Welcome to Issue 46 of The Property Development Review, exclusively for agents, developers and investors.
OCTOBER / NOVEMBER 2023 - ISSUE NUMBER 47
EXCLUSIVELY FOR PROPERTY DEVELOPERS, INVESTORS & AGENTS ACROSS ASIA-PACIFIC
LISTINGS The latest commercial assets and development site opportunities across Australia.
INTERVIEWS We speak exclusively to Australia’s best business and property leaders.
ANALYSIS Unique perspectives from the deal-makers on the ground.
Share and track property documents.
InstaDocs data room streamlines the due diligence process by providing secure and easy access to documentation for buyers and tracking capabilities for agents.
Visit instadocs.com.au
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THE PROPERTY DEVELOPMENT REVIEW
Here’s what leading agents are saying
“I am thrilled with how InstaDocs has transformed our workflow and has now become an integral part of the smooth delivery of our services.” “From the moment we started using InstaDocs, we immediately noticed a significant boost in efficiency. The platform’s intuitive interface and powerful features have revolutionized the way we handle our documentation delivery. No longer do we wrestle with cumbersome manual paperwork or confusing file management systems. InstaDocs has simplified everything. It is now a standard inclusion in all our appointments. InstaDocs has not only positively impacted our workflow but has also elevated the overall productivity and added a layer of capturing contact details & client engagement with the disclosure documents. If you’re searching for a way to simplify your documentation processes and track engagement then, InstaDocs is the answer you’ve been looking for.”
“I’ve been using InstaDocs for my campaigns for a few months now and I’ve been really impressed with it.” “The platform is super easy to use and performs seamlessly. The user engagement tracking has made it much easier for us to identify the buyers who are genuinely interested in the asset - This enables me to know who to qualify during a campaign. Since InstaDocs comes with the DevelopmentReady package, it adds a lot of value to the listing package, and I’ll certainly continue using these datarooms in the future.”
Nick Estephen Director, Joint Head of Sydney South West Colliers
Robert Dunne Director, Commercial Sales, Brisbane Savills
“To say that I am a fan of this dataroom is an understatement. It has made my life as a commercial real estate agent so much easier. ” “Past practice of selling sizable or complicated real estate has relied on multiple due diligence files being set up or the use of dropbox or commercial datarooms run by others. All these practices had their drawbacks and difficulties. The ability to control our own dataroom and monitor the usage has improved efficiency, client reporting and most importantly response times with buyers. The team behind InstaDocs are quick to respond to any queries we may have and are certainly receptive to new ideas. I look forward to working with InstaDocs for a long time.”
“InstaDocs provides ease, qualification, and control. The platform provides a fast and user-friendly ability to store and communicate large amount of documents.” “We are able to completely control who has access to the information and verify applicants prior to permitting access to the data room. I would recommend this platform as it is widely accepted within our industry which makes it easy for everyone to use. Improved functions such as drag and drop have had a major impact on reducing the time uploading information and together with 1-click functions and individual downloadable ability provides further control over the information.”
Brett Wilkins Director of Capital Markets, WA RWC
Richard McCouaig Associate Director Sales & Leasing Commercial, Gold Coast Cushman & Wakefield
October / November 2023 – 3
CONTENTS
11 MARKETS Colliers QLD South East Queensland Industrial Land Race 12 PODCAST DANE CRAWFORD Commercial Collective 6 INDUSTRIAL INSIGHTS James Templeton Knight Frank Will Pipeline Be Put on Pause? 8 INDUSTRIAL INSIGHTS Vanessa Rader Ray White Is Industrial Still Favoured? 10 CONSTRUCTION 94 Feet’s New State-Of-The-Art Commercial Offering
24 UPCOMING COMMERCIAL AUCTIONS Auction Hub
13 PODCAST JACK O’LEARY JLL South Australia
Auction Hub
Auction Hub
Auction Hub
Upcoming
Auctions
Upcoming
Auctions
26 NSW MARKET OVERVIEW Gavin Bishop Colliers 48 VIC MARKET OVERVIEW Gordon Code Colliers 80 QLD MARKET OVERVIEW Mark Clifford Head of Industrial
22 MARKET MOVES The Latest Transaction Activity & Key Deals 18 THE INTERVIEW MARK BARNABA AM Fortescue 14 INVESTMENT Benni Aroni Pitcher Partners Foreign Investment in Australia 16 INDUSTRIAL TRENDS David Hall C&W Industrial Contiues to Be a Bright Spot 17 INDUSTRIAL TRENDS Savills Industrial Keeps ShowingIts Resilience
Queensland Knight Frank
104 SA MARKET OVERVIEW Jordan Kies CBRE
28 NSW LISTINGS 50 VIC LISTINGS 82 QLD LISTINGS 112 WA LISTINGS 115 TAS LISTINGS 106 SA LISTINGS
MARKET MOVES
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THE PROPERTY DEVELOPMENT REVIEW
FROM THE CEO
Welcome to the October/November edition of The Property Development Review. In this issue, we shine a spotlight on the dynamic and flourishing industrial sector. Our pages are filled with invaluable insights and comprehensive overviews from the expertise of top industrial agents and experts in the field. Vanessa Rader, Ray White’s Head of Research, returns to discuss the historical strength of industrial markets and how recent shifts in investment activity and industrial availability are reshaping demand, vendor profiles, and buyer dynamics in this asset class. Gain insights from Michael Wall , National Head of Industrial & Logistics at Savills, alongside his Queensland and Victoria colleagues Callum Stenson and Matt Ellis as they discuss the resilience of industrial markets amidst high interest rates and changing demand patterns. Tune in to our podcasts, where Gavin Bishop , Colliers’ Managing Director of Industrial & Capital Markets, explores the national industrial and logistics market, discussing its allure for foreign investors and offers advice for private investors on leveraging current market dynamics. David Hall , who heads the Industrial division at Cushman & Wakefield, reveals a significant trend: the demand for industrial and logistics properties is surpassing supply, and there’s no indication of this trend slowing down. Learn about a really cool, cutting-edge commercial building being developed in Balaclava Melbourne by innovative builder, 94 Feet. This state-of-the-art construction has a strong emphasises on sustainability and occupier well- being within its vertically integrated community. In other property news, Benni Aroni from Pitcher Partners, discusses the current appeal of the Australian property market for international investors and highlights key investment areas. Nick Evans and David Brisk of Colliers Queensland analyse the impact generated as
