NAB Quarterly Australian Commercial Property Survey Q2 2015

By Robert De Iure

More positive signs emerge as NAB’s Commercial Property Index rises for the second consecutive quarter. Encouragingly, sentiment is now positive in all commercial property market segments, but remains very divergent across states. NSW and Victoria have been joined by Queensland as the most upbeat (and positive) states for commercial property, with WA and SA/NT continuing to lag (and negative) by a considerable margin. By sector, confidence is highest for CBD hotels in the next 12 months, but retail is the most upbeat in 2 years time with office the big improver. Confidence appears to have softened among developers, with fewer planning to start new projects in the short-term. More developers are however intending to shift their focus from residential to commercial projects.

The NAB Commercial Property Index rose to +11 points in Q2 (+6 in Q1) – its highest level since the survey began in early-2010.

According to NAB Chief Economist Alan Oster: “Property market professionals were more upbeat in all sectors, except for CBD hotels although it continued to rate highest overall. Also encouraging was the fact that sentiment was positive in all market segments – the first time this has happened since we started this survey.”

There do however remain some very notable differences across the states. NSW and Victoria have been joined by Queensland as the most upbeat (and positive) states for commercial property, with WA and SA/NT continuing to lag (and negative) by a considerable margin.

By sector, confidence is strongest in the CBD hotels sector next year, with property professionals also anticipating a pick up in demand for CBD hotel rooms from overseas leisure travellers next year as a lower AUD supports increased international tourism.

Looking further out, property professionals are most upbeat about retail property in 2 years time, while office is tipped to be the big improver.

“Confidence in office markets is being led mainly by NSW, where much stronger expectations for capital and rental growth are mirroring reported improvements in demand for office space by the professional services sector. In contrast, market professionals expect the down turn in capital and income growth in WA to continue over the next few years as the mining-investment pipeline continues to unwind” said Mr Oster.

Rental markets are also patchy. Property professionals reported a modest resumption in retail rental growth in Q2, but rents continued to fall in national office and industrial markets. However, the outlook has improved a touch.

According to Mr Oster: “Positive returns are forecast for retail and industrial property in the next 1-2 years, with office rents to also resume growing modestly in 2 years time as excess supply begins to work out of the market, especially in Queensland”.

A key take out from the Survey was the notable decline in developer confidence this quarter, with the number of developers planning to commence new works in the next 6 months falling to 48%, down from 58% in Q1.

It does however appear that improved sentiment in commercial property markets is prompting some developers to focus more of their resources on commercial projects.

According to Mr Oster: “Only 46% of developers said they now intend to start new residential projects, the lowest figure since our survey began. In contrast, 39% are looking at developing industrial, retail or office projects, up from just 26% in the previous survey and the highest level in 2 years”.

Individual reports on Office, Retail, Industrial and CBD hotel markets are available on request.

For further analysis download the full reports.