• Overall market sentiment (measured by the NAB Commercial Property Index) lifted 9 points to +7 in Q2. It rose in all states (bar SA/NT), and was highest in VIC & NSW.
• By sector, sentiment was highest in Office (led by VIC & NSW). Industrial also out-performed with solid gains in the Eastern states. Retail improved but is still weak amid difficult Retail business conditions and subdued household spending. In the CBD Hotels sector, it fell to a survey low and has been falling steadily since Q3’18.
• A strong lift in confidence was noted in Q2. It remains highest in the Office and Industrial sectors. Retail also improved (but still negative) perhaps reflecting the outcome of the Federal election and firming expectations around rate cuts. Confidence slipped deeper negative in the CBD Hotels sector, possibly reflecting the potential impact of higher supply expectations.
• Capital growth expectations for the next year are highest for Office (1.9%), with the best prospects in VIC & NSW. Industrial values to grow 1.0% on average, with SA/NT and VIC out-performing. Capital values in Retail (-1.7%) and CBD Hotels (-1.8%) are expected to fall. Office (2.0%) and Industrial property (1.5%) tipped to lead the way in 2 years’ time, led by the Eastern seaboard states. Retail and CBD Hotels values are on average expected to fall a further by -1.7% and -2.6% respectively.
• National office vacancy rate was steady at 7.9% in Q2, with vacancy in VIC falling to 4.3%. Market tightness still evident in NSW (5.3%), but available space still high in WA (15.0%), SA/NT (12.5%) and QLD (10.7%). National vacancy rate is expected to inch down to 7.7% in 2 years’ time, with rising vacancy NSW and VIC (to still very low levels) offset by modest improvements in QLD, SA/NT and WA.
• Office property expected to provide the highest rental returns the next 1 -2 years (2.0% & 1.9%), with VIC out-performing. Industrial rents also tipped to grow over this period (1.1% & 1.9%), with VIC generating the highest returns in the next year and QLD in 2 years’ time. The outlook for Retail is negative (-1.4% & -1.1%) and expected to fall in all states (bar QLD with modest returns in 2 years’ time).
• The number of property developers planning to start new works in the next 6 months fell to 38% – well below average (49%). Only 44% of developers plan to start new works in the residential sector- also well below average (54%). These results are consistent with other activity indicators (such as housing approvals) which continue to suggest a slowing in residential construction.
• Property professionals signalled an improvement in their ability to access credit in Q2 – although the net number who said it was harder to obtain debt (-32%) or equity (-22%) continued to outweigh those who said it was easier. They also expect conditions to improve in the next 3-6 months (but still remain harder on balance).

Find out more in NAB Commercial Property Survey (Q2 2019)