Lower demand and higher interest rates have cut expectations for rental returns for Australian commercial properties based on a National Australia Bank Ltd. survey.

During the December quarter, rental returns for commercial properties in the country remained negative.The survey compiled data for the commercial property index. It showed that capital value and rental pricing expectations among industry players dropped by 1.4 points during the December period.

Industrial properties and hotels were the hardest hit by the decline while retail real estate properties showed slight improvement. “Business conditions in the commercial property market are likely to be considerably weaker than anticipated in our previous survey,” NAB said in the report. “The index is not expected to approach the peak of the last survey until September 2012, signaling a much slower pace of recovery.”

Commercial property demand was affected by frequent interest rate hikes since 2009 which affected consumer and business appetite for risk. In January, consumer confidence dropped to a seven-month low and business confidence plunged in December to the lowest level in 19 months.

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