NAB Quarterly Australian Commercial Property Survey Q1 2020
The NAB Commercial Property Index fell 8 points to a below average 0 in the March quarter.
The NAB Commercial Property Index (a measure of commercial property market sentiment) fell 8 points to a below average 0 in the March quarter.
While the coronavirus is likely to have played some role in pulling sentiment down, the survey was conducted between 25 February and 23 March and pre-dates the impact to the economy and business confidence from stricter containment measures.
Sentiment around Office (down 3 to +26), Industrial (down 7 to +7) and Retail (down 2 to -27) property fell modestly during the quarter, but CBD Hotels were hit hard (down 55 to -38).
According to NAB Chief Economist Alan Oster; “Travel restrictions and quarantine measures appear to have impacted this market immediately, with the survey estimating hotel occupancy rates plunged to 68% in the March quarter, from 83% in the previous quarter”.
The hit to overall confidence in commercial property markets from the coronavirus has so far been relatively muted. The 12-month measure was down 4 to +9, and the 2-year measure down 1 to +17.
“But if the coronavirus impact on the broader economy is sustained, it is likely to feed through into much lower commercial property market confidence in the future” warned Mr Oster.
Average capital growth expectations for the next 12 months moderated for Office (0.9%) and Industrial (0.9%) property but remain positive. Retail property values are expected to fall harder (-1.4%), with values lower in all states, Capital growth expectations are weakest for CBD Hotel property (-2.8%).
The national Office vacancy fell rate slightly in Q1 (7.5%) and is expected to hold steady at 8% over the next 1-2 years, as modest rises in NSW and VIC (to still low levels) are offset by falls in QLD, SA/NT and WA. Retail vacancy however climbed noticeably to a survey high 6.9% in Q1, and it is expected to increase further in the next 12 months (8.0%), likely reflecting coronavirus-related shutdowns and business failures.
With many tenants reportedly struggling due to the coronavirus-led economic downturn, the rental outlook for the next year is noticeably weaker for Retail property (-2.5%), with bigger falls expected in all states. In contrast, rental expectations for Office (1.0%) and Industrial (0.5%) property are broadly unchanged.
“As it becomes increasingly clear that efforts to contain the coronavirus are having a very sharp impact on the economy, the true impact on commercial property capital values, rents and vacancy will depend on how long the virus takes to get under control, the extent of the containment measures and the timing of the phasing back to normal” said Mr Oster.
In other key survey findings, there was a substantial increase in the number of property developers that pushed out their timings for starting new work, also suggesting growing uncertainty over the outlook for construction.
The survey did reveal a further improvement in debt funding conditions in Q1, but property professionals said it was harder to obtain equity funding in the wake of heavy falls in the share market following the coronavirus outbreak.
Looking ahead, the outlook for debt and equity funding conditions in the next 3-6 months is now also weaker than predicted in the previous survey.
Around 320 property professionals participated in the Q1 2020 survey.
For further information, please see the NAB Commercial Property Survey (Q1 2020).