Why Commercial Property Investment Still Matters for Charitable and 'For Purpose' Investors

In recent days and weeks, significant changes in economic and trade policies have created some nervousness among investors. However, it is important to remember that the year began with a positive outlook for the New Zealand economy.

Seasoned investors understand that economic cycles are inevitable and preparing for future downturns is essential. For charities and 'for purpose' organisations, achieving financial sustainability through prudent investment strategies is often essential to optimising an enduring legacy for the generations of today and tomorrow.

Data released in March indicated an improvement in New Zealand's economy after a challenging first nine months of 2024.  Although it is too early to tell what lasting impact the trade war will have on the local economy, it is possible that 2024 marked the nadir point of this cycle.  Inflation has eased to just over 2%, interest rates are expected to continue to soften, and consumer spending is likely to strengthen over 2025.

In a world of uncertainty, commercial property is an asset class that has demonstrated resilience over the long term and across various economic cycles.  It offers the potential for stable returns, can protect against inflation, and, for the charity sector, presents unique opportunities for mission alignment.

Let's explore why property should remain a cornerstone of any charity or ‘for purpose’ investor’s portfolio.

Steady Returns That Help Charities Plan Ahead

Charities depend on financial predictability to deliver long-term impact. Commercial property can provide that certainty, especially when compared to more volatile assets like shares.

According to research data provider MSCI, commercial property in New Zealand has averaged annual total returns of +9.8%[1] per annum since it began constructing its total return index for institutionally owned property in New Zealand way back in December 1994.  What’s more, the average annual income return over this period was +7.8% per annum. 

This is particularly impressive when you compare the performance against the return from New Zealand shares over the same period, which averaged a total return of 8.7% (inclusive of dividends reinvested).[2] 

For many charitable organisations, this level of consistency is as important as the return itself.

Trust Management’s Head of Property, Garry Anderson, notes, achieving strong outcomes isn’t about chasing trends. It’s about focus. “While financial markets are experiencing volatility, property remains a resilient asset class,” he says. “The key is strategic planning—understanding which property sectors offer stability and long-term growth.”

Reframing Illiquidity as a Strength

Many charities see the illiquidity of commercial property investment as restrictive. However, it can also be a driver of disciplined, long-term financial planning. It reduces impulsive decisions based on short-term market movements and helps charities and other long-term investors develop strategies that reflect their organisational values.

Trust Management Property Fund Portfolio Manager, Felicity Berry, explains how careful management of this characteristic benefits charities in the long run: "Illiquidity can actually be an advantage if managed correctly. Unlike the share market, directly held commercial property isn’t subject to daily market fluctuations. A well-structured portfolio—where assets are chosen carefully and actively managed—can provide both stability and flexibility to a portfolio."

Insulation From Inflation, Even When It's Low

While inflation has come back to within the Reserve Bank’s target zone of 1-3%, it nevertheless tends to fluctuate over time. Even small increases in inflation can undermine purchasing power, and for charities with limited resources, the effects can be magnified.

Commercial property can help to mitigate this risk. During periods of high inflation, lease agreements will often provide for regular adjustments, and so while capital may stay static, rental income can increase. An allocation to a commercial property fund that encompasses a blend of rent review mechanisms, including inflation-linked CPI reviews, can help to preserve the real value of rental income over time.

This feature can provide commercial property with an edge over fixed-income assets or term deposits, where the value of money can be severely eroded by inflation.

A Market That’s Changing and Opening New Doors

The dynamics of the domestic commercial property market have shifted in recent years.

Demand for low-quality office space has declined, in part, to the pandemic-driven shift to remote or hybrid working, however, premium office property continues to perform well. At the same time, industrial and large format retail properties such as supermarkets also present opportunities.

The industrial sector is expected to continue to perform well, with low vacancy rates and increased confidence among logistics companies about their space requirements. Online sales in New Zealand, at approximately 11%, are lower than other major countries and below the global average of 18%. As this penetration rate increases, it is likely to positively influence demand, and investment returns in the sector.  

Meanwhile, the large format retail sector is also seeing increased activity as the economy recovers. This growth is driven by a combination of limited new supply, low vacancy rates, and projected population growth.

Mixed-use developments that incorporate residential, commercial and community spaces are also on the rise in urban centres where there is a real need to utilise land more efficiently.

Aligning Investment With Community Impact

More than any other asset class, commercial property enables charities to embody their mission through their investments.

Whether it's building affordable housing, supporting local economic development or choosing properties that reflect environmental goals, commercial property can also generate social returns alongside financial returns.

Anderson sees this alignment as one of the most valuable aspects of property investment amongst ‘for purpose’ investors. “Investing in mixed-use developments or affordable housing initiatives can provide both financial returns and mission-aligned outcomes. For instance, the Trust Management ESG NZ Bond Fund invested $2m in social housing impact bonds to support the development of affordable housing in Waikato and Manurewa – investments that are expected to deliver market-level returns but with measurable social impact.” 

One key aspect of this process is research, which helps organisations:

·      Make evidence-based decisions

·      Understand community needs

·      Assess development viability

·      Track how investments contribute to social outcomes

·      Increase stakeholder confidence via transparent and accountable resource use, and

·      Promote financial resilience based on effective risk management

“It all comes down to strategy. Charities that take a proactive, research-led approach can ensure their property investments contribute not just to financial sustainability, but also to meaningful social outcomes,” explains Berry.

Examples are already in play. Some organisations use property to provide stable tenancy for community services, while others have invested in developments that serve vulnerable populations or regenerate underutilised land.

Looking Ahead

Commercial property won't suit every organisation in every season. But it stands out as an attractive asset class for those with a long-term outlook and commitment to social good.

Commercial property can offer steady performance, even when markets are uncertain. It can protect against inflation in ways few other assets can. And when chosen well, it ensures that an organisation’s investment strategy respects its purpose.

The economy will shift again, and trends are in a constant state of flux. Charities that invest in the stability of property will be best placed to meet the current and future needs of their communities.

How Can Charities Invest in Commercial Property?

There are several ways charitable organisations can invest in property:

·      Direct ownership: Buying and managing property assets independently.

·      Listed Property Trusts: Investing in real estate through publicly traded property funds.

·      Unlisted or Direct Property Funds: Participating in professionally managed private property funds.

A well-balanced strategy that includes different forms of property investment can help charities achieve both financial security and social impact. With the right approach, property investment remains a powerful tool for long-term resilience and mission-driven growth.

Is your property strategy delivering regular income and long-term growth? If not, we can help.

How We Can Help

[1] Source MSCI Property Council of New Zealand Quarterly Property Index. To 31 December 2024.

[2] Source: Bloomberg/ Trust Management.  S&P/ NZX All Index, dividends reinvested.  Quarterly holding periods. To 31 December 2024.

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About Trust Management

For over 20 years, we have built genuine relationships with 180+ clients, helping them deliver good by providing specialised services in finance, property and advisory.

As a registered charity ourselves, we are closely aligned with our clients, understanding that strong commercial foundations help charities achieve their purpose and build stronger communities.

Why we do it? When we help you, we help you to help others. Creating a ripple effect for good.

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Trust Investments Management Limited is the manager and issuer of the Trust Management PIE Funds Scheme, which comprises six PIE funds, including an unlisted property fund. A copy of the Scheme’s Product Disclosure Statement is available from www.trustmanagement.co.nz/investorresources