Commercial property vibe on the up: NAB

A suburban shopping centre in Sydney. Picture: AAP

The retail sector experienced a boost in market sentiment through the second quarter despite continued economic challenges, as overall sentiment towards the commercial property market grew.

NAB’s Commercial Property Index found that overall sentiment in the market lifted nine points in the second quarter of the year to plus seven points, correcting the previous quarter’s fall into negative territory.

Retail remained weak amid continued competition concerns and subdued household spending. Despite this, sentiment toward the sector improved six points in the second quarter to minus 38 index points. The amount of available retail property to rent held broadly steady over the first half of the year at 5%.

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NAB analysts suggest the improvement may be linked to the economic security stemming from the federal election and firming expectations around Reserve Bank rate cuts. Sentiment is expected to continue to improve over the next two years and outpace the falling CBD hotel sector.

Confidence in the hotel market fell to its lowest point since the survey began eight years ago. The steady descent, which started in the third quarter of 2018, is possibly reflective of concerns surrounding the impact of higher supply levels as more hotels appear throughout the CBD markets, and falling capital growth expectations.

The office and industrial property sectors continued to drive growth in overall attitudes, particularly among east coast property professionals. Continued positivism is expected in both sectors over the next two years.

Sentiment towards the office sector spiked in the second quarter from 23 points to 39 points. It is expected to offer the highest levels of capital growth (up 1.9%) and rental returns (up 2%) over the next one to two years as the amount of vacant space to rent dwindles.

While many industry professionals acknowledged it has become increasingly easier to access finance, the lending market remains tough. The number of property developers planning to start new works in the remainder of 2019 fell to 38%, well below the average of 49%. Similarly, only 44% of developers plan to start new works in the residential sector.

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