Property developers push back new projects as slowdown bites: NAB

Fears of an oversupply are emerging in retail as rate rises are expected to hit spending.

The tough economic outlook and difficulties in getting finance have prompted a plunge in property developers hoping to launch new projects in the first part of this year, according to a survey by the National Australia Bank.

The study also revealed that conditions had weakened for both office towers and shopping centres, with the still hot industrial property market a bright spot.

The NAB’s quarterly commercial property index picked up in the December quarter, but is still negative overall and trending well below average.

The bank said that with interest rates continuing to climb, funding conditions were also harder and are expected to worsen in the next three to six months.

The index, reflecting the views of property professionals, also showed a lift in CBD hotels, where value growth was reported for the first time since the pandemic as tourism recovers.

However, the survey revealed that growth is expected to slow this year and short-term confidence is very weak. While industrial operators remain bullish, confidence in the retail sector dipped sharply, with Victoria being weakest by a large margin.

Capital growth expectations among survey respondents for the next one to two years were revised up for industrial and city hotels but cut back for offices and retail.

In a sign that the slow return to work is biting, office rents are now expected to fall in the next one to two years, with Victoria again lagging. Property professionals estimated that white collar workers only need 72 per cent of the space they had before Covid-19.

Retail rents are also expected to fall steeply, which could crimp landlords despite the overall return of shoppers to malls.

The number of property developers expecting to commence new works within the next six months fell for the fourth straight quarter to 33 per cent. The bank warned this was the lowest result since the third quarter of 2019.

Apartment projects bumped up, with the number of developers planning to commence new works in the residential sector rising to 49 per cent. This was well below average and retail was the weakest of the commercial areas amid perceptions of oversupply, with only 6 per cent of developers to kick off projects in the sector.

NAB warned that with rates climbing further during the last quarter, property players had weaker intentions to source capital than at the same time last year, with over six in ten respondents now signalling no intention to chase capital in the next six months.

Funding conditions were also harder and expected to worsen in the next six months, with the net number of property professionals who said it was harder to obtain debt rising for the third straight quarter to a four-year high.