Office, hotels and industrial fill retail void

NAB chief economist Alan Oster says office space is expected to lead the way for capital and rental growth, with office markets in Sydney and Melbourne providing the best returns.

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He said the results were a positive sign for the economy, with the performance of office sector one of the key indicators of economic health. “If you go back to the 1990 recession, vacancy rates were above 50 per cent, so this is sort of saying the sector doesn’t look like it’s going to cause a lot of grief for the economy going forward,” Oster says.

CBD hotels also continued to deliver good results despite coming off the boil in the second quarter of 2018. Oster says occupancy rates continue to soar, particularly in the major cities.

“I’ve heard stories of people delaying renovations (in hotels) so the service sector is still pretty strong in the Australian economy,” he says.

“They’re not building a lot of CBD hotels, so the demand is very strong and supply hasn’t really changed much.”

Gains in the industrial sector are likely at the expense of retail, with more people buying sheds for transport and logistics in response to the growth of e-commerce. “We continue to see retail as one of the poorest parts of the Australian economy, particularly discretionary retail and that’s showing up in these property results,” Oster says.

Property professionals also expecte interest rates to go up in the next six to 12 months and funding conditions to worsen.

“The majority view is consistent with our own view that the Reserve Bank of Australia will start increasing rates in mid-2019,” Oster says.

This article originally appeared on www.theaustralian.com.au/property.