Australia: commercial property sector remains subdued amidst uncertainty

RICS Australia has confirmed that the overall Commercial Property Sentiment Index (CPSI) has moved from -13 to -14, with the Occupier Sentiment Index shifting little from -12 to -11 and the Investment Sentiment Index moving from -14 to -16, as the sector retreats amidst economic uncertainty.

Occupier demand has moved into more negative territory, shifting from -11 to -13, with office moving from -10 to -14, industrial strengthening from +3 to +5 and retail slipping even further behind with a -30 reading, after recording a -26 reading last quarter.

In more positive signs, availability tightened, moving from +28 to +18, reflecting reduced availability in all sectors with office reducing from +34 to +30, industrial moving to +11 from +21 and retail moving from +26 to +14.

Inducements also fell, with the overall reading moving from +26 to +20, office moving to +26 from +27, industrial moving to +9 from +18 and retail from +18 to +9.

Despite the improvements in availability and inducements, 3-month rental expectations went backwards, with the overall rating moving into negative territory at -1 from +2, office recording +4 when previously +15, industrial recorded +7 from +8 and retail -14 from -16.

Looking further ahead, 12-month rent expectations remained in positive territory, albeit with the overall indicator moving from +27 to +20, office nudging slightly higher from +23 to +24, industrial moving from +43 to +32 and retail dropping from +14 to +3.

Future supply of commercial property developments remains in negative territory, both overall and across all sectors, with the overall reading remaining steady at -31, office moving from -40 to -38, industrial moving from -15 to -20 and retail recording -35 when it was previously -37.

Investment enquiries also remained steadily in negative territory, with sentiment overall remaining at -23, office moving from -30 to -35, industrial moving from -5 to -7 and retail from -33 to -28.

The 3-month capital value expectations moved further into negative territory from -3 to -14, with office shifting significantly from 0 to -16, industrial moving from +10 to 0 and retail moving from -18 to -26.

Also, 12-month capital value expectations moved slower, with the overall indicator moving from +24 to +9, office recording +8 where it was previously +28, industrial moving from a strong +41 to +26 and retail moving to -6 from +5.

Foreign enquiries improved while still remaining in negative territory, with a shift from -22 to -17 for the overall indicator, office moving to -11 from -19, industrial shifting only slightly to -12 from -14 and retail moving to -28 from -33.

General supply availability moved from +17 to +11, with office moving from +21 to +19, industrial moving from +13 to +7 and retail moving from +16 to +7.

The majority of respondents viewed credit conditions as having slightly deteriorated or there being no change. In terms of market valuation, the majority of respondents thought they were fair valued, followed by the second-largest group thinking they were overvalued.

Vishant Narayan FRICS RICS Australasian Board Member:

"Positive sentiment in the commercial property sector recorded towards the end of last year has become subdued in response to geopolitical uncertainty internationally and higher than expected inflation locally. Respondents also mentioned unlegislated tax reform as a cause of slower investment activity.

"Around 60% of Australian respondents perceived the investment markets to be either mid-downturn or at the bottom of the cycle, with 12-month projections being more positive.

"Some alternative sectors have however recorded stronger results, with strong 12-month rent and capital expectations for data centres, built-to-rent, student housing and aged care. Sectors that are more exposed to discretionary spending, such as leisure and hotels, have not fared as well due to recent interest rate hikes."