Short- and long-term confidence also improves in most commercial property sectors
Commercial property sentiment rebounded in the first quarter of 2024, with conditions strengthening in all sectors.
NAB’s commercial property index climbed 13 points to 7, as sentiment surged in CBD hotels, jumping 38 points to 75, and in retail, which increased by 16 points to -7. Office and industrial properties saw smaller gains, rising by nine points to -22 and by 1 point to 51, respectively. Office markets remained the weakest, with other sectors now above their long-run averages.
Commercial property confidence also improved, with the 12-month measure up 12 points to 15 and the two-year measure up 11 points to 27. Both short- and long-term confidence rose in most sectors.
By state, sentiment and confidence lifted in all regions except South Australia and Northern Territory, due to a decline in local office markets. Western Australia experienced the largest rise in the index, up 29 points to 2, driven by a significant improvement in office sentiment, which jumped 41 points. Sentiment was highest in Queensland at 24 points and lowest in Victoria at -16, with New South Wales also in negative territory at -2.
According to results of the latest NAB Commercial Property Survey, capital growth expectations for the next 12 months and two years remained strong in industrial property markets, at 2.6% and 3.5%, respectively, with the most promising prospects in Queensland at 4.3% and 4.8%. CBD hotels also expected positive capital growth, at 2.3% and 1.8%.
Office vacancies held steady in the first quarter at 10.5%, well above the average of 8.6%, with disparities between states growing. Vacancies fell in Queensland (9.5%) and Western Australia (11.5%) but rose in other states, with the highest in Victoria at 13%. Office vacancies are expected to dip slightly to 10.1% next year and 9.1% in two years.
Retail vacancies increased from 6.8% to 7.0%, with above-average vacancies anticipated over the next one to two years. Industrial vacancies fell slightly, remaining well below average at 3.2%, with vacancies expected to rise over the next two years.
Meanwhile, gross rents continued to fall in office (-3.2%) and retail (-1.3%) markets, but rents in both sectors are expected to stabilise and grow in two years.
Rents in industrial markets continued to accelerate, rising from 2.9% to 3.2%, with growth projected to be slightly higher over the next one to two years, at 3.4% and 3.7%.
“Commercial property sentiment rebounded in Q1 2024 and is now back into positive territory and at above-average levels,” said Alan Oster (pictured), group chief economist at National Australia Bank. “Confidence about the next one to two years has also lifted with most sectors seeing improvements.
“While there was a broad-based improvement in conditions, the biggest improvements were in CBD hotels and retail. Industrial edged up and remained solid, bolstered by very low vacancies and strong rents growth.
“Office property sentiment also improved but remained weak as disparities between states continue to grow. Office conditions were strongest in Queensland followed by Western Australia, with property developers in Queensland reporting office balanced supply conditions for the first time in five years. However, sentiment continued to deteriorate and underperform in Victoria.”
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