February 22, 2024

NAB Quarterly Australian Commercial Property Survey Q4 2023

Commercial property sentiment improved in Q4 but remained weak and below average

Industrial and CBD hotel markets continued to out-perform in Q4, while retail and office weigh down the overall result. Office vacancies continued to creep up and capital growth expectations for office property over the next 2 years remain weak, particularly in Vic and to a lesser extent NSW. Notably, Q4 marked the highest print for office vacancies in Vic and NSW in the survey’s history.

Survey highlights

  • Commercial property market sentiment improved in Q4 despite moderation in NAB’s Business Survey conditions during the quarter. The Commercial Property Index rose 10pts to -6 index points, remaining weak and below average. The 12- month measure turned positive, rising 12pts to +3 index points, and longer-term confidence also lifted to +16 index points.
  • By industry, sentiment lifted in all property sectors with the largest gains in CBD hotels (up 28pts to +38 index points) and the industrial sector (up 19pts to +49). There were smaller rises in office (up 6pts to -32) and retail (up 2pts to -23), but sentiment in both sectors remains below average and deeply negative. Confidence in the short and longer-term rose in all sectors except CBD hotels.
  • By state, the commercial property market index lifted in all states except in WA due to deteriorating local office and retail market conditions. The index is now weakest in WA at -27 index points, followed closely by Vic at -26 with NSW also printing negative at -6. QLD (+11) and SA/NT (+28) were the only states in positive territory and above their long-run averages.
  • Capital growth expectations improved in retail and industrial markets but continued to deteriorate in office property (due largely to WA). Current expectations and expectations for the future remain strongest in the industrial sector, with only industrial property expected to see positive capital growth in the next 12 months to 2 years. Expectations for office property remained very weak, particularly in Vic and to a lesser extent in NSW.
  • Office vacancy continued to rise, edging up from 10.2% to 10.5% and remaining well above the survey average 8.6%, with vacancy in VIC (12.1%) and NSW (9.8%) printing at survey high levels. Office vacancies are expected to dip slightly to 10.2% next year and 8.8% in 2 years’ time, with vacancies highest in WA (12.7%) and VIC (12.1%). National retail vacancies were unchanged at 6.8% in Q4, remaining elevated with above-average vacancy expected over the next 2 years. The industrial vacancy rate fell slightly and remains well-below average at 3.2% with vacancies forecast to creep up over the next 2 years.
  • Office rents continued to decline but the rate of decline slowed from -1.4% to -1.2% in Q4. Retail rents remain unchanged at -0.9%. Office and retail rents are expected to stabilise and begin to grow in the next 1-2 years. Industrial rents growth continues to accelerate, with growth expected to be slightly higher over the next 1-2 years.
  • Most developers still plan to commence works in the next 1-6 months, though this number is less than average. There was also a notable rise in those planning to start in 18 months’ time. While most developers were seeking to develop residential property, this proportion has steadily declined from 51% in Q1 to 42% in Q4. The bulk of new development to be underpinned by land-banked stock, although more developers were chasing new acquisitions and refurbishments.
  • Funding conditions were still challenging, with the net number of surveyed property professionals who said it was harder to obtain loans or equity continuing to outweigh those who said it was easier. The ease of acquiring debt in the last 3 months, on balance was largely unchanged in Q4 at -35%, but perceptions about the next 3-6 months improved 4ppts to – 31%. The net number who said it was harder to obtain equity funding however continued to ease to -22% (-26% in Q3), with expectations about the future also somewhat more positive (-19%).

For further information, please see the NAB Commercial Property Survey (Q4 2023)