a result of the unprecedented infrastructure development and population growth on South- East Queensland’s industrial sector, particularly in light of the upcoming 2032 Olympic Games. Additionally, Jack O’Leary, Director of Capital Markets at JLL, provides a comprehensive market overview of the South Australian commercial market whilst Dane Crawford, Partner & CEO of Commercial Collective discusses his team’s foray into the Newcastle residential developments sector. In our exclusive Interview series, Rob Langton sits down with the esteemed Australian businessman, corporate advisor, and private investor, Mark Barnaba AM . Drawing from over three decades of business experience, Mark shares his diverse career journey, providing valuable insights for launching successful ventures and his experience with working with the nation’s largest organisations. As always, this issue keeps you updated
EDITOR IN CHIEF Frank Materia frank@ readymedia.com.au
IN-HOUSE WRITER Oliver Gregurek
ADVERTISING OPPORTUNITIES frank@ readymedia.com.au PROPERTY LISTING ENQUIRIES info@ readymedia.com.au EDITORIAL ENQUIRIES editor@ readymedia.com.au CONTACT Ready Media Group Head Office Level 3 161 Buckhurst St South Melbourne VIC 3205 03 9631 5476 info@ readymedia.com.au
on the latest nationwide development and investment opportunities plus significant commercial transactions. Enjoy your reading experience! Nick Headshot - TPDR Intro Page
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October / November 2023 – 5
Industrial Trends
WILL THE INDUSTRIAL DEVELOPMENT PIPELINE BE PUT ON PAUSE?
By James Templeton National Head-Industrial - Knight Frank
James Templeton Partner, Managing Director, Victoria & National Head of Industrial Logistics – Knight Frank Australia
2023, vacant space across the Eastern Seaboard had fallen by 75% compared to Q1 2020 as the pandemic started, with total available space of 441,000sq m available across the three main cities of Sydney, Melbourne and Brisbane, down from 2,406,000sq m. Vacancy rates fell from their usual 6-8% range to sub 1% in areas, with less than 40,000 sqm available in Sydney at one point. The large increase in demand incorporated all quality of space as a rush for accommodation took place, resulting in both prime and secondary space being in very short supply. The short supply combined with high demand led to rapid and historically extreme rises in both rents and land values as landlords and developers responded to the rapid changes in the markets. Industrial land values have risen by around 50% in the last 3 years, with some large lot sizes in Sydney more
Over the past few years we saw a boom in the industrial property market due to the huge growth in online retailing during COVID. There was a chronic lack of supply to cater for the surging occupier demand at this time, and developers responded with a rapid rise in the development pipeline. However, with the market now having stabilised, with vacant space ticking up since the start of the year, we may now see the development cycle pause for breath nationally until demand catches up again. Let’s look back to where we were, compared to where we are now. Demand surged during the pandemic leading to low supply, and extreme rises in rents and land values. We all know of the step change that occurred in requirements for industrial space as a result of the pandemic. The initial turbocharging of the consumer move to e-tailing saw its share of the market rise from below 10% to briefly 15% of all retail sales, and 25% of non-food sales. This caused a massive increase in warehousing and general logistics requirements. Following on from this the issue of supply chain problems saw a trend of reshoring, which only continued to increase demand for industrial space. The unprecedented and continued increase in demand for industrial space in Australia saw availability dwindle. By Q1
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THE PROPERTY DEVELOPMENT REVIEW
metres in 2024, but there is a possibly it may be put on pause due to this slowing in demand. While there is still some un-met demand, much of this will be covered with pre-committed space. We expect that not all the historically high amount of new space coming on the market in 2023 and 2024 will be absorbed and vacancy levels will rise. This is not necessarily a problem as Sydney, in particular, is suffering from a lack of choice in space in the market. We also expect that some of the mooted space for 2024 will not come on the market, given how rapidly industrial developers can respond and consequently any increase in vacant space will be moderate. Looking at present vacancy rates it will be returning us to historic averages in percentage terms, providing some liquidity and choice in the leasing market again after a period of scarcity. The industrial sector has an ability to quickly turn on, and off, supply. Of the forecast supply for 2024, 28% (811,000sq m) is mooted and can be delayed. Another 409,282sq m is a historically large amount of owner-occupied construction (a response to the lack of availability in recent years), while a further 945,857sq m is pre-committed - leaving only 755,139 sqm speculative. Whilst this is substantial, we must remember where we are coming from – that is, with historically low vacancy rates. Historically there has been 1.5 million sq m of space on the market, and currently there is barely 500,000sq m. We may see a return to ‘normal’ availability, as long as the tap gets turned off quickly and the development cycle pauses for breath. With land values now stable, and rental growth beginning to slow, this may be exactly what is happening.
