July 27, 2017

NAB Quarterly Australian Commercial Property Survey: Q2 2017

NAB Group Chief Economist Alan Oster says that commercial property sentiment continues to vary widely by sector.

Commercial property market sentiment remains well above its long-run average, despite moderating slightly in the June quarter, with NAB’s Commercial Property Index down 4 to +23. The long-term average for the Index is +1.

NAB Group Chief Economist Alan Oster said that sentiment continues to vary widely by sector, with the Office segment continuing its positive run (up 4 to +39) while Retail sentiment dropped to its lowest level since late-2014 (down 11 to +6).

“While we continue to see the Retail sector suffering from constrained consumer spending and difficult retail conditions generally, it’s pleasing to see that sentiment for commercial property outside the retail space is well above the long-term average.

“By state, the decline in overall market sentiment was dragged lower solely by NSW, with improvements reported in all other states. Sentiment improved most in Victoria (up 24 to +41) and was higher in all property sectors in the state.

Overall confidence levels in commercial property markets fell in the June quarter and moderated in all sectors. Confidence fell most in CBD hotels, but from very high levels, and it has now been replaced by Office as the most upbeat sector.

“Retail is the least confident segment and this is in keeping with our outlook for household consumption given headwinds from elevated household debt and a continuation of subdued wages growth,” said Mr Oster.

By state, confidence moderated in NSW (from very high levels) and improved most in Victoria. Confidence also lifted in Queensland and WA.

The latest survey found that average expectations for capital growth over the next 1-2 years in the Office sector remain highest in NSW (4.1% & 3.8%) and Victoria (1.9% & 3.2%). They were revised down in Queensland (0.5% in both years), but are expected to turn positive in WA in 2 years’ time (-1.4% & 0.3%) after a long period of decline.

Other findings include the expectation that Office rents will grow fastest, led by NSW and Victoria. Prospects for Retail rents were pared back, with the outlook weakest for WA and strongest in Victoria. NSW and Queensland are expected to provide the best income returns for Industrial property.

Meanwhile, national Office vacancy crept up in Q2 (9.7%) and in all states bar NSW (where tenant demand is very strong) and WA where they remained stable at very high levels. Vacancy rates in the Office sector are expected to fall in the next 1-2 years however, with NSW and Victoria the tightest markets.

Property experts also said the ease of obtaining debt is now harder than at any time since late-2011. Lending terms for development loan approval are also more difficult with average pre-commitments climbing to their highest level since mid-2012 – and expected to climb higher in the next 12 months.
Around 260 panellists participated in the Q2 2017 Survey.

For further analysis download the full report:

Commercial Property Survey: Q2 2017 (PDF, 512kb)