NAB Quarterly Australian Commercial Property Survey Q2 2021

Q2 NAB Commercial Property Survey shows confidence edged higher, but recovery will remain slow.

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Overview

  • Commercial property market sentiment is still negative but continuing the slow recovery from the COVID-induced downturn in mid-2020. The NAB Commercial Property Index lifted for the fourth straight quarter in Q2, but is still negative (-7 pts), after falling to -62 pts one year ago. It should be noted the survey pre-dates lockdown in NSW (but captures VIC) which saw business conditions and confidence take a hit in NAB’s June Business Survey.
  • Sentiment improved in all sectors but is still disparate with Industrial the only sector to weather and thrive through COVID. In Q2, Industrial sentiment rose to a survey high +48. It also lifted in Office (-20) and Retail (-30) – though still negative, and bounced for CBD Hotels (0) despite ongoing tourism challenges.
  • Confidence lifted with the 12-month measure positive for the first time since Q1 20 at +4 pts and the 2-year read up to +22. Confidence still being carried by Industrial – particularly in Eastern seaboard states . It remains negative in Retail (-15 pts & -1 pts) and flat in CBD Hotels. COVID still also weighing on short-term Office confidence (-9 pts), but the 2-year measure was up 4 pts to +15.
  • Sentiment lifted in all states in Q2 bar WA where it fell to -30 pts (and lower in all sectors), to replace VIC (-17) as the weakest state. QLD (+9) and SA (+21) the only positive states. Short-term confidence negative in WA (-17 pts), VIC (-9 pts) and NSW (-1 pts) in next 12 months and positive in QLD (+20 pts) and SA/NT (+24 pts). Longer-term confidence positive in all states, and highest in SA/NT (+38 pts) and QLD (+26 pts) and lowest in NSW (+10 pts) and WA (+11 pts).
  • On average, the survey sees Industrial values rising (2.3% in 12 months & 3.0% in 2 years), and in all states with NSW (3.8% & 3.9%) and QLD (3.5% & 3.3%) highest. Office values to fall -0.3% in 12 months and grow 0.8% in 2 years’ time, but negative in VIC (-2.0% & -0.1%). In Retail, values set to fall -0.2% in 12 months and grow 0.4% in 2 years, with CBD Hotels at -0.6% & 0.5%.
  • National Office vacancy lifted to a survey high 10.9% in Q2. All states saw higher vacancy bar SA/NT, with rates in VIC now having more than doubled to 10.9% from 4.0% in Q1 2020. National vacancy is expected ease to 10.6% in the next 12 months’ and 9.7% in 2 years’ time with most states improving – but remaining higher than survey average levels in all states.
  • Rents In the next 1-2 years expected to fall most in Retail (-2.2% & -1.0%) and down in all states bar QLD. Office rents now expected to fall a smaller -1.3% in 12 months and -0.1% in 2 years, with the outlook weakest in VIC (-4.2% & -1.9%) and NSW (-1.5% & -0.7%). Outlook for Industrial is positive at 2.1% & 2.4%, with rents expected to grow in all states, led by QLD (4.1% & 3.6%).
  • The number of developers expecting to start new works in the next 6 months up sharply to 57% (highest since Q3 2015), suggesting construction sector should stay robust in near-term. Large pipeline of work already put in place means dwelling investment should also continue to grow over much of 2021, with Q2 survey also indicating 51% of developers planning to start new projects are targeting residential developments (41% in Q1).
  • Funding conditions improved again, with survey respondents indicating debt and equity funding conditions in Q2 were their easiest since mid-2015. Property professionals also see debt conditions improving further in the next 3-6 months, with the number who think access will be easier for equity funding outweighing those who think it will be harder (+2%) – the first time expectations have been positive since late-2015.

For further information, please see the NAB Commercial Property Survey (Q2 2021)