than doubling in value as developers rushed to grab land, with a FOMO hitting the market. Similarly average rents rose by over 40% in Melbourne and Brisbane and over 70% in Sydney since the pandemic began.
What has happened to the supply pipeline? The boom in industrial property made developing industrial space a profitable option, which resulted in a rapid rise in the development pipeline as rising rents (and initially falling yields) more than covered the cost of rising land values, and more recently rising construction costs. New completions had been slowly edging up from around 1 million square metres per year, broadly 40:40:20 split between Sydney Melbourne and Brisbane, with new supply ratcheting up markedly. From 2020-2023 Melbourne will have added over 4.1 million square metres of space alone. Average completions for the Eastern Seaboard are now well over 2 million square metres per annum, and with Brisbane responding with more space, heading towards 3 million square metres a year. The initial increase in completions was quickly absorbed and vacant space continued to decline, but vacant industrial space is now starting to rise as demand has slowed. The Australian economy is slowing and e-tailing’s growth has flatlined, demonstrating that the expansion of online spending will be far more gradual than initially thought and demand for space will not grow as rapidly. Could new supply be put on hold? After several very strong years of growth, both in demand and supply, it is clear that demand is moderating to some extent in the light of a slowing economy. New supply is forecast to continue to expand to nearly 3 million square
October / November 2023 – 7
Industrial Insights
IS INDUSTRIAL STILL THE FAVOURED ASSET CLASS? Industrial has been the commercial investors go-to in recent years.
While technology has seen the advancement of many industrial assets, from a dirty shed to a high tech distribution facility, the appeal of industrial has remained high as retail demand continues to see the need for larger logistic and distribution facilities, while small business growth has seen our requirement for small storage, warehousing and manufacturing continue to increase. Investment into industrial peaked in 2021 where close to $32 billion changed hands across the country, representing 32.4 per cent of all commercial sales that year. While the low interest rates and buyers’ desire to diversify their investment portfolios drove investment into commercial assets, the attractiveness of industrial was clear across all price points. For some smaller private investors and owner occupiers there were assets suitable in the sub $10 million range while for listed funds and
Vanessa Rader Head of Commercial Research Ray White
Industrial has been the commercial investors go-to in recent years. High demand for stock coupled with a limited supply pipeline and availability of vacant zoned land has resulted in strong increases in rents. Investment yields have fallen to an all time low for this asset, which was historically considered a secondary commercial investment option behind the likes of office and retail.
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offshore buying groups, portfolio sales saw billions of dollars find a home in industrial. Cold storage and large distribution assets with strong lease covenants to multinational groups cemented the quality income stream of industrial, resulting in a strong and rapid decline in investment yields on par with major CBD office markets. In the five years prior to 2021, investment into industrial assets only accounted for approximately 20 per cent of total commercial investment each year, prior to that this rate was even lower. While it did peak in 2021 at nearly a third of all sales, this rate has continued to fall to now represent 27.1 per cent in the first three quarters of 2023. While total investment into commercial has fallen more recently, industrial transactional activity this year has already amassed $9.7 billion. While NSW is leading the charge, strong results remain across Queensland too, while Victoria has struggled to keep pace. Markets such as Western Australia and South Australia saw increased volumes during COVID-19 as many investors (in particular interstate buyers) moved up the risk curve to smaller markets, also benefiting from strong occupancy and rental growth movements. More recently, this trend has dissipated as investors have been more considered moving back to key growth nodes. With this change in investment activity, there has also been some change in the buyer and seller profile for industrial in 2023. Private investors have been the largest players in the industrial space, and continue to increase their holdings, with net acquisitions remaining positive despite accounting for more than half of all sales. Similarly, we have seen greater net investment by offshore capital and institutional investors, however, the largest movement has been by listed funds and REITS. This buyer type has continued to sell down their industrial assets, being vendor to 21.5 per cent of all sales with a mismatch in buyer activity representing just 7 per cent.
