Commercial sentiment climbs to a new high

Date: 23 May 2017
Commercial sentiment climbs to a new high
Commercial property market sentiment climbed to a new high in the first quarter of 2017.
According to the latest NAB Commercial Property Survey Q1 2017, the Commercial Property Index has risen 6 points to +27.
As a result, property experts have lifted their expectations for capital growth in commercial real estate for the next 1 to 2 years.

Capital and vacancy expectations
Growth for CBD hotels is anticipated to run between 2.7% & 3.5%, offices (2.3% & 2.4%) and industrial (1.0% & 1.5%). Retail expectations stand at 0.5% over both years.
Office expectations lifted in NSW (4.2% & 3.9%), VIC (1.8% & 2.6%) and QLD (1.2% & 1.8%), while better outcomes in industrial property leads to expectations of gains in VIC (1.7% & 2.4%) and NSW (2.4% in both years). In retail, positive returns are forecast for NSW (1.1% & 1.0%), VIC (0.7% & 0.9%) and WA (0.7% in both years), offsetting falls in QLD & SA/NT. 

The national office vacancy rate fell to 9.3% in Q1’17, to 5.2% in retail and 5.7% in industrial. Lower office vacancy rates in VIC (5.8%) and NSW (6.6%), offset increases in QLD (13%) and SA/NT (12.7%), and persistently high rates in WA (15%). Retail vacancies fell in VIC (4.3%), QLD (4.8%) and WA (7.0%), but rose in NSW (5.7%). Industrial, vacancy rose in QLD (8.5%) and WA (7.9%), but fell in NSW (4.4%) and VIC (4.8%).
Overall, vacancy rates in office and industrial markets are expected to fall in the next 1-2 years and remain unchanged in retail.

Rents and supply
Office property continued to record the fastest growth in rents in Q1’17, with NSW (2.3%) and VIC (1.3%) leading the way and WA (-1.8%) and SA/NT (-1.8%) trailing.
It is also tipped to provide the best returns in the next 1-2 years, led by very solid growth in NSW (4.7% in both years) and VIC (3.0 & 3.4%). Expectations have also lifted for industrial property, with growth led by NSW (2.9% & 2.8%) and VIC (2.0% & 2.3%).
The outlook for retail rents has however softened, mainly reflecting weaker outcomes in SA/NT (-3.1% & -2.3%) and WA (-3.8% in both years).
Property experts believe that national office market supply conditions are broadly “neutral”, as large over-hangs in WA (and to a lesser extent QLD and SA/NT) continue to offset by shortages in NSW and a balanced market in VIC.
Supply conditions in all other sectors were also broadly “neutral” in Q1’17 and are expected to remain so in the next 1-5 years - except CBD Hotels where the market is currently “somewhat” over-supplied and predicted to remain so over the next 1-5 years amid reports of an injection of new supply in 2017.

The wrap up
Prospects for capital growth over the next 2 years have improved - for CBD hotels as well as offices and industrial property - but expectations for retail remain unchanged. Funding conditions are considered to be harder than at any time since the final quarter of 2011, particularly for debt borrowing, and are expected to get harder in the next 6 to 12 months.
 
Back to articles Filed under: Media / National|WA|NSW|QLD|ACT|VIC|NT|TAS|SA News Tags: capital, capital growth, commercial, commercial property, commercial real estate, fastest growth, first national, first national commercial, increase., industrial, market, nab, national office, property, real estate, vacancy
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