Commercial property doesn’t need to be the preserve of big-time investors

Tuesday, 17 March 2026

A high-end office building on Wellington’s the Terrace might be far out of reach for most investors, but a tiny share of it may be another story writes Martin Hawes. (File photo)

Martin Hawes is a financial writer and presenter, and has written 25 personal finance books. He writes a weekly column.

OPINION: When most people debate the merits of investment property, they are not usually thinking about office towers, warehouses or shopping malls. Instead, they are thinking of using the equity that they have in their home to buy a second house, or perhaps a flat or two.

For many, a flat or a house has been people’s own little retirement fund; something that might not make them wealthy but, with some work, give a reasonable retirement.

However, when investment professionals talk about property, they are thinking of commercial property: mostly offices, industrial and retail.

While I have doubts about residential property as an investment, I think commercial property is an excellent investment. It gives high net rental yields, income growth, tax efficiency, security of income and capital gains.

However, there is a major problem with investing in commercial property for most small, private investors: commercial property tends to be very expensive. Good quality commercial property is usually well outside private investors’ price range. That building that you might admire on the Terrace is probably worth tens of millions of dollars.

The prohibitive price leads those who want to invest in commercial property to compromise on quality: instead of the office tower on the Terrace, they end up buying some third-rate building in the suburbs leased to a barber on a month-by-month lease.

That office tower on the Terrace is clearly well located, it could be full of lawyers, accountants and other businesses all of whom are most likely to meet the rent for years to come, and the building is sure to have a high stud and be very well built. On the other hand, the building in the suburbs could be an old shop with no parking and leased to someone who could head off to Sydney on a month’s notice.

Of the two buildings, I know which one I would rather have as an investment!

I do like commercial property as an asset class and although I cannot afford a building which is first rate, there is another way of getting the exposure.

For many smaller scale investors, seemingly the only way to get into commercial property is by buying an old shop in the suburbs with limited security of tenancy, writes Martin Hawes.

That way is to buy shares in one or more of the listed property trusts (often known as real estate investment trusts or REITs), and so own a small fraction of excellent buildings.

There are about nine REITs listed on the New Zealand share market. These own large property portfolios and as such give good exposure to commercial property. The managers of the REITs buy commercial property, bring in the rent, pay costs (including interest on any debt that they might have) and then they pay the profits out as dividends.

At the moment the average expected gross dividend yield from them is around 8% (before tax). The REITs are tax efficient because they are portfolio investment entities (PIEs) which means that you pay tax on dividends at a special rate (like your KiwiSaver).

Of course, because the shares in the various REITs are listed on the share market, there is some volatility. The value of the REITs’ properties (and therefore the price of their shares) will fluctuate – for example, if interest rates rise, the value of the shares will usually fall.

Each of the REITs may own many properties with hundreds of tenants which gives good diversification. Some tend to specialise in certain types of commercial property – for example, Precinct owns a lot of office buildings, Vital owns healthcare buildings, Goodman Property Trust owns mostly industrial and logistics property.

Because the REITs are listed, you can buy or sell them on the share market at any time – unlike buying actual buildings, the shares are a liquid investment. Nevertheless, I encourage people to buy for the long-term – commercial property tends to be a long, steady performer rather than something that you might trade for a quick profit.

Generally, the REITs will own very good quality properties – good buildings in good locations leased to good tenants. That building on The Terrace could be owned by a REIT– if you buy shares in that REIT, you are a part owner.

I do like property as an investment but have never wanted the hassle of buying residential property, nor wanted to compromise in commercial property by buying poor quality property. I have long thought it better to own 0.00001% of a first-class portfolio of properties than 100% of a very ordinary sort of property. Liquidity, tax efficiency, and quality buildings makes a very attractive package.

Martin Hawes is not a financial adviser and the information and opinions here should not be taken as advice to buy or sell any investment or security.