Commercial property rebounds as office, industrial outperform
Strong confidence in the office sector led the overall rise in sentiment for commercial property. Photo: Australian Financial Review

Commercial property rebounds as office, industrial outperform

Growing confidence in the commercial property market, led by gains in the office and industrial sectors in the eastern states, has brought a major indicator of sentiment back into the black.

The NAB Commercial Property Index rose nine points to +7 in the second quarter of 2019, after dipping below zero in the previous quarter for the first time in four years.

Sentiment was highest in the office sector, where the measure increased by 16 points to match the highest read in the last decade. Office properties also outpaced the rest of the market in expectations of capital growth and rental returns, which respectively hit 1.9 per cent and 2.0 per cent for the next year.

These measures were buoyed by low office vacancy rates in Victoria and NSW, which remained tight at 4.3 and 5.3 per cent respectively against the national average of 7.9 per cent.

The industrial sector also outperformed on sentiment and reached 20 points on the measure, starting to reverse a year-long slide that dipped to 15 points in the March quarter.

Capital growth and rental returns on industrial properties are also tipped to grow over the next year, if at a more modest rate of 1.0 per cent and 1.1 per cent, respectively.

Retail property also posted an increase in sentiment but remains in the red on the measure. NAB estimates that confidence in the sector will rise steadily over the next two years, but still remain in negative territory.

The bank’s chief economist, Alan Oster, said the outcome of the federal election and firming expectations around rate cuts may have helped improve outlook, but that sentiment remained weak.

“Clearly, difficult retail business conditions seen in NAB’s Q2 Business Survey and ongoing weakness in household spending are continuing to weigh on market sentiment,” he said.

The only sector in which sentiment fell was CBD Hotels, which continued its slide since mid-2018 and fell to the lowest point in a decade.

Overall sentiment across the four sectors rose in NSW, Victoria and Queensland, but fell in Western Australia, South Australia and the Northern Territory.

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