Australia's commercial real estate sector is showing increasing signs of imbalance, with higher vacancy rates due to an increase in supply and weaker demand. But the risks this development poses to Australian major banks will remain manageable, according to a new report from Moody's Investors Service.The rising risks in the commercial property sector include: higher vacancy rates from an increase in supply of, and weak demand for, office properties in Brisbane and Perth, and; growing settlement risks from a potential oversupply of newly-built residential apartments in Sydney, Melbourne and Brisbane which could negatively affect property development companies as well as the broader market (especially in the context of tighter lending restrictions imposed by the major banks recently).Nonetheless, the banks should continue to find the risk from their CRE exposures manageable due to limited direct exposures to the high risk CRE segments, both as a percentage of total committed exposures (at around six to eight per cent, compared with pre-GFC levels of around ten per cent) and because weakness in the office market remains limited to select regions. Moody's also points out that Australian major banks tightened their lending criteria to the CRE sector following material losses in the aftermath of the global financial crisis. "As a result, we see foreign bank branches being more at risk of current headwinds in this segment, and expect the major banks' CRE impairment levels to remain at moderate levels," the Moody's report says.These measures include pre-sales requirements on residential property developers and a cap on the share of their pre-sales accounted for by non-residents. Moody's stress test shows that, even in a scenario of an isolated severe stress on the commercial property and related loans, the major banks will only suffer a very mild deterioration in their Common Equity Tier 1 ratios.Due to "data constraints", the stress was applied to the banks' performing commercial property and real estate, business services and construction loans, but did not take into account specific loan loss reserves.