Summary Survey Findings

• Amid softening economic conditions during the June quarter, overall commercial property market sentiment dipped sharply with the NAB Commercial Property Index falling to a below average -11 index points after printing positive for the first time in 2 years in the last quarter (+7pts). Sentiment fell in all property sectors but varied widely. It was highest for industrial property (+41pts) and CBD hotels (+25pts) and lowest for retail (-39pts), with office also negative (-25pts).
• Confidence about the future also faded, with the 12-month measure falling to a below average +9pts and longer-term confidence to a below average +22pts, signalling that property professionals now believe market recovery will be weaker than previously anticipated. Lower sentiment and confidence in the June quarter survey was reported in all states bar WA, with VIC the clear under-performer in all sectors, particularly office and retail.
• The average survey expectation is for capital values to fall for retail and office property in the next 1-2 years, but grow for CBD hotels and industrial. The 12 month outlook is strongest for CBD hotels (2.3%). Industrial expectations also positive but scaled back (1.7%), with growth expected in all states. Office values are tipped to fall a smaller -1.7%, dragged down mainly by VIC (-4.4%) and NSW (-2.7%). Retail expectations pared back to -1.5%, with values falling in all states bar WA.
• Office vacancy reached a survey high 11.2%. It was highest and rose in WA (13.9%), touched a survey high 11.1% in NSW (11.1%), increased in QLD (11.9%), but moderated in VIC (11.7%). With heavy oversupply persisting, vacancy is expected to ease only slowly to 10.9% and 9.1% in the next 1-2 years, and remain above average in all states bar SA/NT. Industrial vacancy inched down to 2.9% signalling that available space is still limited, particularly in WA (2.0%) and QLD (2.3%). Industrial vacancy expected to start rising in the next 1-2 years (3.4% & 4.2%) as demand normalises and more space is added. Retail vacancy fell to 6.4% but is still above survey average and expected to climb to 7.1% in the next year.
• The outlook for rent growth is positive for industrial property supported by solid fundamentals. It is expected to grow by 2.8% and 3.1% in the next 1-2 years, with QLD outperforming the broader market (3.6% & 4.3%). In office markets, property professionals on average see rents falling -0.6% in the next year but register modest growth of 0.3% in 2 years’ time. But near-term expectations vary across states with rents expected to continue falling in VIC (-1.7%) and NSW (-1.3%), grow fastest in SA/NT (1.3%) and remain basically flat in WA (0.2%) and QLD (-0.1%). VIC (-0.5%) and QLD (-0.1%) also the only states reporting further declines in the next 2 years. The outlook for retail rents was also pared back with rents now expected to fall -0.8% and -0.3% in the next 1-2 years, with WA (1.8% & 2.8%) a clear out-performer.
• Perceptions about the ease of obtaining debt funding were unchanged in Q2, with 24% more property professionals reporting it was more difficult than easier (-24% in net balance terms). But perceptions about acquiring debt in the next 3-6 months faltered, rising to -17% (-12% in Q1). Accessing equity funding is still viewed as being easier than acquiring debt funding, though the net number who reported it was harder in Q2 rose slightly to -20% (-18% in Q1) – reversing a trend improvement seen in recent quarters. Looking ahead, more property professionals also believe accessing equity will be harder in the next 3-6 months, with the net number rising to -17% (-10% in Q1).
• The average pre-commitment to meet external debt funding requirements for new developments in Q2 held steady at 56% for residential property but rose to 59% for commercial property (56% in Q1). Looking ahead, significantly more survey respondents see commercial requirements worsening in the next 3-6 (-15%) and 6-12 months (-9%). More also expect requirements for residential property to worsen in the next 3-6 (-12%) and 6-12 months (-8%).

Read the full report here: NAB Commercial Property Survey (Q2 2024)