If ever there was proof that the Australian economy hasn’t made the necessary transition just yet to more balanced and non-mining lead growth, it has to be the NAB Commercial Property Survey for Q2 2014 released this morning.
The NAB said the index dropped 3 points to -6 as it “continues to track below business confidence, with sentiment weaker in all markets bar CBD hotels”.
And forward expectations are for further weakness in CBD hotels and a marginal positive expectation for retail.
Clearly these last two sectors are seeing the benefits of consumption and they’d be expected to improve now that consumer confidence has recovered from its post-budget blues.
But with all states showing negative sentiment, capital values falling and expectations of lower rents filling, this is not a sector of the economy in the pink of health.
If anything tells you the story of the state of the commercial property market, it is the percentage of deals that hinge on the use of incentives to acquire tenants. It’s more likely than not, though, that this sector of the economy is a lagging indicator, so as confidence in the economy picks up, the confidence in CBD hotels should spread to other parts of the commercial property sector.
That’s why NAB chief economist Alan OSter noted in the release that: “Growth (is) to resume in all markets in next 1-2 years, led by CBD hotels.”