Confidence in Australia’s commercial real-estate sector has lifted, a survey of approximately 330 property industry professionals indicates.
Releasing the fourth quarter edition of its Quarterly Australian Commercial Property Report, the National Australia Bank (NAB) said its Commercial Property Index measuring overall sentiment within commercial real-estate increased by five points to above average levels of +8.
The result was driven by a surprise improvement in the CBD hotel sector, where confidence rebounded from -17 in the third quarter to +17 in the quarter just passed.
Sentiment also lifted in the industrial sector and continued to outperform despite easing in the office sector.
Only the beleaguered retail sector (-26) continues to underperform.
On locations, New South Wales led the way as sentiment in that state rebounded from -6 to +19.
Sentiment was also positive in Queensland (+8) and Victoria (+7) but was negative in South Australia/Northern Territory (-9) and Western Australia (-7).
The latest rise in sentiment comes despite subdued conditions in the broader economy.
On a seasonally adjusted basis, data from the Australian Bureau of Statistics indicates that the economy grew by 1.7 percent over the year to September.
Whilst the Reserve Bank of Australia expects GDP growth to lift to 2.7 percent this year, other forecasters are less optimistic.
The NAB itself, for instance, expects the economy to grow by just 1.5 percent in 2020 followed by an improvement in 2021.
NAB Group Chief Economist Alan Oster said confidence across different sectors is being affected by various factors.
In the office sector, Oster said positive sentiment particularly in New South Wales and Victoria was being driven by tight leasing markets and strong tenant demand.
Meanwhile, confidence in the industrial sector was being supported by eastern seaboard demand associated with e-commerce and associated growth in supply chains.
Retail sentiment was being dragged down by subdued consumer spending.
Speaking of the lift in hotel sentiment, Oster says this was a surprise and followed a weakening over the past year amid a glut in new supply.
It should be noted that the survey was conducted before the outbreak of the coronavirus.
Along with its effect on the general economy, the virus and consequential travel restrictions are likely to directly impact the hotel sector.
Speaking of the overall economy, Oster stresses that the magnitude of the virus’ impact is difficult to predict with certainty.
He says the bank has adopted the assumption that the effect will be temporary and that the travel restrictions will be finished by April or May.
That would see no Chinese growth in the first quarter and would also impact other Asian economies including Japan, he said.
On this basis, Oster says NAB’s models for Australia suggest a detraction from the virus of around 0.5 points off GDP in the first quarter.
Combined with a small effect from the bushfires, Oster says this may see the Australian economy go into slightly negative territory in the first quarter before recovering in the second quarter and accelerating in the second half of the year before a stronger economic recovery takes hold in 2021.
All up, Oster says NAB has shaved half a percent off its economic growth forecasts for 2020 as a result of the virus and the fires (from 2 percent to 1.5 percent) but added a further 0.3 percent to its previous forecasts for growth in 2021 (from 2.5 percent to 2.8 percent).
Along with improving sentiment overall, the survey also pointed to a rise in the number of construction projects which are set to begin.
Whereas only 35 percent of developers had indicated their intentions to commence new works during the next six months in the previous survey for the September quarter, that number increased to more than half of all developers in the latest survey.