May Commercial Chronical

Australia's commercial property market sentiment has reached its highest level in eight years, with the NAB Commercial Property Index climbing to +24 points in the March quarter.

The surge in confidence comes amid February's interest rate cut and expectations of further reductions throughout 2025, creating a more optimistic outlook across most sectors and states.

NAB chief economist Sally Auld said the market was responding positively to easing monetary policy. "The NAB Commercial Property Index lifted to an eight-year high in the March quarter, continuing the run of improvements seen in recent quarters," Ms Auld said.

Sentiment was strongest in the CBD hotel property sector, holding steady at +50, followed by industrial property which rose 4 points to +46. Retail property sentiment jumped significantly, up 24 points to +17, returning to positive territory for the first time since Q3 2017. Office property sentiment also improved, rising 6 points to +11.

Queensland recorded the highest sentiment among states, up 19 points to +47, followed by NSW at +14. Victoria, despite showing improvement, remained in negative territory overall at -16, particularly struggling in the office and retail sectors.

Confidence levels have reached decade highs in multiple segments, with the 12-month outlook hitting a 7½-year high at +38 and the two-year measure climbing to +53, its highest level in more than 13 years.

CBD hotels showed the strongest confidence levels, reaching +83 for the 12-month outlook and +100 for the two-year forecast. Office property recorded the lowest confidence over 12 months at +25, while retail showed the lowest two-year confidence at +34.

Capital growth is now expected across all sectors, with industrial property leading at 2.4% forecast growth over the next 12 months, followed by CBD hotels (0.6%), office (0.3%), and retail (0.2%).

Regional variations remain significant, with office values still expected to fall in Victoria (-5.1%) while growing in Queensland (+3.1%). Retail growth is projected to be highest in Western Australia at 3.6%, while both Victoria and NSW expect declines in this sector.

Vacancy rates show diverging trends, with office vacancy rising to 11.4% nationally. Victoria recorded the highest office vacancy rate at 15.0%, where the market is considered "very" over-supplied. Industrial vacancy tightened to 3.2% and is expected to remain low, while retail vacancy eased to 6.6%.

Industrial rents are poised for the strongest growth, forecast to rise 2.3% next year and 3.1% in two years. Western Australia and Queensland are expected to lead this growth at 4.5% and 3.9% respectively.

Developer activity has also picked up, with 48% of developers planning to start new projects in the next six months—up from 37% previously. Most developers (55%) are focusing on residential projects, while 17% plan industrial developments.

Funding conditions have improved, especially for debt, with net access rising from -13% to -4%. The average pre-commitment threshold for debt financing rose to 55% for residential and 60% for commercial projects.