Sentiment in commercial property markets softened in Q4 with the NAB Commercial Property Index dipping back into negative territory after September’s promising gains.

Retail sentiment (and to a lesser extent industrial) buck the trend, offset by falls in CBD hotels and office. Forward indicators are painting a mixed picture of the market, with confidence highest for industrial and CBD hotel properties and weakest in office markets. By state, sentiment is highest in Victoria and Queensland and still very weak in WA. Victoria and Queensland are most optimistic in the next 1-2 years; WA still weakest by some margin.

A key take out from the survey was a softening in development intentions, with fewer developers planning to start new works in the short-term.

The NAB Commercial Property Index fell 4 points to -2 points in Q4.

While the overall index fell, the picture was mixed across the country.

According to NAB Group Chief Economist Alan Oster: “Sentiment is still at near record lows in WA, but also notably softer in Queensland and NSW. In contrast, sentiment improved in Victoria and SA/NT.”

By sector, retail property looks to have entered the early stages of an upturn, with the retail property index consolidating last quarter’s gains and is now the only market sector reporting a positive index reading.

“In contrast, sentiment in national office markets pulled back in Q4 and remains the weakest sector overall, dragged down by very large falls in capital values and rents in WA and to a lesser extent Queensland” said Mr Oster.

Although expectations for capital growth have been scaled back across all markets in the next 1-2 years, they remain positive overall, with the best returns forecast for CBD hotels.

According to Mr Oster: “Leasing market conditions are also still very soft in most markets, especially in the office sector, reflecting supply overhangs and elevated vacancy rates in most markets, especially WA, SA/NT and Queensland.”

A key take out from the survey was a softening in development intentions, with fewer developers planning to start new works in the short-term.

“However, there was an increase in the number of developers looking at residential and retail opportunities, with more also looking to acquire new properties for development”, said Mr Oster.

The survey continues to identify stock availability as the biggest challenge facing property firms in the next 12 months, although the level of concern is abating. In contrast, concerns over consumer confidence, costs, economic/financial market volatility and government regulation have risen sharply.

For further analysis download the full reports.

• Quarterly Australian Commercial Property Survey Market Overview – Q4, 2014 (PDF, 139KB)
• Quarterly Australian Commercial Property Survey (Office Market) – Q4, 2014 (PDF, 71KB)
• Quarterly Australian Commercial Property Survey (Retail Market) – Q4, 2014 (PDF, 69KB)
• Quarterly Australian Commercial Property Survey (Industrial Market) – Q4, 2014 (PDF, 69KB)
• Quarterly Australian Commercial Property Survey (CBD Hotel Market) – Q4, 2014 (PDF, 57KB)