Overview

• The NAB Commercial Property Index eased to +1 pt in Q2 (+11 in Q1) amid reports market is starting to respond to higher inflation and interest rates. The Index was led down by a big shift in Office sentiment that saw the sectoral index drop to -14 pts (+10 in Q1). Retail sentiment was also more negative (-17 pts), but Industrial sentiment remained at high levels (+57 pts). CBD Hotels Index neutral with survey showing big pick up in occupancy to 71.7% (58.3% in Q1).
• Confidence weakened in Q2 with the 12-month measure down to +8 pts (+19 in Q1) and 2-year measure to +22 pts (+29 in Q1). Confidence held up by Industrial sector, with Office back in negative territory and Retail also negative.
• Market sentiment lower in all states in Q2 bar QLD (and highest overall). It was neutral in NSW & SA/NT and negative in WA & VIC. Short-term confidence now negative in WA & VIC, and positive (but lower) in all other states led by QLD.
• By sector, Office confidence eased across the country, with a very negative outlook reported for WA & VIC in the next 12 months, and remaining negative in VIC in the next 2 years. Retail confidence was higher in the Eastern seaboard states, and Industrial continued to out-perform the broader market in all states.
• Industrial capital growth to out-perform other sectors in the next 1-2 years (2.8% & 2.7%), led by NSW but also tipped to grow in other states. Outlook for Office values now negative (-1.0% & -0.6%), and wound back and expected to fall in all states bar QLD, with VIC weakest. The outlook for Retail growth also revised down (-1.1% & -0.4%), and expected to fall in all states, except SA/NT.
• The survey pointed to lower Office vacancy in Q2 at 9.2% (10.1% in Q1), with higher vacancy in WA (12.4%) & VIC (11.2%) offset by falls in NSW (7.1%), QLD (11.0%) & SA/NT (7.0%). National vacancy expected to fall to 9.0% & 8.3% in the next 1-2 years, but range from 7.1% & 6.9% in NSW to 11.6% & 10.4% in WA.
• Outlook for Office rents pared back in Q2 to -0.3% & 0.5% in the next 1-2 years (0.6% & 1.4% in Q1). QLD & NSW to out-perform, with expectations weakest in VIC. Retail rents expected to continue falling (but at a slower -0.9% & -0.3%), with rents falling in all states bar WA & QLD. The outlook for Industrial rents is a touch softer but still strong (3.5% & 3.7%), with rents expected to grow in all states with the biggest increases expected in the Eastern seaboard states.
• Number of developers planning to start new works in next 6 months fell to a 3 year low 38% in Q2, with below average numbers starting on residential (48%), Office (10%) or Retail (5%) property. But with Industrial supply still very limited, the number planning to start works in this sector remains above average (16%).
• With interest rates rising and expected to continue rising into 2023, more property professionals said it was harder to obtain debt (-20% from -13% in Q1) or equity (-14% from -9% in Q1) funding. The number expecting debt and equity funding conditions to worsen in next 6 & 12 months was also sharply higher.

For further information, please see the NAB Commercial Property Survey (Q2 2022)