Welcome to Issue 46 of The Property Development Review, exclusively for agents, developers and investors.
FEBRUARY / MARCH 2024 - ISSUE NUMBER 49
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.
At Rooftop , we take great satisfaction in producing campaigns that not only win awards but also attain successful commercial outcomes. Our mission is to take your campaign to the next level.
Get in Touch hello@rooftop.studio
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THE PROPERTY DEVELOPMENT REVIEW
February /March 2024 – 3
CONTENTS
6 MARKET INSIGHTS 2024 Property Industry Related Predictions Benni Aroni Pitcher Partners
26 PODCAST Matthew Alessi & Brendan Wein CBRE
13 PODCAST Erin Van Tuil Partner & Head of Resi Knight Frank
8 THE INTERVIEW Mick Power & Scott Power BMD Group
48 VIC MARKET OVERVIEW David Minty, JJ Heng, Nathan Mufale CBRE
13 PODCAST Tim Holtsbauml Partner & Head of
Alternatives Knight Frank
14 MARKET INSIGHTS Hotel upsurge tipped Clare Burnet Urban Developer
64 QLD MARKET OVERVIEW Tim Jones JLL
11 THE INTERVIEW Tony Howarth AO Businessman 10 THE INTERVIEW Charlie Bass Founder - Bass Group 12 PODCAST Marcello Caspani-Muto & Jimmy Tat CBRE Healthcare 12 PODCAST Catherine Scott Associate Director, Investment services Colliers
16 INVESTMENT INSIGHTS How to thrive through to ’25 Vanessa Rader Ray White
98 SA MARKET OVERVIEW Ryan Mills Savills 106 WA MARKET OVERVIEW Derek Barlow CBRE Director, Metropolitan Investments 27 NSW LISTINGS 66 QLD LISTINGS 109 WA LISTINGS
17 MARKET MOVES The Latest Transaction Activity & Key Deals
MARKET MOVES
22 UPCOMING COMMERCIAL AUCTIONS Auction Hub
50 VIC LISTINGS 100 SA LISTINGS
Auction Hub
Auction Hub
Auction Hub
Upcoming
Auctions
Upcoming
Auctions
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THE PROPERTY DEVELOPMENT REVIEW
FROM THE CEO
Welcome to our first edition of The Property Development Review of 2024! We trust you had a restful and rejuvenating break. Looking back, 2023 proved to be a challenging year for commercial property transactions, widely considered by some as the most difficult since 2008 in terms of transaction volumes. Despite the ups and downs, the latter part of 2023 showed promising signs with robust listing volumes and increased inquiries. Exiciting, our full-service in-house creative agency recently rebranded as “Rooftop ”. We have consolidated all of our award-winning creative services under the one roof. With delight, our year has kicked off, with several significant client property campaigns currently in creative development. In other news, we are delighted to announce the recent key appointment of Chris Gallichio , as our Head of Digita, spearheading our product, technology, and client marketing initiatives. Chris brings a wealth of expertise to this role, with previous senior positions including at News Corp. This edition is packed with insightful content. Benni Aroni , Director of Property at Pitcher Partners, reviews the challenging 2023 market and discusses the outlooks for both 2024 and 2025. Ray White’s Head of Research, Vanessa Rader , highlights five key commercial markets currently ripe with opportunity. Erin Van Tuil , Partner & Head of Residential at Knight Frank, discusses the luxury and high- end residential property market in Australia, relative to global markets. Catherine Scott , Associate Director of Investment Services at Colliers explores the evolution in marketing and campaign strategies of commercial property campaigns. We also feature Marcello Caspani-Muto
& Jimmy Tat from CBRE’s Healthcare & Social Infrastructure division, who share essential market themes and trends with practical case studies. Matthew Alessi & Brendan Wein , Managers of Industrial & Logistics at CBRE, analyse Australia’s industrial and logistics market with a focus on Sydney’s North and Outer Western Sydney region. For our exclusive series, The Interview, Rob Langton had the pleasure of sitting down with some of Australia’s most prominent investment and property figures. His interview with Charlie Bass discusses his career journey, business fundamentals, and key achievements. Mick and Scott Power share insights from their successful journey with the BMD Group, emphasising business lessons and corporate culture. In addition, Tony Howarth AO sheds light on his diverse roles across various boards. As always, we keep you up-to-date with the latest development and commercial opportunities, market overviews and notable transactions from around the country. Enjoy the read!
