Overview

• While lockdowns saw NAB business confidence and conditions fall sharply in Q3, sentiment in commercial property markets also floundered with the NAB Commercial Property Index falling to -12 pts (after rising in the past 4 quarters).
• Overall result however disproportionately impacted by sharp fall in CBD Hotels (-75 pts), with Retail also lower (-34 pts). Office sentiment lifted a little (-17 pts), but still negative and well below average as working from home and social distance requirements continued to impact demand for Office space. Industrial sentiment lifted to new survey high (+64 pts) supported by ongoing strong demand for logistics and warehousing requirements.
• Confidence also softened with the 12-month gauge slipping back into negative territory (-2 pts) and 2-year read easing (+16 pts). Confidence still being carried by Industrial, which rose to new survey highs. Short-term confidence in CBD Hotels down sharply, but 2-year outlook lifted, likely buoyed by the prospect of border re-openings. Lockdowns seem to have further shaken already weak Retail confidence which slipped further, with Office also well below average.
• Market sentiment now weakest in NSW (-27 pts), with QLD the only state to record a positive result (+17 pts). Overall confidence also now weakest in NSW – but still very strong for Industrial property. QLD the most confident state in the short-term (+22 pts) and WA in 2 years’ time (+31 pts) where property professionals much more upbeat about prospects for Industrial and Office.
• Average survey expectation for Industrial value growth in next 1-2 years lifted (4.5% & 4.6%), with growth predicted in all states (led by QLD). Outlook for Office also stronger (0.1% & 1.0%), with growth weakest in VIC and NSW. Retail values expected to fall faster (-1.6% & -0.5%), and are very weak in NSW and SA/NT, with prospects brightest in QLD.
• Office vacancy fell to 9.4% nationally (down from a survey high 10.9% in Q2), and lower in all states (but still above survey average levels). Retail vacancy rose to 8.3%, and also historically elevated – particularly in SA/NT and WA . Industrial vacancy fell (4.8%) with market tightness most evident in NSW (3.5%). Industrial vacancy to remain low in next 1-2 years, with below survey average vacancy enduring in all states except VIC.
• Outlook for rents in next 1-2 years weakest (and revised down) in Retail (-3.4% & -2.3%) with biggest falls in SA/NT and NSW. Office rents also tipped to fall faster (-2.0% & -0.9%), with expectations again weakest in VIC (-4.0% & -1.9%), and NSW (-2.5% & -1.5%). Outlook for Industrial rents revised up (3.4% & 3.7%) and expected to grow in all states (led by QLD).
• Long lockdowns in NSW and VIC likely weighed on developer intentions in Q3, with a below average 47% indicating they plan to start new works in next 6 months (from a 6-year high 57% in Q2). Survey also pointed to a decline in number of developers planning to start new projects in the residential space to a below average 47% (51% in Q2).
• With new headwinds emerging in the form of a tightening in APRA’s macro-prudential controls, the net number of property professionals who said it was harder to obtain borrowing or loans (debt) stretched to -9% in Q3 (-4% in Q2), after having fallen sharply in the previous 3 quarters. Perceptions around equity funding also worsened with the net number who indicated it was harder to obtain equity also climbing to -9% (-3% in Q2).

For further information, please see the NAB Commercial Property Survey (Q3 2021)