Overview

• Amid headwinds from rising inflation and interest rates, NAB’s Commercial Property Index shifted back into negative territory in Q3 to a well below average -20 pts. Sentiment was lower and negative in all sectors, bar Industrial (though also easing to a near 2-year low +41 pts).
• Confidence fell in Q3, with the 12-month (-16 pts) and 2-year (+5 pts) measures printing at 3-year lows (and well below average). Confidence moderated in all sectors. It was highest for Industrial and weakest (and negative) for Retail.
• Sentiment fell in all states in Q3 bar SA/NT. QLD (+13 pts) & SA/NT (+5 pts) the only states to print positive. Lowest in VIC (-27 pts), but down most in NSW (-20 pts). Short-term confidence negative in VIC (-28 pts), WA (-12 pts) & NSW (-6 pts). VIC (-15 pts) & WA (-5 pts) also only states still negative in 2 years’ time.
• Office confidence fell in VIC & NSW – and only states printing negative in next 1-2 years. Retail confidence down in all states, bar SA/NT (but weakest overall). Industrial confidence positive in all states, but moderated in most states.
• Best prospects for capital growth in next 1-2 years in Industrial (but scaled back heavily to 0.3% & 0.9%). Prospects positive in all states bar VIC. Office values to fall -1.9% & -0.9%, with biggest falls in VIC & NSW. Retail also contracting (-2.3% & -1.5%) and negative in all states led by NSW (next 12m) & QLD (next 2 years). Relatively large falls also predicted for CBD Hotel property (-3.5% & -1.3%).
• National Office vacancy rose to 10.1% in Q3 (9.2% in Q2), and higher in all states bar VIC (unchanged at 11.2%). Still highest in WA (14.0%) and lowest in NSW (7.2%). Overall vacancy to ease to 9.6% & 8.8% in next 1-2 years – and lowest in NSW (7.3% & 7.0%) & highest in WA (13.0% & 11.8%). Industrial vacancy fell to a survey low 3.5% in Q3 (3.9% in Q2) and expected to stay very low in next 1-2 years (3.6% & 3.9%), with markets tightest in NSW & QLD.
• Office rents to fall -0.5% in the next year, but grow 0.2% in 2 years’ time. Outlook strongest in SA/NT & QLD, and weakest by some margin in VIC. Retail rents also expected to fall a larger -1.2% & -0.7%, and fall most in SA/NT. Outlook for Industrial rents pared back slightly to still strong 3.1%, with rents predicted to grow in all states, led by NSW & QLD.
• The number of developers planning to start new works in near-term (next 6m) fell to 37% in Q3 – lowest since Q3 2019. An unchanged 76% to start in next 18 months, but down from 89% a year ago. With housing markets continuing to adjust to higher rates, number of developers planning to start new residential works fell to a survey low 38% in Q3 – well below survey average (52%).
• In net terms, the number of property professionals who said it was harder obtain debt (-31%) or equity (-21%) rose to a 2-year highs. More also expect conditions in next 3-6 months to be worse than now (-36% debt; -24% equity).
• New research finds despite lower demand for Office space because of new hybrid and remote working models associated with COVID, the impact on Office conversions to new uses (e.g. apartments etc.) has been very low. When asked to rate the extent they had seen this happening, property professionals scored on average 1.6 pts out of 10 (10 = significantly). It was also scored quite low across the country – ranging from 0.8 pts in SA/NT & 1.0 pts in VIC, to 2.0 pts in QLD, 1.8 pts in WA & 1.6 pts in NSW.

For further information, please see the NAB Commercial Property Survey (Q3 2022)