Property pains

There is a positively upbeat mood among most of the entrepreneurial community right now. Growth is firmly back on the agenda, there is suddenly more money around, and mergers, acquisitions and exits are firing up.

But we should always remember that there are pockets of the economy still doing it tough. Retail and wholesale are on the list, but at the top is the property sector, and particularly commercial property.

Today, NAB’s commercial property index, which measures confidence across the sector, showed just how mixed things are. Sentiment is positive in the office and hotels sectors, but remains negative in the retail and industrial spaces.

What’s more interesting is the outlook. The survey showed 57% of developers are launching new developments in the next six months, plummeting from 79% just three months ago.

On top of this, access to finance has significantly worsened in the last two quarters – and developers are not expecting an improvement any time soon.

We’ve known for a long time that the residential property market remains sluggish and predictions of a turnaround simply have not eventuated. And quite frankly, they don’t look like turning around any time soon.

And while conditions in the commercial property sector are improving, we remain a long way off from anything like a full recovery. While the banks want nothing (or very little) to do with the sector, it’s going to be very hard for developers to turn their business around.

The thing to remember is the importance of the construction sector to the wider economy. Think of how many businesses supply raw materials and services to the sector, and how many businesses on the periphery – valuers, advisers, lawyers, accountants – rely on construction to drive their business.

While construction remains weak, entrepreneurs across the economy should remain just a touch cautious.