Rate shock hits property funds as Alvarium confirms losses

Investment firm Alvarium has openly acknowledged losses across parts of its New Zealand real estate portfolio, illustrating the pressures facing the commercial property market in a high-interest-rate environment. The admission reflects the ongoing reset in property valuations as financing costs climb and asset owners are forced to adjust expectations shaped during years of cheap capital.

For nearly a decade, commercial real estate benefited from low rates, high liquidity, and investor appetite for yield. Investors could borrow cheaply and purchase properties with the expectation that rental income and capital appreciation would more than cover borrowing costs. Rising interest rates have inverted that equation. When rates increase, capitalization rates rise, and valuations fall — even when occupancy remains steady.

Alvarium’s acknowledgment is significant because many property owners have delayed recognising losses on balance sheets, hoping valuations would recover. Marking assets to realistic market prices requires transparency and financial discipline, especially when refinancing cycles arrive and debt must be rolled over at higher interest rates.

New Zealand’s commercial property sector has seen several pressure points. Office demand has shifted due to hybrid work adoption, leaving secondary-grade buildings more vulnerable to vacancy and rent discounting. Tenants are negotiating harder — shorter leases, higher incentives, and contributions to fit-outs. Meanwhile, the cost of capital remains persistently high, and lenders are tightening conditions.

Industrial property — warehousing and logistics — has been more resilient due to sustained demand from e-commerce and manufacturing, but even these assets are affected by the higher cost of debt. Investors must now consider yield spreads relative to safer alternatives such as government bonds and term deposits. When deposit rates rise, capital naturally flows out of higher-risk property funds.

Alvarium’s willingness to publicly recognise losses gives it strategic flexibility. By resetting valuations now rather than deferring, it can reposition assets, renegotiate financing, or reallocate capital. Property cycles are long, and corrections often precede new waves of opportunity — especially when distressed sellers appear.

The broader lesson extends beyond Alvarium: the commercial property market is normalising after an era of unrealistic assumptions. Investors are no longer rewarded simply for borrowing and buying. The advantage now goes to those with low leverage, liquidity, and patience.

Real estate remains valuable — but leveraged real estate is vulnerable. In acknowledging losses early, Alvarium has moved from optimism to realism, a critical shift in a market where transparency is becoming a competitive asset.