NAB Quarterly Australian Commercial Property Survey Q4 2021

Overview

• The Q4 survey saw commercial property market sentiment move into positive territory for the first time in 2 years, with the NAB Commercial Property Index at +3 pts (-12 pts in Q3). Industrial sentiment is still hovering at near record highs (+63 pts), but Q4 also saw gains in other sectors (but negative) – Office (-2 pts vs. -17 in Q3 ), CBD Hotels (-25 pts vs. -75) and Retail at a 3 year high -20 pts.
• NAB’s 12-month confidence measure also rose to +13 pts and the 2-year measure to +23 pts, as lockdowns were lifted in key states and vaccination targets met. Confidence around Industrial property remains very high, with Office now also positive (+6 pts & +20 pts). Short-term confidence in Retail is still however negative but gained some ground (-7 pts), but the 2-year measure printed positive (+5 pts) for first time in 4 years. CBD Hotels was also stronger.
• Overall market sentiment was higher in all states in Q4 bar WA (lowest of all states at -23 pts). NSW the only other state printing negative (but up 25 to -2 pts). Sentiment was highest in SA/NT (+24 pts) & QLD (+19 pts), with VIC (+3 pts) positive for the first time in over 2 years. Short and long-term confidence levels are now positive in all states. By sector, confidence in Office markets improved in all states bar WA, Retail confidence was higher in SA/NT, VIC & NSW, but lower in QLD and WA. Industrial confidence remains very high in all states.
• Survey expectations for capital growth are still highest for Industrial property in the next 1-2 years (3.4% & 2.9%). Best prospects are in QLD & SA, but values to also grow in other states. Prospects for Office values were revised up (0.7% & 1.1%), led by QLD, with WA weakest, VIC rebounding strongly in 2 years, with relatively modest growth in NSW. Retail values are also tipped to grow (0.4% & 0.8%) led by VIC, with CBD Hotels rebounding in 2 years after falling next year.
• Office vacancy rate rose to 9.9% in Q4 (9.4% in Q3), but is expected to ease mildly to 9.8% and 9.2% in next 1-2 years with lower (but above average) vacancy in all states. Retail vacancy returned to pre-pandemic levels in Q4 (6.9%), but is still well above average, with vacancy highest in SA/NT & VIC. Industrial vacancy fell to a survey low 3.8% in Q4, with markets reportedly tightest in NSW & SA/NT. Industrial vacancy is expected to be unchanged in the next 1-2 years, with below survey average vacancy rates in all states except VIC.
• Rental growth in Office markets is tipped to recover slowly in the next 1-2 years (-0.6% & 0.6%) as take-up and headcount grows and more workers return, but NSW to under-perform. Retail rents expected to keep falling, but at a slower rate (-1.6% & -0.4%), with WA & VIC under-performing. Outlook for Industrial rents unchanged at a solid 3.3% over next 1-2 years, with occupier demand supporting relatively strong rental growth in all states over the next 1-2 years.
• An above average 55% of developers intend to commence new projects in next 6 months (47% in Q3), with this spike likely reflecting the emergence from long periods of lockdown in NSW and VIC. Survey also showed a further decline in the number of developers planning to start new works in the residential space (46%), and a large drop in the number looking at Retail projects (9%).

For further information, please see the NAB Commercial Property Survey (Q4 2021)