SENTIMENTS in the commercial property market are beginning to lift, with NAB’s Commercial Property Index increasing for the second straight quarter, but numbers are still well below average.
NAB’s Commercial Property Survey for quarter four of 2020 reported its Commercial Property Index, which is based on expectations for capital values and rents, was up again, but at -35 pts was still struggling below the average of 0 pts.
Unsurprisingly the index fell for CBD hotels at -64 pts, as travel restrictions continue to impact the sector. While in retail it lifted to -58 pts and in the office sector to -41.
Thanks to the still growing online retail market and demand for warehouse and logistics space, the industrial sector’s sentiment rose to +25 pts.
Overall confidence improved across commercial property, as economic recovery from the COVID-19 draws closer to becoming a reality and unemployment rates steady, the 12-month measure lifted to 23 pts and the 2-year measure to +2 pts.
Capital growth for the next 1-2 years is in contracts, with sentiments for 12-months at -1.5% for the office sector, -2.5% for retail and -1.8% for CBD hotels. While the 2-year sentiment is at -0.2% for the office sector, -0.7% for retail and -0.8% for CBD hotels.
All states reported a rise in sentiment in quarter four, though was still weak, with Victoria at -64 pts, QLD and WA at -11 pts.
All states are expected to remain in the negative for the next year, excluding WA which is expected to be at +8 pts, with Victoria reporting the lowest sentiment at -51 pts.
While longer term confidence is likely to turn positive for all states excluding Victoria, -16 pts, and NSW, -5 pts, with WA forecasting the highest sentiment at +34 pts.
According to the survey, national office vacancy remained stable in quarter four, at 9.0%. While Victoria reported 7.6%, NSW 7.4% and SA and NT 9.8%, with small falls in Queensland at 11.5% and WA 12.5%.
Overall vacancy is expected to rise to 9.4% over the next year, and begin to drop in 2 years’ time to 8.9%.
Rental rates are expected to fall in retail by 3.9% in 12 months and 1.8% in 2 years, with office rents falling by 2.7% in 12 months and 1.4% in 2 years.
However, industrial rents are expected to increase by 1.4% in 12 months and 2.1% in 2 years.
The report also showed 54% of property developers intend to start new works in the next 6 months, which is above average and up from 39% in quarter three.
For the quarter 43% of developers were targeting residential projects, below the average and down from 53% in quarter three. While more were planning industrial works at 15%, office at 14% and retail at 13%.
There was an expectation among property professionals that the ease of acquiring debt and equity had greatly improved in the quarter, with sentiments towards debt and equity funding conditions improving to -4 pts and -1 pts respectively. Rates not reported since mid-2015.
The survey also found that 77% of white collar workers will return to CBD offices post-COVID according to respondents, with respondents also believing firms will only need 80% of existing office foot print.
The future of office spaces looks likely to change permanently, with respondents also said they expect offices to be split 68% work space and 32% communal space.