As the proportion of industrial investment is falling, buyers are now considering other types of commercial asset types. Traditional investment classes such as office and retail also are seeing their investment levels reduce, making way for buyers to consider alternatives. This year we have seen a continued push into quasi- residential assets such as student accommodation, build-to-rent and development sites, capitalising on demand for housing, while strong tourism results have seen hotel activity grow. Also, off the back of our rapidly changing population demographics, demand has increased for assets such as medical, childcare and aged-care facilities. This changing landscape is expected to continue across commercial investment given changing sentiment towards the future of assets such as office and retail. This is highlighted in returns on offer for these asset classes. While changing cost of funding has seen returns fall across all major asset types, industrial remains in positive territory with total returns (June 2023) at 6.9 per cent, which is an encouraging sign for industrial investors. This result is well ahead of office which has dipped into negatives at -2.2 per cent, and retail which has been hampered by long term volatility now at 2.2 per cent. However, considering some of these alternative investment types, we have seen hotel assets return 5.8 per cent this period, while medical continues to show quality results at 3.5 per cent.
Industrial is expected to remain one of the commercial market’s favourites, given its improved sophistication of asset and return, ahead of historically attractive office and retail assets. Competition for alternative asset classes, particularly those tied to our rapidly growing population and changing demography may move towards being the next commercial investor favourite.
October / November 2023 – 9
Construction
94 FEET’S NEW STATE-OF-THE-ART COMMERCIAL OFFERING
William St Balaclava -Roof Top
Pioneering property developer 94 Feet has revealed the first look at its state-of- the-art commercial building in Balaclava, Melbourne, a vertically integrated community that puts sustainability and wellbeing front and centre.
inspire social connections. 94 Feet’s vision for the building extends beyond the wellbeing of the internal vertical community with the auditorium and communal rooftop opened up to the rest of the community, allowing local residents to enjoy the amenities and reserve it for special events. The project is listed with Vincent Tran and Ben McKendry of Cushman Wakefield, in conjunction with Matt Cosgrave and Lachlan Fitzpatrick of Colliers. The agents said the demand for workplaces offering employees benefits with convenient public transport access and high-quality amenities in Melbourne metro locations, further elevates and influences the commercial office market outside of the CBD. “Today’s decision-makers recognise that collaborative work environments drive heightened innovation and boost productivity. We are also starting to see more tenants gravitating to newly- established, non-traditional office developments that benefit from surrounding services and amenities.” Future tenants will be given the opportunity to care for a garden plot, with additional community benefits including a partnership with Helping Hoops - a charity that helps disadvantaged children access basketball training opportunities - by providing access afterhours to the rooftop half-court. The local community will also benefit from large-scale artwork by Melbourne-based artist, Kevin Gold, prominently displayed at the rear of the building’s exterior — making a significant contribution to the urban neighbourhood with the sports-themed illustration. The project puts an emphasis on sustainability, achieving a 5 star GreenStar benchmark rating along with power savings for tenants with over 65 rooftop solar panels and six EV charging bays in the basement. Open Court offers flexible floorplans ranging from 130sqm to 2500sqm.
Known as Open Court, the six level building plus rooftop is the first new office project of its kind in Balaclava, offering future tenants a wealth of amenities including a rooftop basketball court, produce garden, EV charging bays and five-star end-of-trip facilities. Designed by WMK Architecture with interiors by Technē, Open Court’s architecture featuring exposed steel structures, warm timbers and plenty of light greatly captures Balaclava’s industrial history, whilst drawing inspiration from the energetic multiculturalism of Brooklyn, New York. A captivating blend of old-world charm and modern sophistication that permeates every facet of the building, the design element creates an environment that not only pays homage to the past, but also embraces the dynamic spirit of the present. Located at 21 - 23 William St, Open Court sits 7km from the CBD and has direct access to Balaclava train station, offering businesses direct access to an all-encompassing commercial office space without having to travel far to the CBD. The location seamlessly adjoins the thriving central strip of Carlisle Street that is home to a range of esteemed cafes, restaurants, bars, including all the essentials from banks, fitness studios to supermarkets. Dean Rzechta, Managing Director of 94 Feet, said the project is paving the way forward for a new wave of commercial buildings that seamlessly blend work, wellbeing and sustainability. “A key driver for the team when designing Open Court was to create a valuable space that undoubtedly serves the community and makes a genuine contribution to the area. There are no commercial buildings of this calibre within Balaclava and surrounds, making it the perfect location for professionals who live in the Bayside and want to be closer to home,” he said. Open Court’s innovative design fosters collaboration through flexible co-working areas, an auditorium, an activated communal rooftop decorated with a basketball and pickleball court, perfectly aligning with the prevailing trend of cultivating workplaces that
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Markets
THE PROPERTY DEVELOPMENT REVIEW
SOUTH EAST QUEENSLAND INDUSTRIAL LAND RACE
Unprecedented levels of infrastructure development underway in South-East Queensland due to significant population growth as well as the upcoming Brisbane 2032 Olympic Games is having a considerable flow on effect to the industrial sector.
