strategic approach, echoing the sentiment of other investment areas and setting our funds up for optimal long-term performance.
Short-term vs. long-term investment
Before delving into the intricacies of diversification, it's important to grasp the nuances of short-term and long-term investments in New Zealand's commercial property landscape.
While ‘short term’ in most cases refers to periods of six months to a year, the context changes for commercial property, where short-term investment may mean two to three years, and long-term investment extends that period to beyond five years.
Given the typically illiquid nature of commercial property and its potential returns over extended periods, opting for a prolonged investment tenure is considered prudent.
Investing less, investing longer
Capital appreciation (the variance between purchase and sale prices) plays a key role in the effectiveness of a long-term investment approach, especially in terms of commercial property. Graph 1 (CBRE, 2023) demonstrates trends in value movement over time.
Although buying property as an individual is challenging right now due to bank loan rationing and high interest rates, property funds are more accessible for most investors. Owning shares or units in a property fund allows you to buy into the property market at an affordable level. You’re then positioned to benefit from the recovery without having to worry about rising interest rates or parting with a massive deposit.
You can invest a relatively small amount of capital in unlisted property funds which will provide diversified exposure to high-quality real estate valued at hundreds of millions of dollars, and all the benefits the sector provides. That’s a world away from the hundreds of thousands you’ll need to find to concentrate on one property, even at lower prices.
Diversification is key
Managed commercial property funds provide a number of benefits over stand-alone syndications and cash investments. One of these benefits as mentioned above, is diversification, which enables us to spread risk by having several properties, with a mix of tenants, in different locations in one fund. This enhances the resilience of investments should one property, tenant or region not perform as expected.
Through this diversification and active portfolio management, PMG’s funds have stood the test of time through multiple economic cycles. Compared to syndications, they have a proven history of low volatility, delivering regular and reliable returns over time.
At PMG, we diversify through:
1. Property type
Office buildings: Versatile spaces tailored to meet businesses' unique needs. Longer lease terms offer more stability, although still subject to market trends.
Warehousing and industrial: Typically located outside main cities or city fringe areas, and includes large R&D facilities, factories, distribution centres and large warehouse spaces.
Retail: Includes large-format retail properties, lifestyle and shopping centres with popular anchor tenants such as Woolworths or Kmart.
Education: Includes purpose-built educational facilities, specifically in the early childhood education sector.
2. Location
Regarding location diversification, we acquire properties in stable markets such as in major cities like Auckland, Wellington, and Christchurch for office spaces.
We also look at areas outside the main cities, with growing populations and infrastructure, and potential areas where renting, for instance, warehouse space can yield long-term stability in rental income.
PMG’s funds have properties in locations across New Zealand’s North and South islands including Auckland, Hamilton, Tauranga, Wellington, Christchurch, Palmerston North, Whangarei, Blenheim, Invercargill and Hastings.
Diversification spurs success
While there is inherent risk in any investment strategy, a diversified portfolio helps mitigate risk while amplifying returns. The rewards of diversification, coupled with a comprehensive understanding of market dynamics, can position investors for success.
Read more about how PMG identifies opportunities here, and about our diversified funds here.
Disclaimer: The information in this blog is of a general nature and was current on 23 August 2023. It is not intended to be regulated financial advice for the purpose of the Financial Markets Conduct Act 2013, and does not take your individual circumstances and financial situation into account. PMG does not provide financial advice. Please seek advice from a licensed financial advice provider before making any investment decisions.
