Commercial property a bright spot for the economy

Commercial property will help Australia’s economy shift away from mining investment, a new survey reveals.

It also shows confidence in the nation’s property industry has hit record levels, with experts saying the sector is leading the economy out of its recent gloom.

The Property Council-ANZ Property Industry Confidence Index shows commercial market sentiment lifted in the March quarter survey.

“Price expectations rallied in the quarter with all sectors apart from office reaching record highs,” the report says.

“Construction expectations also strengthened across all commercial property sectors suggesting property will play an increasingly important role in the economy’s transition away from mining investment.”

The survey found there was solid offshore and domestic demand for commercial properties, which were in limited supply.

“Improved market sentiment combined with ongoing strength in investor demand and a mild improvement in labour market leading indicators suggest that fundamentals could begin to improve again in 2014,” the report says.

“The global flood of liquidity, a heightened appetite for yield and the recent sharp decline in the AUD are expected to continue to support investor interest in Australian commercial property.

“Moreover, REITS and managed funds will increasingly return to the purchase market as equity valuations rise above net tangible asset value.”

Source: Property Council-ANZ Property Industry Confidence Index

Property Council of Australia Chief Executive Peter Verwer says property industry confidence jumped 8 points since the same time last year and now sits at a record high of 140 points.

“As Australia’s politicians look for a solution to boost economic growth and create jobs, the clear answer is the property industry,” he says.

ANZ Chief Economist Warren Hogan says the buoyant property sector is leading the economy out of the gloom of recent years.

“Outside the property sector, the improvement in business sentiment has been tentative and the near-term outlook for the Australian economy remains subdued,” he says.

“Mining investment is winding down from unsustainable highs and the public sector will likely detract from growth in the near-term.”

Hogan says expects that, despite a solid recovery in the property sector, Australia will experience below-trend growth in the next 12-18 months.

“For monetary policy, this suggests that we are in for an extended period of low interest rates. The future path of the AUD, however, will remain an important consideration for the RBA.”

The Property Council-ANZ Property Industry Confidence Survey canvassed the views of 2600 respondents across all major industry sectors and regions.