Australia's tourism boom has the commercial property sector feeling confident

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Confidence levels in Australia’s commercial property sector rose to the highest level on record last quarter, adding to evidence that the nation’s domestic economy – led by services – is performing reasonably despite concerns emanating from abroad.

The latest NAB commercial property index rose to +17 in Q4 from +10 in Q3, leaving the index at levels not seen in the survey’s six-year history.

Reflective of the divergent economic performance across the nation, survey respondents in New South Wales and Victoria were the most optimistic while those in Western Australia, South Australia and the Northern Territory – courtesy of ties to the mining sector’s performance – were the most pessimistic.

“NSW and Victoria remain at the forefront of the improvement in market sentiment, with WA still wallowing in deeply negative territory,” said Alan Oster, chief economist at the NAB.

“NSW continues to be the most optimistic state for commercial property in the next two years, with Queensland tipped to be the big improver and WA the most pessimistic.”

On the back of record-breaking tourist arrivals over the course of 2015, optimism towards CBD hotels stood head-and-shoulders above all other categories, although sentiment towards all sectors bar industrial property held in net positive territory.

The table below, supplied by the NAB, reveals that while already at stratospheric levels, confidence towards the outlook for CBD hotel property is expected to improve even further in the years ahead.

Despite overall confidence hitting the highest level on record during the quarter, property developers indicated that new work would likely slow in the year ahead, citing tighter credit conditions from lenders.

“Funding issues may be playing a role here, with more developers indicating that their debt and equity funding situations had deteriorated” said Oster.

“Tighter credit conditions are also being reflected in higher pre-commitment hurdles for new developments – up for the third consecutive quarter to 53.5% in Q4 and expected to tighten further over the next 6-12 months.”

The survey is based on responses from around 250 panelists covering real estate agents, property developers, fund managers and property owners.

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