May 22, 2013
Quarterly Australian Commercial Property Survey – Mar 2013
The NAB Commercial Property Index rose in Q1’13 (but still remained negative), driven by an uplift in sentiment in the office, retail and industrial property markets.
The NAB Commercial Property Index rose in Q1’13 (but still remained negative), driven by an uplift in sentiment in the office, retail and industrial property markets. Sentiment improved in all states, bar Queensland. WA was the most optimistic state, but the biggest movement was seen in Victoria which is now expected to surpass WA in the next 1-2 years as the most optimistic state. More property developers reported plans to start new projects or developments in the near-term as fewer property professionals identified debt/equity funding as a problem. Consumer confidence continues to be noted as the main challenge facing property firms in the next year but concerns about stock availability and the upcoming federal election are also growing.
- The NAB Commercial Property Index rose to -8 points in Q1’13 (-17 points in Q4’12). Sentiment improved most in the retail market (but still negative overall), but remains highest for CBD Hotels. With a higher net balance more optimistic about capital and rental prospects in the next 1-2 years, the NAB Commercial Property Index is set to rise to +33 points by Q1’14 and +50 points in Q1’15 (higher than forecast in Q4’12 but still below expectations reported last year).
- Sentiment improved in all states in Q1’13, except Queensland. Sentiment was strongest in WA but Victoria was the biggest mover and Queensland the most downbeat state. Expectations in Victoria improved significantly, underpinned by much stronger sentiment in office and industrial markets. The outlook in the next 1-2 years is weakest in Queensland, with a softer resources market likely having a negative impact on sentiment in that state, especially in the state office market.
- Average capital values for retail property fell -1% in Q1’13. Capital values for industrial property also declined -0.4%. Office values were flat, while CBD Hotels grew 0.9%. Office property enjoys the strongest outlook for capital growth, with values forecast to rise by 2.1% by Q1’14 and 3.9% by Q1’15. Modest growth in retail capital values to resume in the next 2 years.
- Gross rents fell in all markets in Q1’13 but at a slower rate. Rents fell most for retail (-1.6%), with the best returns reported for industrial (-0.4%). Expectations have strengthened, with industrial rents to grow 0.9% in the next year and 1.9% in the next 2 years. Office rents are tipped to rise 0.4% and 1.5%, while retail rents are predicted to fall -1% and -0.1% in this period. With income returns improving, a lower net balance in office and industrial markets said leasing incentives were important in Q1’13 compared with Q4’12, but they were still higher than year earlier levels.
- Supply conditions were broadly neutral in all markets in Q1’13, except retail where the market was “somewhat” over-supplied. All markets are expected to be “neutral” in the next 3-5 years. National vacancy rates were also broadly unchanged in all markets in Q1’13, but a steady improvement in operating conditions should push vacancy lower in next 1-2 years.
- Slightly more property developers are planning to commence new projects/developments in the near-term. Although the majority of property developers are still seeking to develop residential projects, more office and industrial property is also earmarked for development. Most developers entering the market are looking to cash in on land-banked stock, but more are also chasing new acquisitions, as fewer developers saw debt/equity funding as a problem in Q1’13. Consumer confidence remains the main challenge facing property businesses in the next 12 months. Finance/funding was identified as the next biggest challenge, but concerns about stock availability and the upcoming federal election have also risen.
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