witnessed robust rental growth due to consistently strong demand for industrial properties in the area. Secondary rents have shown slightly faster growth, increasing by 27 per cent over the year. Land values have also increased, with a 24 per cent increase between 2021 and 2022, with land in the Australia Trade Coast and Brisbane North continuing to command higher prices, averaging around $650/sqm. Land in Brisbane’s South, South West, and Yatala areas typically average $550/sqm for smaller blocks of land and larger sites of over 5 hectares falling within the $400/sqm to $500/sqm range. On the Sunshine Coast, industrial land supply is critically low with the majority of activity concentrated in Caloundra and Beerwah where land values are between $450/sqm and $600/sqm for smaller lots, and larger sites of over 1 hectare achieving rates of around $270/sqm to $450/sqm. “We are seeing large numbers of new interstate investor/ developer entrants to the market as South East Queensland land values are much lower than core New South Wales and Victoria industrial locations,” said David Brisk. South East Queensland is further going to benefit from the continued momentum and build-up towards the Brisbane 2032 Olympic and Paralympic Games with Federal and State Government investment in new infrastructure such as stadiums and public transport. An $89 billion infrastructure investment program by the Queensland Government is set to transform the state over the next decade. These projects, interstate migration, and supply shortages will continue to contribute to a strong South East Queensland industrial property market with no signs of slowing down in the foreseeable future.
The industrial occupier market is particularly tight, with continued demand for land and hardstand driving record breaking sales and leasing transactions, with no signs of slowing down. Despite headwinds in the broader economy and other asset classes, the industrial market will experience another year of record take up with Colliers forecasting 1,000,000 sqm of leasing transactions in the over 5,000 sqm size range which is on par with 2022 and 40 per cent above the 10-year average. “We’re continuing to see substantial occupier enquiry levels in the Brisbane industrial market which is holding the vacancy rate at all time lows around the 1 per cent mark,” according to Nick Evans. Colliers Queensland has transacted over $3.5 billion of industrial assets in the past 2 years alone including a recent over $17 million sale of a 28,380 sqm industrial site in Wacol on behalf of MADAD Investments. Other recent sales include an over $12 million sale of an 8,040 sqm office and distribution warehouse formerly used for Expo ’88 on behalf of Silverfin Capital Limited, a nearly $17 million sale of a 4.26ha site in the Yatala Enterprise Area sold to Brisbane Isuzu and over $15 million in sales at Coomera Springs Enterprise Park. Industrial land supply has remained constrained, but despite interest rate rises, occupier demand has remained robust. The industrial sector’s strong performance is currently underpinned by the occupier market, with rental growth currently at its highest level on record. Rental growth has remained elevated in South East Queensland with the gap in rental growth between Brisbane and southern capital cities continuing to narrow and southern occupiers are now considering Brisbane for their national distribution centres due to the strong fundamentals of population growth, infrastructure investment and more attractive rents. Over the past year, prime industrial rents in South East Queensland have increased on average by 23 per cent, with the Australia Trade Coast and Yatala regions experiencing the most substantial rises at 27 per cent. The Australia Trade Coast holds a strategic position in close proximity to both the Port of Brisbane and Brisbane Airport, making it a critical hub for the movement of goods to and from Queensland. This strategic importance has attracted a growing number of businesses keen on establishing their presence in the precinct, resulting in heightened business activity and expansion, subsequently leading to higher rental growth. Yatala has also
By Nick Evans & David Brisk Colliers Queensland Director Industrial
October / November 2023 – 11
Podcast
SCAN OR CLICK TO LISTEN TO THE INTERVIEW IN FULL 25 MINUTES
DANE CRAWFORD
With Rob Langton
PARTNER, CEO - COMMERCIAL COLLECTIVE
Dan e Crawford’s career started in general agency residential work before shifting his focus to development and eventually transitioning into the commercial sector. Specifically, he honed his expertise in high-density residential projects, leading him to transition into large, multi-stage and substantial development initiatives. Commercial Collective was founded in 2019 by Dan e and four partners – all of whom were high-performing professionals at a major agency. They decided to embark on their own entrepreneurial journey, with a focus on providing a tailored, client-focused service without relying on a major brand’s safety net. “We wanted to focus on genuine, old-fashioned client service, which we believed would naturally drive the business forward. We initially faced scepticism, but our determination paid off. Since our launch the business has grown significantly. We started by focusing on new business development, creating relationships with property owners, and gradually expanded to include former clients as well. The market response was overwhelming, and our client-focused approach set us apart”. Today, Commercial Collective combine the expertise, knowledge, and experience of a tier-one agency with the personalised touch of a boutique firm. They develop individualised campaigns and strategies for clients, in addition to focusing on advisory services for a wide range of individuals, institutions and government organisations. Their comprehensive services include sales, leasing, and asset management plus tailored insurance coverage - Dan e Crawford. In addition, Commercial Collective’s have recently launched new stand-alone venture called “Division”, which specialises in new residential developments, including multi-story residences, land sales, and medium-density town homes. Moving to the Newcastle market, Commercial Collective have tapped into the allure of investing in Newcastle and the broader Hunter region. Here lies a robust and varied
economy, dispelling the misconception of being merely a mining town. Newcastle thrives across multiple sectors such as health, education, tourism, and professional services, making it a diverse and resilient investment hub. Substantial infrastructure developments and government funding have revitalised the region, creating an enticing prospect for potential investors. Beyond its economic appeal, Newcastle offers a high-quality lifestyle characterised by scenic beaches and a charming harbor, making it an attractive destination for both residents and businesses alike. Furthermore, Newcastle’s potential remains largely untapped, promising abundant opportunities for those ready to explore this burgeoning market. The recent launch of a new office in Maitland hopes to emulate the Newcastle office achievements. In terms of the current real estate landscape, in Newcastle, Dan e sees the industrial sector as particularly robust, experiencing high demand, low vacancy rates, and escalating rents. The region’s strategic location, excellent infrastructure, and affordability make it an ideal choice for industrial businesses. Commercially, while there has been an influx of new developments, the net absorption within the A-grade office sector remains strong. Although the residential sector, especially off-the-plan projects, faced challenges due to factors like construction costs and changing consumer sentiment, the market is gradually stabilising. Developments in the region, such as the East End Village, are driving increased interest and tourism, contributing to the overall growth of the real estate market. Looking forward, to 2024 Dan e is optimistic and reflects on the current increase of inquiry levels and a narrowing bid-ask spread, indicating a continuing active market participation. While challenges persist, the ability to adapt and engage with a personalised, consultative approach will maintain transactional volumes. Overall, by bridging the gap between owners’ expectations and buyers’ offers, Dan e foresees a strong and prosperous 2024 for Commercial Collective.
