COMMERCIAL PROPERTY, SALES & LEASINGRESEARCH

Commercial property showing early signs of entering downturn

Print Friendly, PDF & Email

THE Australian commercial property market is showing signs that it is entering the early stages of a downturn.

According to the latest data from the Q2 RICS Australia Commercial Property Monitor, the occupier and investment sentiment indices, amalgamated measures of market sentiment, remained close to 0 for the third consecutive quarter, signalling stalled momentum.

Overall, rental and capital growth expectations for the 12 months across Australia were 0.4%, although it varied greatly between different capital cities.

The report explained that the occupier and investment managers show more balanced headline supply and demand conditions. In the occupier market, survey participants flagged that availability of space to rent and inducements were rising at a faster pace than occupier demand.

RICS said retail remains a drag on aggregate conditions and there were also some signs of cooling activity in the office market.

“Respondents reported the slowest pace of growth in occupier demand for office space since Q2 of 2016 (in net balance terms). However, it should be noted that this figure remained positive, indicating a slowdown in occupier demand growth in the office sector compared with preceding quarters, rather than a decline,”

The data shows expectations varied greatly between markets within Australia.

Sydney and Melbourne continue to be seen as the two best performing markets, though Sydney appears to be at a slightly later stage in the cycle than Melbourne.

Melbourne rents are expected to climb 1.6% led by prime office of 4.3%, followed by prime industrial with 3.6% and secondary office (3.0%). Sydney rents will rise 1.3%, prime offices and industrial with 3.6% and 3.1% respectively.

But secondary retail rents in Sydney and Melbourne will suffer, tipped to fall 3.8% and 2.7%.

Capital value expectations in Melbourne will increase 1.3% and Sydney 0.4%. Again prime office and industrial were the leaders with Melbourne 3.4% and 3.7% respectively, Sydney with 3.1% and 2.6% respectively.

Expectations in Brisbane are more subdued, while Perth is seen as being at the bottom of the cycle. Brisbane rent and capital growth expectations were -0.4% and 0.7% respectively. Perth rent and capital growth were -2.3% and -0.6% respectively.

On the positive side, credit conditions, on balance, showed an improvement in Q2. This follows consecutive interest rate cuts by the Reserve Bank of Australia during the quarter, while anecdotal evidence suggests that tighter bank lending standards are being offset to a degree by non-bank lenders.

Meanwhile across Asia Pacific, economic uncertainty particularly the US and China trade war are weighing on markets in east Asia, but some southeast Asian markets such as Vietnam are benefiting.

During the Q2, APAC markets entered a period of slower growth but rents and capital values are still expected to increase over the coming year.

Several participants highlighted concerns that commercial property would see blowback from the renewed trade tensions between the Washington and Beijing. Unsurprisingly, these concerns were particularly acute in China, Hong Kong, Macau, Taiwan and Singapore. Survey participants in Hong Kong also highlighted the recent political unrest as an additional headwind. However, some markets, such as Vietnam (and to a lesser extent Thailand) were seen as benefiting from the ongoing Sino-US tensions as companies look to expand supply chains beyond China and into southeast Asia.

Some markets such as Japan, Vietnam and India are bucking the trend.

Although the Tokyo cycle has been seen as being at its peak for the last several quarters, participants also highlighted upbeat sentiment leading up to the 2020 Tokyo Olympics. Both Tokyo and Ho Chi Minh City have experienced demand growing at a faster pace than supply. Respondents in Vietnam said the US-China trade war is benefiting the country.

“A very exciting time for Vietnam as the effects of the China-US trade war make Vietnam a safer alternative to China. A very young market in comparison to our south east Asia counter parts make almost all sectors in high demand with limited supply.”

In India, the re-election and landslide victory of Prime Minister Narendra Modi in May has seen a rebound in sentiment. Prime office rents in Bengaluru, Chennai and Hyderabad are all expected to increase more than 9% over the next year. Contributors also noted that Indian markets remain far from saturation.

Meanwhile across the APAC region, the credit easing cycle is commencing. Australia’s Reserve Bank has reduced interest rates twice in a row to a record 1.0%, alongside its central bank counterparts in India, New Zealand, Sri Lanka and Philippines.

“Central banks globally have taken a dovish turn, led by the Federal Reserve in the United States.

“Lower US interest rates should help to support domestic consumption, thereby providing support to countries which export to the US. Furthermore, it would also increase the scope for emerging markets such as Malaysia, Thailand, Indonesia and India, amongst others, to cut interest rates without having as much of a detrimental effect on their currencies.”

Related posts
COMMERCIAL PROPERTY, SALES & LEASING

Melbourne Uni boost landholdings

THE University of Melbourne has added to its hefty land holdings around its Parkville campus with…
Read more
COMMERCIAL PROPERTY, SALES & LEASINGHOTEL, TOURISM & LEISURE

Property sales and leasing transactions wrap

A WRAP up of other commercial property, hotel, development site sales, as well as leasing…
Read more
COMMERCIAL PROPERTY, SALES & LEASINGRESEARCH

Commercial real estate prices have peaked

THE capital growth cycle for many Australian commercial real estate markets has most likely peaked…
Read more