NAB survey suggests office property as the strongest sector
Office property re-emerges as the strongest commercial property sector, according to NAB's quarterly Australian commercial property survey.
The findings show that overall sentiment in Australian commercial property markets has moderated a little, but it remains at elevated levels and continues to vary widely across sectors and states.
"Sentiment eased in most sectors (particularly CBD hotels), but this was largely offset by a big improvement in office. It is also still deeply negative in WA and SA/NT, while NSW and Victoria remain the most upbeat states."
The quarterly survey also notes that on the development front, more property developers are looking to commence new projects in the short-term (led by residential projects), despite increasingly difficult funding conditions.
"The NAB Commercial Property Index fell to +10 points in Q3, down slightly from a Survey high +11 in Q2.
“The index was dragged down by weaker sentiment in most sectors, particularly CBD hotels. Office was the exception, and it has re-emerged as the strongest sector overall after lagging all other sectors since mid-2013", said NAB Group Chief Economist Alan Oster.
NAB added that sentiment also continues to vary widely across states.
"It is still deeply negative in WA and SA/NT, neutral in Queensland and positive in NSW and Victoria.
"NSW continues to be the most optimistic state for commercial property looking forward, and WA by far the most pessimistic (particularly in regards to office and retail property)", claims the report.
The commercial property survey suggest that by sector, property professionals operating in office (especially in NSW and Victoria) and industrial markets (led by Queensland and NSW) are the most confident when looking to the year ahead, with CBD hotels lagging.
Looking further ahead, confidence levels are broadly similar across all market segments in 2 years time, with CBD hotels the big improver.
The survey suggests capital growth the next 1-2 years will be strongest for office property (1.5% & 1.4%), followed by industrial (1.1% & 1.3%) and retail (0.9% & 1.2%). Expectations for capital growth in CBD hotels have however been scaled back (-0.6% & 0.3%).
Positive rental returns are also forecast in all sectors in next 1-2 years, led by big upward revision in expectations for office rents (especially in Victoria).
“This is the first time the outlook for rents has been positive across all sectors since late-2010” he said.
The survey also points to an improvement in developer confidence this quarter, with the number of developers planning to commence new works in the next 6 months rising to 60%, up from 48% in Q2.
“Hopefully, this will translate into stronger building construction, particularly as property developers have also noted a further deterioration in their debt and equity funding situations”, he said.