The CBD hotels sector continues to out-perform all other commercial property sectors with expectations dimming for offices and retail property returns, according the latest NAB’s quarterly survey of commercial property players.
The NAB Commercial Property Index rose slightly to -17 points in the fourth quarter of 2012 from a low of -19 points in the previous quarter.
However, this was solely due to a sharp increase in the CBD Hotels index as capital growth and rental expectations fell in all other commercial property markets.Click to enlarge
“Recovery expectations also postponed in all markets, with property professionals less optimistic about prospects for longer-term capital and income growth,” says the report authored by NABs’ head of research Peter Jolly and chief economist Alan Oster.
On a state-by-state basis, WA was identified as the strongest market, but NSW the most optimistic state by the end of 2014 with Victoria lagging.
“Debt and equity funding still a problem for developers and consumer confidence continues to be identified as the main challenge for property firms in the next year.”
The results are based on a December survey of 270 commercial real estate agents and property managers, property developers, asset/fund managers and commercial property owners and investors.
The CBD Hotel Index rose to +58 points in the December quarter, with more respondents anticipating future capital value.
“CBD hotel operators are benefiting from strong demand for CBD hotel rooms and limited supply additions, which is contributing to revenue per available room (revPar) and room rate growth,” says NAB.
CBD hotels was the only sector to record a rise in capital values over the December quarter (up 1.7%) with retail property recording the greatest decline in value (-1.4%) followed by industrial (-1.2%) property.
Office property values slipped by a relatively modest 0.6% over the quarter.
The outlook is also strongest for CBD hotels with respondents anticipating capital growth of 3% over 2013 and 4% over 2014.
Modest growth is predicted for industrial property (0.3% and 1.2%) and offices (0.1% and 1.2%) with expectations gloomiest for retail property with values forecast to decline by 0.2% this year, before a modest rise of 0.8% in 2014.
NAB says the lower expectations for capital growth and rental growth in the office property market are due to the domestic economy entering a soft patch along with weaker employment conditions seen in the finance/ business/ property sectors in the latest quarterly NAB Business Survey, which has weighed down on confidence.
“With the economy continuing to weaken and unemployment set to rise noticeably through 2013, the outlook for commercial office property has also weakened,” says NAB.
Commercial property landlords hoping for a better rental return in 2013 will be disappointed.
The NAB survey found that rents contracted in all markets in the final quarter of the 2012 led by retail (-2.1%) with rents down in all states.
Retail participants in the survey are slightly less pessimistic this quarter about rental expectations, expecting average rents to fall 1.5% this year and by 0.4% in 2014.
There are more subdued expectations in the office market with rents to remain flat in 2013 and grow by 1% by 2014
Rental expectations for industrial property also revised down with rents to grow 0.8% in next year and 1.7% in 2014.