12 – October / November 2023
Podcast
THE PROPERTY DEVELOPMENT REVIEW
SCAN OR CLICK TO LISTEN TO THE INTERVIEW IN FULL 23 MINUTES
JACK O’LEARY
With Rob Langton
DIRECTOR - CAPITAL MARKETS JLL
boom in Adelaide’s CBD has led to a surplus of available space, especially in aging A-grade buildings. While occupiers are transitioning to new spaces, the reabsorption of prime office space will take time. Nevertheless, these developments are setting higher rental standards, thereby positively impacting the prime office market. Recent valuation losses, as exemplified by announcements like DEXUS’s, have acted as a market reset, shaping future expectations nationwide. Despite these challenges, there are opportunities for proactive individuals and businesses. Repurposing and upgrading older assets, focusing on specialised suites and tenant amenities, emerge as key strategies. Conversations about converting these assets into residential spaces are ongoing; however, Jack advocates for making these spaces attractive for businesses. Encouraging migration from suburbs to the CBD could be a viable approach, aligning with the city’s ongoing transformation. In this ever-shifting landscape, adaptability and a keen understanding of tenant needs emerge as crucial elements for success. Those who can navigate these complexities and proactively address market demands are well-positioned to thrive in Adelaide’s evolving real estate scene.
In his multifaceted role at JLL, Jack finds himself immersed in the dynamic and diverse real estate landscape of Adelaide. The city, once rooted in industrial manufacturing, is undergoing a significant transformation, evolving into a vibrant hub of various industries. From development sites and retail spaces to substantial investments, Jack’s work spans across this bustling urban panorama. One of the remarkable aspects of Adelaide’s transformation is its shift from industrial manufacturing to a centre for diverse industries. High-tech manufacturing at places like Tonsley, along with growth in sectors including defence, aerospace, health, food, and wine sectors, exemplifies this transformation. The emergence of innovation hubs like “Lot Fourteen,” repurposed from the old Royal Adelaide Hospital, showcases the city’s progress. Furthermore, Adelaide has gained international recognition in the education sector, offering exciting opportunities and contributing to the city’s growth. Built-to-rent opportunities are gaining momentum in Adelaide, overcoming historical challenges posed by affordable rental prices. Recent changes in rental trends have made these ventures more feasible, indicating a shifting market dynamic. Adelaide’s property market possesses unique attributes, such as active engagement from local private buyers, providing stability even in economic uncertainties. The removal of stamp duty in 2018 has enhanced the city’s appeal for investors, reducing transaction costs and boosting confidence in the business community. However, challenges persist in the current economic landscape. Discrepancies between buyer and vendor expectations, influenced by outdated metrics and differing long-term strategies, present hurdles. The development
October / November 2023 – 13
Investment
FOREIGN INVESTMENT IN RESIDENTIAL LAND PROPERTY AND PROJECTS IN AUSTRALIA
BY BENNI ARONI Client Director -Property Pitcher Partners
Why do foreign sovereign funds, investment groups, corporates and high net worth individuals want to invest in Australia?