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IN-HOUSE WRITER Oliver Gregurek
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February /March 2024 – 5
Market Insights
2024 PROPERTY INDUSTRY RELATED PREDICTIONS
BY BENNI ARONI Client Director -Property Pitcher Partners
2023 was a challenging/difficult/disastrous year for the property industry … feel free to choose your own adjective, but for almost all in the industry this covers the spectrum. 2024 is predicted by most to be more of the same with cautious green shoots of optimism about 2025.
higher than the historical costs developers were obtaining to achieve a 20% plus Internal Rate of Return (IRR) in feasibility. There is no expectation that they will materially reduce and in fact, those builders that have survived are determined to accept less risk and demand more realistic margins. Builders in 2024 will continue to compete with government projects for sub-contractors and labour, which will likely maintain the existing level of costs New protections for defect and warranty processes for apartment buyers, which are long overdue, will further add to developer/builder costs, as will government taxes and levies on all stages of the development process. Inflation Inflation in 2024 will be less of a concern than in 2023 but the cost of housing and rental with the housing supply shortage, plus the cost of labour, will mean it will continue to be a factor influencing Reserve Bank and Government policies. That in turn may delay or preclude stimulus and reform packages which our industry and the economy are desperate to explore and implement. Employment Unemployment rates will increase in 2024 across most sectors. The lack of investment by the private sector in the last few years
Accepting that none of us can predict the impact of global factors such as the Middle East conflict, the US election or the next pandemic, for the sake of our eco-system and our sanity we need to strategise and plan our next 12-24 months. So, with various degrees of confidence let me share my predictions on the 10 areas I am asked about the most: Interest rates The consensus view, which I agree with is that we are near or at the top of interest rate rises. What is opaque is whether there will be any material lessening of the cost of debt finance from any source in 2024, and here my personal view is “no”. Developer finance does not have the same volatility as home loan finance. The demand for debt refinancing is deep so that even if the demand for new project financing is down there will be a lag before investors are prepared to accept lesser returns. First mortgage funding from the non-bank sector in 2024 will still in my view fall in the 9-11% range, plus valuation and establishment, house costs. Traditional bank funding rates may soften slightly and where there is competition to lend such as residual stock or data centres there will be wiggle room to negotiate. Construction costs Construction costs have stabilised, but they remain significantly
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developments and create new platforms where fees will be generated and shared. I see this trend as progressive and promising. Funding models The biggest question for 2024 will be can I fund my project or my business at a sustainable cost and with sufficient certainty to progress or even scale? The developers and delivery partners that resolve that question positively will flourish, but it will require innovative and credible planning. The days of large-scale pipeline development financed by banks and high-net-worth backed funding providers are rapidly diminishing. Developers not only need to forge delivery models with builders and consultants, but they need to resolve whether they want to create internal funds or partner with fund originators and administrators. The answer will largely lie in the culture of the developer and whether it wants the responsibility of investing and managing third-party funds. Whichever model is preferred, sharing in the fund management fee should be a paramount consideration. Confidence Confidence creates innovation and allows for a risk appetite. I heard it described recently as “higher conviction strategies” which I liked because it suggests it is based on instinct and analysis. 2023 saw a trough of confidence. My conversations to date suggest it will be late 2024 before any incline occurs. Despite Australia having almost all the requisite fundamentals such as security, a functional and exemplary legal system, an educated workforce, resource richness, and a gateway to Asia, it lacks the confidence to optimally exploit those fundamentals. The perfect example of this is that despite having an insatiable demand for residential dwellings, at various price points, which a very willing and competent industry would happily service if some minimal taxation and planning reforms could be implemented, we cannot get Build to Sell projects at scale started. This lack of vision and leadership cruels confidence, but I believe the industry has enough gumption and flair to generate confidence by 2025. Feasibility viabilities A project or development must generate above a 15% plus annual IRR, and have the capacity for contingencies, to justify the time, risk and effort involved. The material elements of feasibility are the potential net revenue minus the land or site cost, the construction or development cost and the finance costs. 2024 will see little movement in these elements although over the next few years, I believe Victorian residential apartment prices will increase between 20-50% over the next few years (they will still be far lower than equivalent Sydney prices). Personally, I cannot envisage material improvement in feasibilities in 2024. There is a great deal of work on delivery, funding and business models being undertaken in 2024 to create better feasibility models into 2025 but I do not envisage a collapse in land prices, and I believe planning and taxation/levy reforms will also be required. My prediction is 2024 will be as challenging/difficult/disastrous as 2023, but if it is used wisely to lay the groundwork for 2025 and beyond it may well be considered the year where opportunity was recognised, and the foundation was laid for sustained success.
