Sentiment in the industrial sector rose to a new high, while overall commercial property sentiment grew but remained negative, according to a survey.
The National Australia Bank (NAB) Quarterly Australian Commercial Property Survey for Q2 2021 has revealed that the commercial property index lifted for the fourth straight quarter in the second quarter of 2021, but has remained negative (down 7 points), after falling to -62 points one year ago.
NAB noted that the survey was conducted before the NSW lockdown but has captured Victoria’s lockdown, which resulted in a dip in business conditions and confidence in NAB’s June business survey.
Sentiment improved across all sectors in Q2 2021, but the performance has been uneven. Industrials has been the only sector to weather and thrive through the coronavirus pandemic. In Q2 2021, industrial sentiment rose to a survey high of 48 points.
It also lifted in office (-20 points) and retail (-30 points), but has remained negative, while there was a bounce in CBD hotels (zero points), despite ongoing tourism challenges amid international and interstate border closures.
Sentiment lifted across all states in Q2 2021 except Western Australia, where it fell to -30 points (and lower in all sectors), and replaced Victoria (-17 points) as the weakest state. Queensland (9 points) and South Australia (21 points) were the only states to record positive sentiment.
The NAB survey revealed that short-term confidence would be negative in Western Australia (-17 points), Victoria (-9 points), and NSW (-1 point) in the next 12 months and positive in Queensland (20 points) and South Australia/Northern Territory (24 points).
Longer-term confidence would be positive in all states, and highest in South Australia/Northern Territory (38 points) and Queensland (26 points), and lowest in NSW (10 points) and Western Australia (11 points).
The survey of 370 property professionals has also revealed that on average, respondents said that industrial values would rise by 2.3 per cent in 12 months and 3 per cent in two years.
The respondents said values would rise in all states, with NSW (3.3 per cent and 3.9 per cent, respectively) and Queensland (3.5 per cent and 3.3 per cent, respectively) leading the way.
On the other hand, they said that office values would fall by 0.3 per cent in 12 months but grow by 0.2 per cent in two years’ time.
Retail values would fall by 0.2 per cent in 12 months and grow by 0.4 per cent in two years, while CBD hotels would shrink by 0.6 per cent in 12 months and rise by 0.5 per cent in two years, the respondents said.
National office vacancy jumped to a survey high of 10.9 per cent in Q2 2021, with rates more than doubling in Victoria to 10.9 per cent from 4.0 per cent in Q1 2020.
The NAB report said that national vacancy is expected to ease to 10.6 per cent in the next 12 months and 9.7 per cent in two years’ time, with most states improving, but remaining higher than survey average levels in all states.
Industrial vacancy rose slightly to a still low 5.5 per cent in Q2 2021 (up from 4.6 per cent in the first quarter). Shortages have still been most apparent in the Eastern seaboard states, the report stated.
It added that vacancy is expected to fall slightly over the next one to two years, and remain lowest in the Eastern seaboard states.
The survey has revealed that respondents expect the construction sector to stay robust in the near term, with the number of developers expecting to start new works in the next six months at the highest level since the third quarter of 2015, and up sharply to 57 per cent.
The survey also indicated that 51 per cent of developers planning to start new projects are targeting residential developments, with the report adding that a large pipeline of work already put in place would mean that dwelling investment should continue to grow over much of 2021.
Funding conditions have improved again, with survey respondents indicating that debt and equity funding conditions in Q2 were their easiest since mid-2015.
They also predicted that debt conditions would improve further in the next three to six months, with the number who said they think that access would be easier for equity funding outweighing those who think it would be more difficult (up 2 points), marking the first time that expectations have been positive since late 2015.
The average pre-commitment to meet external debt funding requirements for new developments in Australia fell again for residential (58.7 per cent) and commercial (56.6 per cent) property in the second quarter.
Residential requirements, however, rose again in Victoria (highest overall at 62.5 per cent) but fell in Queensland (lowest overall at 56.4 per cent) and NSW (57.3 per cent).
In commercial markets, requirements were lowest and trended downward in Queensland (54 per cent), while it also fell in Victoria (56.8 per cent) and Western Australia (57.8 per cent), but rose in NSW (55.9 per cent).