Quarterly Australian Commercial Property Survey – September 2012

NAB Commercial Property Index hits new low of -19 points in Q3 2012 as domestic economy passes through a soft patch with business conditions weaker and forward indicators concerning. Retail participants least optimistic, but expectations soften most in office and CBD Hotel markets.

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NAB Commercial Property Index hits new low of -19 points in Q3 2012 as domestic economy passes through a soft patch with business conditions weaker and forward indicators concerning. Retail participants least optimistic, but expectations soften most in office and CBD Hotel markets. WA strongest market nationally. Victoria weakest with less property professionals expecting positive capital or income returns in office and retail markets. Consumer confidence seen as the main challenge for property firms in the next year.

  • Property professionals saw national capital values falling in all sectors in Q3 2012, with values down most for retail. CBD hotels enjoy strongest outlook (1.8% by Q3 2013 and 3.8% by Q3 2014). Industrial values to rise 1.3% and 2.8% in next 1-2 years respectively. Office values also rise 0.4% in next year and 1.8% by Q3 2014. Retail participants least optimistic with values expected to fall -1% in next year and -0.2% in next 2 years.
  • National rents less negative in industrial and retail markets but weaker in office market in Q3 2012. Expectations pared back in office market with average rents to rise just 0.3% in next 12 months and 1.8% by Q3 2014. Retail expectations also pared back to -1.7% in next year and -0.8% in next 2 years, but expectations for industrial revised up to 1.5% in next year and 2.5% by Q3 2014.
  • Leasing incentives still considered to be very important in office and retail leasing markets, but somewhat surprisingly, slightly less so than in the previous survey.
  • Supply conditions in national office market neutral in Q3 2012 with tighter market in WA offsetting modest supply overhang inVictoria, Qld and SA/NT. All state retail markets “somewhat” over-supplied in Q3 2012 and set to remain so in next year. Industrial market balanced in all states barVictoriawhich is mildly over-supplied, but national market to tighten in next 3-5 years, mainly in WA and Qld. CBD hotel market to remain under-supplied.
  • Vacancy inches down in all markets in Q3 2012. Weak supply pipelines and projected improvement in overall operating conditions to drive vacancy rates lower in industrial and office markets in the next 2 years, but vacancy to remain broadly unchanged in retail where operating conditions are expected to be more difficult.
  • Many developers still hesitant to commence works in the near-term and time-frames for starting new projects/developments were pushed out in Q3 2012.
  • Debt and equity funding seen as more difficult in Q3 2012, with conditions reportedly toughest in Victoria and SA/NT. Access to funding is expected to improve slightly in both channels over the next 3-6 months but remain negative. Fewer respondents also planning to source more capital in the short-term. Expectations on bank precommitment requirements fell further and expected to continue easing in the next 12 months.
  • Consumer confidence still seen as the biggest challenge facing property firms but concerns over government regulation/red-tape and stock levels also a growing challenge. Business costs are expected to have the biggest impact on property businesses over next year.

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