May 5, 2014
Quarterly Australian Commercial Property Survey – Q1, 2014
NAB Commercial Property Index rises above long-term average, but overall still negative (-3 points) and below NAB Business Confidence. Sentiment stronger in all markets, except office (unchanged) and in all states (except NSW and WA). Forward expectations however softer.
NAB Commercial Property Index rises above long-term average, but overall still negative (-3 points) and below NAB Business Confidence. Sentiment stronger in all markets, except office (unchanged) and in all states (except NSW and WA). Forward expectations however softer. Outlook remains strongest for industrial and weakest for office. Qld still the most optimistic state and WA the most pessimistic (by some margin). Expectations for capital growth mildly positive in all sectors in next 1-2 years, led by CBD hotels and industrial. Modest income returns also forecast for all sectors in 2 years time, with best returns for industrial. While concerns over stock availability, interest rates and financial/economic volatility have eased, retaining/recruiting quality staff seen as a growing challenge over the next year.
- NAB’s Commercial Property Index rose from -7 to -3 points in Q1 2014 – its highest read since Q4 2011. Sentiment rose in all sectors except office (unchanged), with biggest improvements in CBD hotels and retail. Sentiment rose in most states (bar NSW and WA) with Qld big improver. Industrial most optimistic looking forward; office market least optimistic.
- Office sentiment down heavily in WA and negative in all states except NSW. Qld and Victoria to lead in next 1-2 years, with WA negative. CBD best location for office in all states, except Qld where Fringe preferred. “A” Grade best performing grade in all states bar WA, where “premium” out-performed. Capital values lower in all states bar NSW, with returns expected to be strongest in Victoria & NSW in next 2 years. Downward pressure on rents persisting in all states (as vacancy rises), especially in WA. All state office markets over-supplied (especially Qld).
- Retail sentiment improved but overall still negative. Expectations softer with retail spending still weak. Sentiment turned positive in Qld and Victoria, but Qld and WA most optimistic going forward. CBD best performing location for retail inVictoria. Neighbourhood best in SA/NT and Qld and regional best in NSW. Bulky goods worst in Victoria and SA/NT, with Strip worst in Qld. Qld only state to report capital returns in Q1, but outlook over next 1-2 years positive in most states except NSW and SA/NT, led by Qld. Qld also strongest for income returns in next 1-2 years.
- Industrial sentiment fell in manufacturing states (Victoria & SA/NT), while NSW & Qld most optimistic in 1-2 years. Capital values grew in NSW and Qld but fell in other states. Capital growth to resume in all states in next 1-2 years (barVictoria), with returns strongest in Qld and NSW. Rents to grow in all states next year (except Victoria and WA) but all states positive in 2 years time, led by Qld. Industrial market viewed as “somewhat over-supplied” in Qld and Victoria.
- Majority of developers still planning to commence works in next 1-6 months, but there was also a notable rise in those planning to start in next 6-12 months. Housing market recovery has prompted more developers to look at starting residential projects, although more are also looking at retail and industrial. Bulk of new development to be underpinned by land-banked stock, although more developers also chasing new acquisitions.
- Debt and equity funding situation for developers deteriorated slightly in Q1 2014, with no material improvement anticipated in the next 6 months. Fewer developers intending to access capital in both short and long-term, while the average pre-commitment requirement to commence new developments fell again.
- Concerns over stock availability, interest rates and financial/economic volatility, abated in Q1 2014, but there was a big increase in the number identifying ability to recruit/retain quality staff as a critical challenge next year.
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