This article is from the Australian Property Journal archive
ONGOING concerns surrounding slow consumer spending and wages growth has seen sentiment within the retail property sector dived into negative territory for the first time since mid-2014, along with confidence within the commercial property sector, according to the NAB.
The NAB Commercial Property Index declined by 1 to +17 in Q4, but remains well above the long-term average of +2.
NAB chief economist Alan Oster said the continued positive sentiment likely reflected a steady economy, healthy employment growth and strong business conditions.
Sector comparison
Retail was the only sector where sentiment was negative, falling from +12 to -7 in Q4 and was lower in all states. Oster said this is not surprising given challenges in the retail industry.
“Overall confidence declined most in retail, and is perhaps unsurprising given NABs own forecasts for wages suggest that any improvement in consumer spending will be glacial, especially if wealth effects have an impact as house prices slow,” he added.
Expectations for retail property were also cut (-0.2% & 0.1%), with negative returns predicted in NSW (-1.7% & -1.4%) and VIC (-0.2% & -0.5%), with the strongest returns in QLD (0.7% & 1.3%).
Rental growth for retail property was slowest of all sectors in Q4 (-1.5%), and the outlook for future growth is weakest of all sectors (-0.9% & -0.3%). Retail rents are expected to fall or remain flat in all states.
In contrast, sentiment in CBD hotels out-performed all other sectors, rising from +30 to +75, reflecting continued strong growth in tourism and high occupancy rates.
Industrial sentiment also lifted, from +18 to +25, amid continued reports of strong warehousing and logistics activity linked to growth in online retail including Amazon and e-commerce.
Office sentiment has eased, from +30 to +21, but is still out-performing.
State by state comparison
By state, sentiment was broadly unchanged and strongest in New South Wales (+33 points), followed by Victoria (+20) where it softened somewhat but was still relatively solid. Queensland was also unchanged at +15.
Sentiment in South Australia and Northern Territory weakened from +5 to -20, but Western Australia saw the biggest drop, falling from +15 to -44.
Oster said the WA sentiment reflects the ongoing transition from the mining investment boom continued to weigh on both economic growth and local commercial property markets.
Outlook
Property experts in all states were less confident about overall commercial property markets in the next 1-2 years. NSW is still the most upbeat state, and WA and SA/NT the least confident (and negative).
The survey also indicated that property developers were more hesitant about entering the market in Q4, perhaps reflecting concerns about over-supply in some segments such as high density apartments.
Australia wide, the number developers intending to start new building works in the next 6 months fell to 47% in Q4 below its long-term average (51%).
Financing difficulties
According to the survey, accessing funds continues to a major challenge. In net balance terms, -28% of surveyed property experts said it was harder to obtain borrowing or loans (debt) needed for their business, although this represented a slight improvement from Q3 (-31%).
“Property experts are also telling us that debt and equity funding is still difficult to obtain and most don’t expect any improvement in their funding conditions any time soon,” Oster said.
Equity funding conditions were unchanged according to a net -19%. Looking forward, more property experts on balance also do not expect to see any improvement in their funding conditions over the next 6-12 months – a net -28% see debt funding conditions worsening over the next 6-12 months while -20% think it will be harder to obtain equity financing.
Australia wide, the average pre-commitment required to meet external debt funding requirements for new developments rose to 64.0% for residential property in Q4 (62.3% in Q3), but fell to 55.3% for commercial property (57.3% in Q3).
Residential requirements were largely unchanged in VIC (65.8%) and QLD (57.7%), but increased significantly in NSW (67.0%) and WA (68.9%). For commercial property, average pre-commitments fell in VIC (55.5%) and NSW (55.7%), was steady in WA (57.5%) and increased in QLD (54.1%) – but was lowest of all states. Property experts do not expect their lending terms to improve in the next 6-12 months – a net -20% expect it to worsen for residential property and -23% to deteriorate for commercial property.
Australian Property Journal
