Date: August 08 2012
A weaker retail environment and continued worries about prospects for Europe’s financial stability have driven down views on conditions in the commercial property sector to a two-year low.
National Australia Bank's commercial property index fell to minus-16 in the June quarter from minus-8 in the March quarter. It was the lowest level since the series began.
‘‘Consumer confidence is still seen as the biggest challenge facing property firms,’’ said NAB chief economist Alan Oster.
‘‘Economic and financial market volatility have again emerged as major concerns as confidence was likely eroded by recent turmoil in Greece and Spain.’’
Retail and industrial property professionals were among the most pessimistic in the index, likely reflecting the difficulty facing those two parts of the economy. Demand at traditional retailers has been patchy in recent years amid fragile consumer confidence and heightened competition from offshore retailers, thanks in part to the strong dollar.
A string of major retailers such as David Jones, Myer and Harvey Norman have issued profit warnings.
The surging dollar has also sapped demand for Australia’s manufactured exports in recent years.
The retail subindex moved to minus-43 in the June quarter, from minus-45 in the March quarter, NAB said. For industrial commercial real estate, the subindex slumped to minus-27 from minus-17 in the same time.
The grim view of commercial property matches a downturn in housing construction, called the worst in two decades by outgoing Stockland managing director Matthew Quinn today. "The market, 20 years ago, was 20 per cent stronger than now,’’ he said.
The NAB survey also showed deterioration in the office retail subindex, which fell to five in the June quarter from 12 in the March quarter. The index capturing activity in the CBD hotels sector dropped by two-thirds in the same time, to 19 from 57.
‘‘Market supply in the national office and industrial property markets was assessed as ‘neutral’ in the June quarter, but the retail market was ‘somewhat oversupplied','' the report said.
Nonetheless, undersupply was ‘‘expected to emerge’’ in the office market over the next three years and in the industrial market in the next five years, as the domestic economy improved and rebounded from its current slump.
Mr Oster said that despite the worries that have soured confidence, the industry’s concern over interest rates is ‘‘falling rapidly’’.
The Reserve Bank kept interest rates on hold yesterday for the second month running, as the economy and global markets showed signs of stabilisation.
Since November, the central bank has slashed 125 basis points from the cash rate.
The NAB survey of conditions is drawn from responses of 300 real estate agents, managers, developers, fund managers and investors.
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