Market Update 23 Sep 2025: Why Smaller Units Are Outperforming - And What Investors Need to Watch

Giving you exclusive insights into the New Zealand property market and keeping you updated with the latest in property investment concepts.

Property market update for September 23rd, 2025. You can read last week's market update here.

Residential investment trends in New Zealand are shifting - and fast. New data from Q2 reveals a surprising performance gap between property types, with smaller units delivering stronger returns than traditional three-bedroom homes.

But before jumping into the numbers, there’s a critical detail investors need to understand: not all high-yield properties are created equal.

Three-Bedroom Homes Are Falling Behind

For years, standalone three-bedroom homes have been the go-to for many Kiwi investors. But the latest figures show they’re now delivering the weakest returns nationwide. The latest data shows average gross yield for 3-bed properties sits at just 5.7%, with Auckland showing the lowest cashflow performance across the board.

In a market where interest rates remain high and capital growth is subdued, this underperformance is hard to ignore.

The Upshot? Smaller Units Are Outperforming

Too few investors seriously consider one-bedroom units, and that’s a missed opportunity.

These properties are often overlooked in favour of larger homes, but the numbers tell a different story.

Lower entry prices, stronger yield profiles, and consistent tenant demand make them a compelling option, especially in today’s economic climate.

The data is clear:

• One-bedroom units posted a gross yield of 10.2% nationally, and up to 16.4% in Auckland
  

• Two-bedroom units also performed well, with Auckland yields reaching 5.6%
  

These figures suggest that smaller units, particularly in urban centres, may offer a more sustainable path for investors focused on cashflow and long-term portfolio growth.

But There’s a Catch: Leasehold Distortion

Some of the standout yield figures, especially in Auckland’s CBD, are skewed by leasehold properties. These deals often look attractive on paper, but the numbers hide serious risks:

• You own the building, not the land
  

• Ground rent increases over time
  

• Banks may require 50% deposits, limiting leverage
  

• Resale values can collapse, even when rental income appears strong
  

In other global markets, leasehold ownership is common. But in New Zealand, this structure is fundamentally flawed for long-term investment. We’ve broken this down in detail in our

Thrive article:👉 The Worst Investment You Can Make: Leasehold Properties

Investor Takeaway: Focus on Yield, Ownership, and Sustainability

In this market, where interest rates are high and capital growth is lagging, cashflow is critical.

One- and two-bedroom units are delivering stronger returns and may offer a more reliable path for investors looking to grow their portfolios sustainably.

But when reviewing data, be sure to look closely at the details. Leasehold properties can distort the numbers and cloud your judgement. Focus on freehold and unit title options that offer real upside, bank-friendly terms, and long-term stability.

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