NAB Quarterly Australian Commercial Property Survey Q3 2015

Office property re-emerges as the strongest commercial property sector. Overall sentiment in Australian commercial property markets has moderated a little, but it remains at elevated levels and continues to vary widely across sectors and states.

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Office property re-emerges as the strongest commercial property sector. Overall sentiment in Australian commercial property markets has moderated a little, but it remains at elevated levels and continues to vary widely across sectors and states.

Sentiment eased in most sectors (particularly CBD hotels), but this was largely offset by a big improvement in office. It is also still deeply negative in WA and SA/NT, while NSW and Victoria remain the most upbeat states.

On the development front, more property developers are looking to commence new projects in the short-term (led by residential projects), despite increasingly difficult funding conditions.

The NAB Commercial Property Index fell to +10 points in Q3, down slightly from a Survey high +11 in Q2. According to NAB Group Chief Economist Alan Oster: “The index was dragged down by weaker sentiment in most sectors, particularly CBD hotels. Office was the exception, and it has re-emerged as the strongest sector overall after lagging all other sectors since mid-2013”.

Sentiment also continues to vary widely across states. It is still deeply negative in WA and SA/NT, neutral in Queensland and positive in NSW and Victoria. NSW continues to be the most optimistic state for commercial property looking forward, and WA by far the most pessimistic (particularly in regards to office and retail property).

By sector, property professionals operating in office (especially in NSW and Victoria) and industrial markets (led by Queensland and NSW) are the most confident when looking to the year ahead, with CBD hotels lagging. Looking further ahead, confidence levels are broadly similar across all market segments in 2 years time, with CBD hotels the big improver.

The Survey suggests capital growth the next 1-2 years will be strongest for office property (1.5% & 1.4%), followed by industrial (1.1% & 1.3%) and retail (0.9% & 1.2%). Expectations for capital growth in CBD hotels have however been scaled back (-0.6% & 0.3%).
Positive rental returns are also forecast in all sectors in next 1-2 years, led by big upward revision in expectations for office rents (especially in Victoria).

“This is the first time the outlook for rents has been positive across all sectors since late-2010” said Mr Oster.
The Survey also points to an improvement in developer confidence this quarter, with the number of developers planning to commence new works in the next 6 months rising to 60%, up from 48% in Q2.

According to Mr Oster: “Hopefully, this will translate into stronger building construction, particularly as property developers have also noted a further deterioration in their debt and equity funding situations”.

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