Confidence in Australia soured, the latest survey which only partially reflects COVID-19 has found.

Based on a survey of around 320 property professionals, the first quarter edition of the NAB Quarterly Australian Commercial Property Index fell by 8 points to a neutral level of 0 in the March quarter.

The survey was conducted over the period spanning February 25 to March 23.

Accordingly, its results are likely to have been somewhat impacted by COVID-19 but pre-date the worst of the effect to the economy and business confidence arising out of stricter containment measures.

Hotels were the hardest hit segment, with sentiment plummeting from 55 to -38.

Meanwhile, sentiment also edged back in offices (down 3 to + 26), industrial property (down 7 to +7) and retail (down 2 to -27) and retail property.

The survey also revealed that:

  • Average capital growth expectations for the next 12 months moderated for Office (0.9%) and Industrial (0.9%) property but remain positive. Retail property values are expected to fall harder (-1.4%), with values lower in all states, Capital growth expectations are weakest for CBD Hotel property (-2.8%).
  • The national Office vacancy fell rate slightly in Q1 (7.5%) and is expected to hold steady at 8% over the next 1-2 years, as modest rises in NSW and VIC (to still low levels) are offset by falls in QLD, SA/NT and WA. Retail vacancy however climbed noticeably to a survey high 6.9% in Q1, and it is expected to increase further in the next 12 months (8.0%), likely reflecting coronavirus-related shutdowns and business failures.
  • With many tenants reportedly struggling due to the coronavirus-led economic downturn, the rental outlook for the next year is noticeably weaker for Retail property (-2.5%), with bigger falls expected in all states. In contrast, rental expectations for Office (1.0%) and Industrial (0.5%) property are broadly unchanged.
  • There was a further improvement in debt funding conditions in Q1, but property professionals said it was heard to obtain equity funding in the wake of heady sharemarket falls following the COVID-19 outbreak.
  • Compared with the previous survey, the 3-6 month outlook for debt and equity funding conditions was now weaker.

NAB chief economist Alan Oster said the impact of the coronavirus was not yet certain.

“As it becomes increasingly clear that efforts to contain the coronavirus are having a very sharp impact on the economy, the true impact on commercial property capital values, rents and vacancy will depend on how long the virus takes to get under control, the extent of the containment measures and the timing of the phasing back to normal”