NAB Quarterly Australian Commercial Property Survey Q3 2019

The NAB Commercial Property Index fell 4 points to +3 in Q3 2019, in line with its long-term average (+3).

By

The NAB Commercial Property Index (a measure of commercial property market sentiment) fell 4 points to +3 in Q3 2019, in line with its long-term average (+3).

NAB Customer Executive Commercial Real Estate Lucia La Bella said: “Despite the fall, it’s interesting to note the overall index is in line with the long-term average, which I think would come as a surprise to most especially given the general negative view of the market in recent times.”

By state, market sentiment fell steeply to multi-year lows in VIC and NSW, with the NSW state index posting its first negative read since mid-2014. QLD was the big improver, led by sharply higher sentiment around Office property, where the improved economic environment has reportedly bolstered leasing activity. WA continues to under-perform.

By sector, stronger segments like Office and Industrial eased a little but continued to track well above average. In the CBD Hotels sector, sentiment fell to a new survey low, with sentiment waning further amid reports major markets are experiencing lower room rates and occupancy as new supply enters the market.

“Sentiment in the Retail sector, which has been struggling, is however starting to show signs of improvement, but remains lowest overall as slow wage growth, high debt levels and stretched budgets continue to weigh on the household sector” said NAB Group Chief Economist Alan Oster.

Overall confidence levels also softened against a backdrop of below trend economic growth. Confidence levels remain highest for Office and Industrial property. In the long under-performing Retail sector, there were positive signs as confidence lifted, but is still negative.

In other key survey findings, expectations for capital growth for the next 12-24 months were positive for Office and Industrial property, and negative in the CBD Hotels and Retail segments. On average, property professionals expect capital growth for Office property to be highest in NSW and QLD, with these states also leading in the Industrial sector. Retail values are however expected to continue falling or remain flat in all states.

Office and Industrial property are also expected to lead the way for rental growth in the next 12-24 months. Income returns for Office property are expected to be highest QLD and VIC, with QLD also providing the best returns for Industrial property. The outlook for Retail rents is negative and is expected to fall in all states, with SA/NT under most pressure followed by VIC and NSW.

The number of property developers expecting to start new works in the short-term remains well below average – consistent with the latest activity indicators which are also showing weakness in both housing and non-residential construction.

Property professionals also said funding conditions remain difficult, but have stabilised. They are however expected to improve noticeably over the next 3-6 months.

“Development activity is still slow. But it will be interesting to see if development intentions pick up over the next few months, following on from the more positive signs we’re seeing in the Survey around funding conditions and in the broader housing market, like higher auction clearance rates, housing values tracking higher and a record low interest rate environment” said Ms. La Bella.

Over 350 property professionals participated in the Q3 2019 survey.

For further information, please see NAB Commercial Property Survey (Q3 2019)