NAB Commercial Property Index increased slightly to -17 points in Q4’12 but performance varied across individual property markets. CBD hotel index rose strongly, but retail and office indices hit new lows as economy slowed. Recovery expectations also postponed in all markets, with property professionals less optimistic about prospects for longer-term capital and income growth. WA identified as strongest market nationally, but NSW the most optimistic state by end-2014 with Victoria lagging. Debt and equity funding still a problem for developers and consumer confidence continues to be identified as the main challenge for property firms in the next year.

• Capital values fell in all sectors in Q4’12 except CBD hotels (1.7%). Values fell most for retail (-1.4%) and industrial (-1.2%) property. Office slipped -0.6%. CBD hotels enjoy strongest outlook (3% by Q4’13 and 4% by Q4’14). Modest growth predicted for industrial (0.3% and 1.2%) and office (0.1% and 1.2%). Retail least optimistic with values to fall -0.2% in next year and rise 0.8% by Q4’14.
• Rents also contracted in all markets in Q4’12 led by retail (-2.1%) with rents down in all states. More subdued expectations in office market with rents to remain flat in next year and grow 1% by Q4’14. Rental expectations for industrial property also revised down with rents to grow 0.8% in next year and 1.7% by Q4’14. Retail participants slightly less pessimistic this quarter with average rents to fall -1.5% in next year and -0.4% by Q4’14.
• With income returns falling further, rental incentives have become more important in all property markets.
• Office market supply currently “neutral” and expected to remain so in all states in next 1-5 years. Retail markets “somewhat over-supplied” but “neutral” conditions to emerge in 3-5 years. Industrial market balanced in all states except WA (modestly under-supplied), but set to tighten in next 3-5 years. CBD hotel market currently under-supplied but situation expected to rectify in 3-5 years.
• Vacancy rates rose in all markets in Q4’12 and are expected to improve only gradually in all markets over the next 2 years reflecting a subdued development pipeline and softer conditions in all property segments.
• Despite difficult market conditions, slightly more developers are planning to commence works in the near-term according to the survey. Consequently, more survey participants also plan to source funds in the next 6 months. Residential property remains the most favoured property type for new development.
• Debt and equity funding is still seen as a problem for property developers, but less so than in Q3’12. Funding seen as most difficult for Victorian developers.
• Expectations on bank pre-commitment requirements for new developments rose to 58% in Q4’12 after falling in the 2 preceding quarters.QueenslandandVictoriaare the most negative states with regards to average pre-commitment expectations to secure development funding. WA and NSW the most positive states.

Consumer confidence still the main challenge for property firms but concerns over regulation/red-tape growing.

For further analysis download the summary or full report.

• Quarterly Australian Commercial Property Survey – (Summary) Dec 2012 (PDF 187 KB)
• Quarterly Australian Commercial Property Survey – (Full Report) Dec 2012 (PDF 240 KB)