Retail property has been struggling for over 12 months in Australia but rock bottom is still to come, according to gloomy results from the Australian Property Institute’s six monthly property directions survey.
WA is faring well compared to the eastern states, but the retail property market has gone backwards from 12 months ago and industry insiders expect the market could further decline.
“If interest rates are cut we might get a change in confidence that will see things improve but otherwise I would expect retail to stay stagnant and maybe even decline further unless we see a shift elsewhere,” API WA president Dennis Volk said.
The survey confirmed that WA’s commercial office sector is leading the country, with the strongest demand for space and the lowest reported rate of incentives offered in leasing deals.
More than two-thirds of respondents from WA reported seeing incentives for leasing of less than 9 per cent of the value of the office space in prime and A-Grade buildings — a fraction of those still on offer in the East.
In Sydney, four out of five respondents reported seeing incentives of 20 to 29 per cent being offered in the CBD office leasing market. While the levels of incentives reported for prime property had declined, larger incentives were being reported in A Grade and lower-grade buildings to shift space than six months ago.
Despite Perth’s strong office market, the forecast for property overall is a gloomy one.
In 2011, two-thirds of those surveyed thought it likely or very likely that commercial property would outperform the equity markets in the short term.
That has now fallen to fewer than half the respondents (43 per cent) and the percentage who believe it unlikely has more than doubled from to 30 per cent.
More than 40 per cent now think it unlikely that commercial property will beat equities within three years, though they are slightly more optimistic about the five-year outlook.
Almost half predicted a drop in interest rates within six months (47 per cent), while just 20 per cent thought interest rates would be higher this year.
At the same time, 60 per cent expected financing costs to be higher within 12 months — a big jump from the 37 per cent predicting a rise this time last year.