Business conditions in the Australian Commercial Property market improved in the third quarter ending September, driven by gains in the Office and Hotels segments, while conditions in the Retail and Industrial markets, however, remain negative, the National Australia Bank said in the report of its latest survey released today.

NAB's Commercial Property Index rose by 15 points, to total +5 points, compared with -10 in the June quarter. However, the survey highlights considerable variance across sectors.

The index is now positive for both Office and Hotels but remains negative for Industrial and Retail.

The rebound in Office was largely anticipated in the June survey, however the improved performance of Hotels has been driven by a better than expected profile for room rates. Confidence has also improved, particularly in Hotels.

"Expectations remain strongest in Office, followed by Hotels, with Retail and Industrial significantly weaker. Melbourne is the most confident across all property sectors (excluding Hotels), while Brisbane remains depressed in most markets," the report said.

Despite improvements in both current conditions and expectations, new development plans have been pushed out further.

Sourcing debt has become more challenging over recent quarters and respondents believe that debt conditions will remain tight. Developers expect worsening pre-commitment requirements to contribute to funding constraints in the short term. Rising interest rates are seen as a critical challenge for property firms over the next year.