Q2 2026 | Industrial and Commercial Market Commentary

The general property market had been extremely firm and strong over the period of 2018 to 2023, with strong interest for good quality investment assets across most price levels.  Good quality properties which form solid investments with good quality tenant and lease covenants, situated in good locations, were in very high demand and as a result yields compressed over those years due to increased competition from investors.  High valued assets did still incur a slight yield premium over that of lower-cost investments.  In some instances, yields retracted to below 4.0% which would not be considered sustainable long term.

Over the past 24 months (2023-2025) there was a noticeable change in investor confidence due to high inflation and more particularly increasing interest rates.  Confidence has weakened, and demand for investment property has reduced significantly, mostly attributed to the higher interest rates.

 Commercial/industrial assets within Tauranga during 2022/2023 were achieving yields ranging from 4.5% to 7.5% (excluding outliers), with an overall average in the vicinity of 4.7% (2022) and 5.5% (2023) respectively for commercial properties, and 3.0% to 7.0%, with an average overall in the vicinity of 4.4% (2022) and 5.3% (2023) respectively for industrial properties.  However, these included outlying assets such as low yielding properties ripe for redevelopment, with high underlying land values, and some under-rented or partially vacant properties. The majority of the evidence was between 4.5% and 5.5%.

However, since Q1-2026, although inflation appears to be under control, long term forecasts are still variable and some economists’ forecasts suggest that the OCR may increase in the short to medium term due to upward pressure from inflation. At present, interest rates look as though they may start to increase which is highly likely to affect yields.  We have now seen the OCR increase from 0.25% (August 2021) to 5.50% (July 2024) and subsequently fall to 2.25% (November 2025) where it remains as at April 2026. The impact on investors’ expectations on yields is highly likely to mirror that of the changes to the OCR which influences interest rates.  We are still seeing a few low yielding property sales, however these may be attributed to low denomination sales / units, over-willing or uninformed purchasers who do not require financing or have alternate motives for purchase other than for investment purposes.  While term deposit rates had risen significantly over the previous 24 months for deposit rates which were in the vicinity of 6.0%, they have subsequently compressed and as at Q2 2026 they are in the vicinity of 3.5%-3.75% for low risk investment returns from mainstream banks. One would expect property yields to reflect a premium over low risk investments such as bank deposit rates.  There has been an absence of sales in Tauranga/Bay of Plenty to see any noticeable similar effects.  From experience, the commercial/industrial property market tends to lag some 6‑12 months behind the residential market. We have already seen some consolidation and reduction in property values in the residential market. We can only therefore assume that the commercial/industrial market may follow a similar trend to the residential market. 

The market is in a period of uncertainty. Historic yields were in the vicinity of 3.5%-5.0% during a period when the OCR was 0.25% and term investment interest rates were below 1.0% and lending interest rates were in the vicinity of 3.0% and 5.0%. As can be seen in the graph, the OCR, term investment interest rates and lending interest rates all increased significantly circa 2022 to 2023 but have subsequently decreased post 2023 to 2025, however the property yields are yet to fully reflect these changes in the economy. We believe that there is a very strong possibility the property yields will change to reflect the changing market, however property yields did not fully mirror the 2022 to 2023 increases.

Capitalisation Rates, Lending Rates, Term Deposit Rates 2011 - March 2026