Common, reasons include: •
their requisite internal investment infrastructures, noting that a number of investors have regional rather than single country mandates • Punitive taxes on foreign investors which may reflect real or perceived prejudices The Treasury is Australia’s foreign investment policy advisor and regulator. It administers the foreign investment framework. However, it is the Australian Taxation Office (ATO) that assesses residential real estate investment proposals and ensures any investment is not contrary to the national interest or national security. I do not intend to replicate charts and graphs in this article, but readers will find Treasury’s statistics on applications and approvals helpful and accessible. The information extends to informing the reader about the numbers of proposals approved or rejected but not to disclosure of applicants, projects, or reasons. Of particular interest is Treasury’s quarterly data on the value of foreign investment in Australia which varies significantly when comparing approved commercial investments and approved residential real estate investments. In the January to March 2023 report:
Stability of government and supporting institutions thus diminishing sovereign risk • A legal framework that is comprehensible and equitable • A stable, resilient and robust economy which continues to avoid recession, and maintain employment, inflation and interest rates within acceptable benchmarks • Proximity to Asian markets (where stability of government, economy or the law may not always exist) • A prosperous population and educated workforce enhanced by an aggressive immigration policy • Cultural improvements in adoption of Environmental, Social and Governance (ESG) considerations • Other factors including English being the primary language, AAA credit rating and favourable exchange rates And why would they not invest in Australia? My top reasons are: • Insufficient rates of return noting some investors require a return premium to invest away from their home markets • Preferred opportunities in other jurisdictions – because Australian deals are too small to warrant
14 – October / November 2023
THE PROPERTY DEVELOPMENT REVIEW
Given the current push by governments at all levels to increase the supply of housing in its various forms, it would be a good time for state governments to rethink their foreign surcharges and either significantly reduce the rates or abolish them altogether. In Victoria, the stamp duty off-the-plan concession used to facilitate investment in the apartment market by allowing investors as well as home buyers to access the concession. The restriction of the concession to principal place of residence purchasers has had a significant impact on the apartment market and the participation of offshore developers who have traditionally marketed a substantial portion of their developments to investors. Once again, given the critical shortage of rental housing in Victoria, as well as elsewhere in Australia, the reintroduction of the off-the-plan concession for investment purchases would provide a valuable shot in the arm for the industry.” Wayne Lasky, founding partner and Executive Chairman of MaxCap Group has recently partnered with USA giant Apollo Global Management and was kind enough to provide some profound insights. He pointed out that no two foreign investment houses have identical views on risk, return, acceptable volatility or credit and equity appetites. The more I spoke to Wayne and others in this space the clearer it became that those investment houses assess and price similarly to Australian capital sources. Just because they have larger wallets does not mean they are happier with lesser returns. It does mean they can play longer terms and ride out bumps without changing course. Utilising local experienced conduits before creating local presence is a logical course as we have seen with Singaporean powerhouse GIC who utilise houses such as Qualitas and Gresham and have now established a direct presence. Wayne observed the thematic nature of the foreign investment groups, most notable recently being BTR, logistics and data centres. Healthcare, lifestyle communities, hotels, self-storage, student accommodation and ‘prime living sectors’ are also high on wish lists. He, and others, noted the acceptable return varied from 8% to 18% annual Internal Rate of Return (IRR) but some of these investors are prepared to retain developed assets. Appetite for projects without planning approval is minimal and there has been a strong trend to stretch credit as opposed to substantive equity. The introduction of the foreign investor balance sheet greatly assists the obtaining and pricing of the first secured tranche which, if possible, is still sourced from a major bank lender. Andrew Clugston, a Business Advisory and Assurance Partner at Pitcher Partners Melbourne has extensive experience in assisting foreign capital to partner with local developers. Andrew informed me that, “whilst the likes of GIC, Blackstone and Apollo have been well publicised, there are a growing number of private groups from Southeast Asia who are making their mark on the Australian development landscape. We continue to see private groups from Singapore, Malaysia and Hong Kong entering the Australian market either directly or, increasingly, via joint ventures with local developers. The founders of such groups are often Australian educated, particularly from Melbourne, which enhances the foreign investors’ confidence and reduces the cultural challenges of joint venturing with a local developer”. On a micro and macro level, the gravitational pull of foreign investment capital to the Australian residential market is strong. The need for these investments to enable us to meet housing and rental demands is beyond debate. The injection of foreign investment funds will turbo charge the developer eco-system and generate jobs, wealth and confidence. Our political and industry leaders should welcome and embrace ethical and transparent investment from appropriate sources.
Top 10 approved commercial investment proposals: • United Kingdom • Netherlands • USA • Malaysia • Canada • UAE • Japan • NZ • Singapore • Germany Top 10 approved residential real estate proposals: • China • Hong Kong • Vietnam • Taiwan • Singapore • India • United Kingdom • Nepal • Indonesia • Malaysia These numbers are distorted by individual home purchases and whether Build to Rent (BTR), Commercial, Mixed Use, Alternate Uses are categorised in whole or part as ‘residential’. Still, we currently rely on Asian investment for the pure residential sector. Is part of the solution to our housing undersupply to attract foreign investment from countries in the Commercial list above? Luke Billiau, Head of Capital Markets, Australia and New Zealand at JLL shared his and JLL’s recent experience: “Regional capital continues to remain active with Japanese and Singaporean investors leading deployment with A$2.5bn and A$1bn respectively this year. For Japanese capital, hedging costs will continue to temper cost of capital until the Bank of Japan follows other central banks, however Australia’s strong population and GDP growth is underpinning their focus. We may well be nearing the ‘peak’ of debt costs with the recent pause from the RBA, but it remains and investors are cautious. Capital is more transient than ever, and we’ll likely see more investment activity in Australia as a result of active capital management, greater pricing conviction, and a re-allocation between sectors. We continue to see active engagement from capital across sectors such as Alternative Investments, Logistics & Industrial and Retail, which is pointing towards a stronger end to 2023. Despite the ongoing global headwinds, the Office sector remains of focus in the core markets for regional investors from Singapore and Japan in particular.” The purse size of foreign investors is hard for Australian developers to compute. In today’s dollars, a Eureka Tower project would approach a $700m development cost and would likely require an equity slice of close to $200m. These are big numbers for our development community. Blackstone, a very large USA property investor, values its Global Real Estate portfolio at US$585bn! It holds US$333bn in property investor capital as part of a US$1 trillion management portfolio. In June 2022 it acquired the business and real estate of Crown for $8.9bn. These numbers are mind bending to Australian developers but visit the United Arab Emirates or Saudi Arabia and it will be very apparent that their access to development capital is beyond immense. Could a few tax reform levers be adjusted to entice more of this capital to our shores? I sought insight from Tax Partner Pitcher Partners Melbourne, Craig Whatman. He informed me that: “All of the Australian states now impose a stamp duty surcharge of 7% or 8% on acquisitions of land by foreign persons or entities for residential development. Several states and the ACT also impose a land tax surcharge on certain land owned by foreign persons or entities and represents a significant additional cost for offshore investors and therefore acts as a barrier to them directing their capital to Australia.
