But funding conditions are harder, property professionals say
Sentiment in commercial property markets has bounced back a little in the March quarter but economic uncertainty appears to still weigh down on confidence, according to new figures from NAB.
NAB’s commercial property index, which measures market sentiment from a survey of around 370 property professionals, further picked up in the first quarter at -6 pts. The figure was up from -9 pts in the previous quarter, was well down from the same period last year (+11 pts), and was still trending below the long-term survey average of -1 pt.
“Economic uncertainty remains elevated,” said Alan Oster, NAB group chief economist and report author. “How quickly inflation moderates is a key unknown as domestic pressures – including wage and rents growth – continue to build. On the other hand, the full impact of the rapid tightening in monetary policy is yet to be seen, and there is a risk that activity could slow more sharply than expected.”
Against this backdrop, commercial property confidence levels for the next 12 months remained in the negative territory at -2 pts, with the two-year measure unchanged at a well below average +12 pts.
Across the states, commercial property was negative, except for South Australia and the Northern Territory, where the state index lifted to +3pts (0pts in Q4 2022). Victoria registered the lowest sentiment at -28%, although it did ease from -37pts in the previous quarter. In other states, sentiment fell, with Western Australia posting the biggest decline, down 16pts to -2pts. Confidence levels for the next 12 months are strongest in SA (+15 pts) and WA (+11 pts), and lowest in Victoria (-30 pts) and also negative in NSW (-6 pts).
A well below average of one in three property developers (33%) were planning to start new building works in the next six months, the survey found, while only 37% now intended to start new building works in the next six to 18 months, down from 42% in the previous quarter.
“With an apparent stabilisation in house prices, and very strong pickup in housing demand as population growth rebounded since the reopening of international borders, Q1 saw a further uptick in the number of developers planning to start new building works in the residential sector to 51%,” Oster said.
“However, below average numbers plan to start new works in the office (12%) and industrial sectors (14%) – despite expectations for ongoing shortages of industrial space. The number planning to start new works in the retail sector however improved to 10% after dipping to a near survey low 6% in Q4 22 but is still trending below the survey average (13%).”
More property professionals said funding conditions, both debt and equity, were harder in the first quarter. The net number of property professionals who said it was harder to obtain loans (debt) increased to a four-year high of -37%, while the number who said it was harder to obtain equity surged to a survey high -39%.
“Looking ahead, more property professionals believe debt funding conditions in the next three-six months will be worse than now (-39%), but the net number expecting equity funding conditions to be worse is lower (-25%),” Oster said.
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