According to NAB’s Commercial Property Index, overall market sentiment in Australian commercial property markets fell 11 points to -2 in Q1 2019 – its first negative read in over 4 years.
NAB Commercial Property Survey reveals that sentiment led down by a sharp dip in Retail (negative in all states) and CBD Hotels (its first negative read since mid-2016). Office and Industrial sentiment also mildly softer, but still tracking well above long-term averages.
NAB Chief Economist Alan Oster said: “Sentiment was led down by a very weak Retail sector, with CBD Hotels also posting its first negative read since mid-2016”. Office and Industrial property market sentiment was also mildly softer, but continued to track well above their long-term average.
Confidence dipped to new lows with outlook weaker in all sectors. Confidence weakest (and more negative) for Retail and CBD Hotels. It also fell below average for Office and Industrial (but still tipped to out-perform by a large margin).
“This will have been influenced by the slowing economic growth momentum into the Match quarter, with the situation in discretionary retail and consumption more generally deteriorating even further” said Alan.
By state, sentiment moderated in VIC, NSW and QLD. It rose in SA/NT and was steady in WA (but both negative). Confidence in next 12 months also lower in VIC and NSW (and in all sectors). QLD steady with improved outlook for Office offsetting weaker Industrial and Retail. WA also lower with Retail very weak. QLD, WA and VIC most confident in next 2 years. NSW negative (first time), led by weak Retail outlook.
Capital growth expectations for next year strongest for Office (1.1%), led by QLD (1.6%). Industrial values expected to grow (0.8%), led by SA/NT (3.8%). Outlook for Retail very weak (-2.3%), with values tipped to fall in all states. Industrial values expected to grow fastest in 2 years’ time (1.3%), ahead of Office (1.2%). QLD (2.3%) and VIC (1.9%) the best states for Industrial property, and WA (2.4%) and QLD (2.3%) for Office. Retail values set to fall -2.5%, led by NSW (-2.7%).
National office vacancy rose to 7.9% in Q1 (7.8% in Q4). It fell in NSW (4.7%) and QLD (10.1%), but rose in VIC (4.5%), SA/NT (12.6%) and WA (15.0%). Vacancy expected to remain steady at 8% over next 1-2 years, with rising vacancy in NSW and VIC (to still very low levels) offset by modest tightening in QLD, SA/NT and WA.
Office rents tipped to grow fastest (1.1% & 1.6%) over next 1-2 years, led by VIC (2.1%) next year and QLD (3.2%) in 2 years’ time. Industrial rents to grow (0.9% & 1.4%), with VIC (1.3% & 2.4%) providing highest returns. Retail rents negative (-2.7% & -2.9%) and expected to fall in all states, led by WA (-6.5% & -5.6%).
The number of developers expecting to start new works over next 6 months fell to 41% in Q1 2019 (well below Survey average). The number of developers targeting residential projects also remains below average – reinforcing the view residential building activity has passed its peak.
Accessing credit is still very difficult. In net terms, -40% of surveyed property professionals said it was harder to obtain debt in Q1 (second worst result on record) and a Survey low -32% to obtain equity. Property professionals also expect their funding conditions to worsen further in next 3-6 months.