October / November 2023 – 15
Industrial Trends
WHY THE INDUSTRIAL MARKET CONTINUES TO BE A BRIGHT SPOT
By David Hall - National Director, Head of Industrial and Logistics, ANZ: Cushman & Wakefield
Demand is already outstripping supply for industrial and logistics property in a trend that’s not showing any signs of slowing.
The Australian industrial and logistics property market continues to experience outsized demand from occupiers and investors, supported by several persistent tailwinds. For one, ecommerce activity remains elevated while automation adoption rises, and lessons from recent global supply chain disruptions have meant occupiers are carrying more stock locally. Meanwhile, demographic shifts, most notably population growth, are expected to underpin ongoing consumer demand for goods. Despite forecasts for moderating economic growth amid higher inflation and interest rates, Australia is expected to outperform many global peers. Together, these factors support the prevailing view that industrial market fundamentals are, and will remain, positive. After all, near-record low vacancy rates, a trend towards multi- level warehouses and robust land absorption across many national industrial markets indicate that demand is running well ahead of supply. For developers, these trends present both an opportunity and a challenge. On the one hand, occupier demand is not expected to abate. On the other, land supply is exceptionally tight and hotly contested. With the market closely watched, we explore the latest movements among tenants and investors and provide a view of the industrial market outlook. Tenant demand reflects a tight market Since 2020, industrial leasing activity has grown significantly, led by the transport, logistics, and retail trade sectors. In 2023, that has remained strong, with more than 2.2 million square metres of space leased so far. At this point, the only thing holding back higher volumes is a lack of space.
vacancy rate sharply once they are finalised. As tenants compete for limited leasing options, rental growth has increased at its fastest pace on record. Nationally, prime rents have jumped by almost 30% over the past 12 months, around eight times the long-term annual average. Given this, a large share of warehouses nationally are now considered to be rented at below-market rates and, in some cases, by a significant margin. As leases expire and new tenants come in, a positive rental reversion is expected to align these properties with the rest of the market. Looking ahead, vacancy rates are expected to remain well below historical levels. Over the next 12 months, there is the potential for 1.4 million square metres of speculative space to come online, led by the Sydney and Melbourne markets. That could put upward pressure on vacancies in Australia’s two largest markets. However, current enquiry across the East Coast market in the order of 2.3 million sqm suggests that new space will be quickly absorbed but indicates the prospect that rents can go higher. A destination for local and global capital Given the dynamics of the industrial and logistics property market, record levels of capital seeking entry and exposure have been experienced. Australia’s competitive global economic position and the expected favourable outlook continue to attract global investors. This was evidenced in the ANREV Investment Intentions Survey 2023, showing that Sydney and Melbourne are the preferred investment markets for capital targeting the Asia Pacific region in 2023. While higher debt costs have impacted industrial and logistics yields since mid-2022, leading to pricing uncertainty for investors, greater certainty around the interest rates outlook will provide clarity. We believe that will encourage investors who have sat on the sidelines over the past 18 months to re-enter the market. At the same time, unparalleled income growth has largely maintained asset pricing for the sector. Investment volumes for transactions above $5 million in value reached $8.6 billion in 2022, underpinned by demand for short WALE infill sites as investors chased repositioning opportunities to maximise rental reversion. For 2023, almost $3.8 billion in industrial assets has traded so far for the year. Adding to that will be the significant volume of assets either in due diligence or on the market, and once they transact, investment volumes for the year are likely to be substantially boosted. Looking at the leasing and investment trends across Australia’s industrial market indicates unflinching demand even as the economic cycle has turned. These are long-term structural drivers that, amid a lack of space and land, will continue to push the boundaries of industrial precincts further out and vertically upwards and support the next wave of development activity and beyond.
Gross Industrial and Logistics Take-up by Capital City (>3,000 sqm)
Source: Cushman & Wakefield Research
Vacancy rates have dropped sharply in recent years, which across the East Coast sits at an average of 0.8% for industrial properties of more than 3,000 square metres. Sydney remains the tightest Australian market with a 0.2% vacancy, while Melbourne is close to historical lows at 0.8%. In contrast, Brisbane has recorded a modest rise in vacancies to 2.1%, as speculative developments have been completed and more existing space has added to market supply. However, around half of this is under ‘Heads of Agreement’, which will cut the
16 – October / November 2023
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