Business research

NAB Quarterly Australian Commercial Property Survey Q2 2022

NAB’s Commercial Property Index declined to +1 pt in Q2 (+11 in Q1) as the market begins to react to rising inflation and interest rates.

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Insight

  • The NAB Commercial Real Estate Index declined to +1pt in Q2 (+11 in Q1) as the market begins to react to rising inflation and interest rates. The index was dragged lower by a big shift in office sentiment which saw the sector index drop to -14pts (+10 in Q1). Retail sentiment was also more negative (-17 pts), but industrial sentiment remained at elevated levels (+57 pts). CBD Hotels Index neutral with survey showing strong increase in occupancy to 71.7% (58.3% in Q1).
  • Confidence weakened in Q2 with the 12-month measure at +8 pts (+19 in Q1) and the 2-year measure at +22 pts (+29 in Q1). Confidence supported by the industrial sector, with Office back in negative territory and Retail also negative.
  • Market sentiment is weaker across all states in Q2, at the QLD bar (and highest overall). It was neutral in NSW & SA/NT and negative in WA & VIC. Short-term confidence is now negative in WA & VIC, and positive (but weaker) in all other states led by QLD.
  • By sector, office confidence has eased across the country, with a very negative outlook reported for WA and VIC over the next 12 months, and remaining negative for VIC over the next 2 years. Retailer confidence was higher in the East Coast states, and the industry continued to outperform the broader market in all states.
  • Industrial capital growth is expected to outpace other sectors over the next 1-2 years (2.8% and 2.7%), led by NSW, but also expected to grow in other states. The outlook for office values ​​is now negative (-1.0% and -0.6%), and is receding and expected to fall in all states except QLD, with the weakest VIC. The retail growth outlook has also been revised down (-1.1% and -0.4%), and is expected to fall in all states except SA/NT.
  • The survey indicated a decline in the office vacancy rate in the second quarter to 9.2% (10.1% in the first quarter), with higher vacancy rates in WA (12.4%) and VIC (11.2%) offset by declines in NSW (7.1%), QLD (11.0%) and SA/NT (7.0%). National vacancy is expected to fall to 9.0% and 8.3% over the next 1-2 years, but range from 7.1% and 6.9% in New South Wales to 11.6% and 10 .4% in WA.
  • Outlook for office rents reduced in Q2 to -0.3% and 0.5% in the next 1-2 years (0.6% and 1.4% in Q1). QLD & NSW will outperform, with lower expectations at VIC. Retail rents are expected to continue to decline (albeit at a slower pace of -0.9% and -0.3%), with rents falling in all states except WA and QLD. The outlook for industrial rents is somewhat weaker but still strong (3.5% and 3.7%), with rents expected to rise in all states, with the largest increases expected in the East Coast states.
  • The number of developers planning to start new work in the next 6 months fell to 38%, its lowest level in 3 years, in the second quarter, with below average numbers starting with residential properties (48%) , offices (10%) or retail (5%). But with industrial supply still very limited, the number of work start-up projects in this sector remains above average (16%).
  • With interest rates on the rise and expected to continue to rise in 2023, more real estate professionals said it was more difficult to obtain debt financing (-20% vs -13% in the first quarter) or equity (-14% vs. -9% in the first quarter). The number expecting debt and equity funding conditions to deteriorate over the next 6 and 12 months was also significantly higher.

For more information, please see the NAB Commercial Property Survey (Q2 2022)