Australia’s commercial property market sentiment surged to its highest level in eight years in the March quarter, with the NAB Commercial Property Index rising to +24 points.
This continued the upward trend seen in recent quarters and was driven in part by February’s interest rate cut and expectations of further reductions through 2025.
NAB chief economist Sally Auld (pictured) said the market was responding positively to easing monetary policy and a more optimistic outlook.
“The NAB Commercial Property Index lifted to an eight-year high in the March quarter, continuing the run of improvements seen in recent quarters,” Auld said.
“Confidence levels also improved to multi-year highs and printed positive in all sectors and states (except VIC where it remains negative for office and retail property in the next 12 months).
“Amid expectations for further rate cuts ahead, property professionals expect capital and rents to grow in all sectors in the next one-two years.”
Sentiment was strongest for CBD hotel property (steady at +50), followed by industrial (up 4 to +46) and retail (up 24 to +17), with the latter 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 to +47), followed by NSW (+14), while SA/NT and WA saw modest declines. Victoria, despite improvement, remained negative overall (up 15 to -16), particularly in the office and retail sectors, NAB reported.
Confidence also rose sharply, with the 12-month outlook hitting a 7 1/2-year high at +38 and the two-year measure climbing to +53, its highest level in more than 13 years.
Confidence was strongest in CBD hotels (+83 in 12 months, +100 in two years), while the lowest confidence levels were reported for office property over 12 months (+25) and retail over two years (+34). Confidence in Victoria remained negative for both office (-25) and retail (-13) in the near term, the NAB survey found.
The average capital growth forecast for the next 12 months was highest for industrial property (2.4%), followed by CBD hotels (0.6%), with office (0.3%) and retail (0.2%) also returning to positive territory.
Expectations varied significantly by state. For instance:
Two-year capital growth expectations remain strongest in industrial (3.1%), with retail (1.1%) lagging.
These near-term forecasts come amid a broader market expansion, with Australia’s commercial real estate sector projected to reach US$36.95 billion in 2025 and grow at a compound annual growth rate (CAGR) of 8.46% to US$55.46bn by 2030, driven by sustained demand across office, retail, and industrial segments in major cities like Sydney and Melbourne.
Office vacancy rose to 11.4% nationally, with Victoria hitting a high of 15.0%, where the market is considered “very” over-supplied. National vacancy is forecast to improve to 9.8% in two years, though Victoria is expected to remain in double digits.
Industrial vacancy tightened to 3.2% and is expected to stay low over the next two years. Retail vacancy eased to 6.6%, with further improvement expected (down to 5.0%), NAB reported.
Rent growth expectations are also highest for industrial property, forecast to rise 2.3% next year and 3.1% in two years, with the strongest growth in WA (4.5%) and Queensland (3.9%), respectively.
Office rents are forecast to grow 0.9% next year and 2.3% by 2027, led by Queensland. In contrast, Victoriais forecast to decline (-2%) before modestly recovering.
Retail rents are expected to rise 0.8% next year and 1.3% in two years, with SA/NT leading the gains (3.6% and 3.3%), and Victoriaagain underperforming.
Developer intentions strengthened in Q1, with 48% planning to start new projects in the next six months—up from 37% previously.
Most (55%) are focused on residential, while 17% plan industrial developments. Office and retail developments remain subdued.
Funding conditions improved, especially for debt, with net access rising from -13% to -4%.
Equity funding conditions remained tight but improved slightly. The average pre-commitment threshold for debt financing rose to 55% for residential and 60% for commercial, though sentiment points to gradual easing in the coming months.
