Strong housing demand is set to keep the property sector upbeat

Future Business index

Strong residential demand has buoyed confidence in the Construction and Property Management sector, according to the Commonwealth Bank Future Business Index.

While high commercial vacancy rates have affected property managers in many parts of the country, developers continue to benefit from a strong housing market, according to the latest FBI.

As a result, almost half of the firms surveyed expect revenues to keep rising in the second half of 2014. However, the overall confidence index for the sector has fallen back from a record high of 32 in March 2014 to a more modest 9 in the June quarter, as an oversupply of commercial office space in the mining-dependent states begins to bite.

A mixed outlook

The June quarter FBI reflects the very different fortunes of the residential and commercial sectors in recent months, along with marked differences between local markets across the country.

According to the Commonwealth Bank economics team, residential construction is not likely to peak until mid-2015, with building approvals rising 2.5% in July to be 9.4% higher than a year earlier. Not only are building approvals a strong leading indicator, but the lag between approvals and building activity has been growing, thanks to the level of activity concentrated in long-term, high-rise projects. As a result, it appears likely that there is still plenty more work in the development pipeline.

In contrast, office vacancy rates in many capital cities are still uncomfortably high. In August, the Property Council of Australia reported that July vacancy rates in the resource-rich states had climbed as high as 14.7% in Brisbane and 11.8% in Perth, despite tightening to 8.4% in Sydney. As a result, property managers in some capital cities continue to face downward price pressure, with few signs of relief.

A strong financial position

In the FBI, this mixed outlook is reflected in an overall decline in confidence, including firms’ confidence in their ability to manage future fluctuations in business conditions.

On one hand, 46% of firms say they expect revenues to grow over the next six months, with 52% now planning to focus on growth rather than cost management — a rise of 10 percentage points in just three months. On the other hand, only 42% now say they are well prepared for future volatility, down from 60% in the March quarter.

More positively, an impressive 82% of construction and property firms say that they are in a strong financial position — the highest proportion of any sector surveyed. That suggests that most are well positioned to cope with any future weakness as the residential construction boom begins to peak.

Learn more and view the latest Commonwealth Bank Future Business Index report or infographic.  To find out how we can help contact Colin Robertshaw (colin.robertshaw@cba.com.au) or your Relationship Executive on 1800 019 910.

What is the FBI?

The FBI is an analysis of the views of financial decision makers in companies with a turnover of $10m – $100m, measuring their outlook on business conditions, investment plans, business challenges, projected revenue and how prepared they are to navigate conditions for the six months ahead.