Weak outlook for retail, but industrial to improve: NAB

Against a backdrop of overall softer conditions in the Australian commercial property market, retail property remained the poorest-performing sector and has the weakest outlook, according NAB’s September quarter survey.

Hotel property remained the strongest performer in the commercial property sector in the September quarter, with the All Hotels Index standing at +23 points. However, conditions have softened since June (+27 points), with this market also impacted by a less favourable economic backdrop.

The overall decline in the commercial property sector was the result of “persistent uncertainty in the global economy and equity markets impacting negatively on confidence,” the bank says.

As a result, NAB’s Commercial Property Index fell to -13 points in September (-5 points in June), with the index now at its lowest point since NAB began surveying the market in March 2010.

The index is a measure of market sentiment and based on responses from commercial property market participants.

 

 Source: NAB

Conditions in the retail property market turned down further in the September quarter, with the NAB Retail Property Index falling to an all-time low of -40 points. 

Forward expectations were also revised down, with the retail property index now forecast to remain negative through much of 2012 before rising modestly in 2013. 

Overall conditions have weakened in all states and are expected to be weakest in NSW. 

Capital value expectations were negative in all states in the September quarter and are expected to continue falling over the next 12 months. 

A mild recovery in capital values is forecast by September 2013. 

At the other end of the spectrum, industrial property was the only sector that reported stronger conditions in September, though NAB’s Industrial Property Index was still negative (-12).

Conditions in the industrial property market are forecast to bottom out this year, with the sector emerging as one the strongest performers in the commercial property space over the next one to two years.

WA is currently the best-performing state market, but the outlook is strongest in Victoria. There were no significant changes in national capital values and rental growth in September, with both still falling but at a slower rate than in June.

Positive growth is set to resume next year, with expectations for capital values and rents over the next one to two years strongest in WA and Victoria.

Improved conditions are forecast in all property segments over the next two years, but the pace of recovery is expected to be slower than previously anticipated.

Office property is expected to remain the strongest-performing segment overall and retail the weakest.

All states reported weaker conditions in September, except Queensland – although it remains among the weakest markets in the country. WA continues to be identified as strongest market and the only state with a positive index reading. However, it is expected to be overtaken by Victoria as the strongest market by September 2013.