October 22, 2018

NAB Quarterly Australian Commercial Property Survey Q3 2018

Overall sentiment in commercial property markets (measured by the NAB Commercial Property Index) fell 9 points to a 2-year low +8 in Q3, but is still well above long-term average levels (+3).

  • The NAB Commercial Property Index fell 9 points to a 2-year low +8 in Q3, but is still well above long-term average levels (+3).
  • Sentiment was lower in all sectors, except CBD hotels (unchanged and strongest), ahead of Industrial (down slightly). Office sentiment fell sharply (weakest read in almost 2 years), while Retail sentiment dived further into negative territory.
  • Confidence in commercial property markets fell to new Survey lows. It was weakest in Retail (new lows) and fell sharply (but positive) in the bouncy CBD Hotels sector. More moderate falls were noted in Office and Industrial property markets, and they are expected to be the best performing asset classes over the next 1-2 years.
  • By state, overall sentiment fell in VIC and NSW (strongest overall). QLD was slightly higher. Sentiment also improved in SA/NT and WA (but negative). Confidence fell in all states, bar SA/NT (but weakest state and negative). Confidence highest in NSW.
  • Average Survey expectations for capital growth over the next 1-2 years were revised down for Office property (1.1% & 1.1%). Expectations for Industrial property were also shaved a little (1.0% & 1.2%), and Retail more  negative (-1.4% & -1.7%). Expectations for CBD Hotel property were unchanged (1.0% & 0.7%).
  • National Office vacancy fell to 8.0% in Q3 (lowest since mid-2013). Lower vacancy was reported in VIC (4.7%) and NSW (5.2%) amid sustained tenant demand. In QLD, it rose a little (10.4%) and also in WA (14.7%) amid subdued occupier activity.
  • Office (1.2% & 1.8%) and Industrial (1.2% & 1.9%) rents expected to out-perform in next 1-2 years. The outlook for Retail rents (-1.5 % & -1.4%) has weakened further and even more negative. Retail rents are expected to fall in all states.
  • Special question: Biggest risks facing commercial property investors and developers in next 12 months. For investors, changing bank risk appetite is the biggest risk, followed by increased debt funding costs and domestic/international political uncertainty. For developers, availability of debt capital for development finance affecting ability to start new projects is the biggest risk, followed by availability of debt capital for unit purchasers affecting end demand, delays in obtaining satisfactory pre-sale levels and rising construction costs.
  • Fewer property developers are looking to commence new projects or source more capital in the short-term. Developers targeting residential projects fell to Survey low 44% – consistent with recent data showing new dwelling approvals also dropping.
  • Property professionals said accessing debt in Q3 was the hardest since the Survey began in 2010, while equity funding was also more difficult than at any time in past 6 years. They also think it will be harder to obtain debt or equity in next 3-6 months.

For further information, please see the attached documents: