Amid a subdued commercial real estate market in Australia and New Zealand
Pallas Capital originated $2.9 billion in new loans and investments in the 2025 financial year, marking a 54% increase from the previous year, despite what it described as subdued conditions in commercial real estate lending.
The volume spanned 316 transactions, with an average deal size of $9.3 million, according to group executive and head of credit Alexis Holloway (pictured above). Lending activity in the second quarter was slower, with settlements totalling $273 million in fully drawn limits. Holloway attributed the decline to a softer lending environment across the sector.
Growth was more pronounced in New Zealand, where Pallas settled $98.5 million in loans for the quarter. The firm also launched a full suite of construction lending products in the country, aimed at further solidifying its presence in the non-bank finance space.
Of the 87 loans settled in the quarter, 66 were first mortgages and 21 were second mortgages. Construction loans accounted for nearly 45% of the total. Loan repayments reached $27.7 million for the period, bringing total repayments since inception to $5.3 billion across 750 transactions. According to the firm, none of those loans resulted in capital or interest losses.
Investor sentiment in Australia remains cautious. Holloway said there is still underlying demand in the residential market, but many buyers are holding off until interest rates begin to ease. Forecasts from major banks suggest several rate cuts could occur between late 2025 and early 2026, potentially reactivating residential and commercial projects that have been on hold.
“Even the outlook for CBD Office, the most troubled asset class of this valuation cycle, is expected to move into recovery phase in most cities,” Holloway said, pointing to years of limited new supply as a factor that could support the rebound.
Conditions in New Zealand remain mixed. Holloway cited high vacancy rates and weakened asset values in CBD office and retail properties, but Christchurch has outperformed Auckland and Wellington. The firm’s new office in Christchurch helped drive a strong quarter of lending activity in that market.
Demand is currently strongest for investment loans on stabilised assets and pre-development loans for new sites. Holloway attributed this to conservative loan-to-value ratios being offered by banks and a preference among lenders to size debt based on interest cover ratios. Residual stock loans also gained traction, accounting for roughly 15% of second-quarter settlements, as developers grow more confident in selling remaining stock over the coming year.
While Pallas maintains an appetite for construction lending, Holloway cautioned that competition in the sector is pushing lending terms to aggressive levels.
“We are seeing some solid transactions in the market, but lending terms appear to be aggressive, so our deployment remains at moderate levels.”