and record insolvencies, especially in our industry, must impact. Rising unemployment and costs of living pressures are impacting housing demand. Low unemployment is usually regarded as a positive sign for the economy but the very low rate we have experienced has contributed to inflation and reduced productivity. Equity availability The most profound change I witnessed in 2023 was the drying up of equity capital. There were several reasons, but the main ones were the high rates of return available on secured debt and the diminution of confidence, which in turn reduced the appetite for risk. Equity capital is the oxygen of our industry, and its absence leads to deferral or cancellation of projects. Innovation, entrepreneurship and scaling require equity. Private funding must be supplemented by government, institutional and superannuation funds support. I have not yet seen signs that 2024 will see an improvement in equity availability, but this can change quickly if some of the concerns I have mentioned here are addressed. Sector appetites The clearest trends of 2023 were the investment markets’ lack of love for the office sector and the strengthening of the student accommodation, land lease community and data centre sectors. Logistics remained strong in our geography but softened internationally (always a signpost). Build to Rent, a champion of 2022, began considering value management options in 2023 as supply, particularly in Victoria, increased. All these sectors share the commonality of a guaranteed long-term cash flow, the ability to attract funding or funds through sales, and most importantly the ability to attract investor capital and create a funds management platform. I expect 2024 to mirror 2023 with the hope that funding and delivery models will evolve to allow the exploitation of the insatiable demand for residential accommodation. Support of the government by the reintroduction of off-the-plan stamp duty concessions and planning reforms would also greatly enhance the prospects of this sector. The Build to Sell accommodation sector is Victoria’s best chance of economic recovery. Other 2024 growth prospects are in the affordable housing and social disability accommodation sectors. Wellness and Health offerings which tend to combine with mixed-use developments (rather than stand-alone developments), will continue to be supported. Credit Debt Providers 2024 will continue the evolution of the non-banking sector. In recent years we’ve seen Qualitas go public and Maxcap Group partner with Apollo Global, a large US fund. Most of these alternate credit debt providers are continuing to evolve their business models including enhancing their capital sourcing. Several of these credit debt providers, which in the main started as Mezzanine lenders, are now capable of full lending packages exceeding $100m. The larger houses saw their average loan size increase significantly in 2023 as they continue to provide credit where the Banks ordinarily would have even as recently as 2-3 years ago. 2023 saw a strong year of double-digit returns for investors, but cracks developed with borrowers suffering from construction and finance cost issues. Many of the houses are sitting on problem loans but having transitioned in the main to fund models (as opposed to special purpose or syndicate models) the potential loss provisions are relatively modest. The hunger for capital, both debt and equity, will see developers and builders collaborate deeper with these credit houses to facilitate
Disclaimer: This article contains general information and should at no time be considered financial advice to the reader. The reader should always verify their situation with their financial advisors before taking any further steps.
February /March 2024 – 7
The Interview - EXCLUSIVE
MICK POWER & SCOTT POWER
With Rob Langton
BMD GROUP
project management sectors. A family business at its core, BMD was established five decades ago as a partnership between Mick Power, his wife Denise, his brother in law Bevin and sister Beverly, and whilst Mick and Denise acquired the remaining shares in the business from Bevin and Beverly twelve-months after launching, the firm’s unwavering commitment to its people remains evident through its emphasis on ‘family’ as a fundamental value within its operating model. Mick Power AM has served as the company’s Founder and Group Board Chairman for more than forty years - he commenced his career aged 19 with Leigahton Contractors in 1969 as their first cadet, working on major infrastructure and mining projects as Manager of Central Queensland before steadily rising through the firm to eventually become the Area Manager of the Gold Coast region. Following a decade with Leighton and combined with the firm’s move away from smaller scale (sub-$200k) contracts, Mick saw an opportunity to launch his own business, BMD, and utilising a $12,000 superannuation payment from Leighton, began undertaking lower-priced residential subdivision work with Hooker Rex (now known as
Mick Power AM & Scott Power are the father-son pair behind one of Australia’s largest and most successful privately owned urban development and construction firm, the BMD Group. Established in 1979, the BMD Group has grown exponentially throughout the course of more than four decades - from humble beginnings in Brisbane to a leading National business that now boasts an international footprint, encompassing 2,000 team members, revenues exceeding $2bn per annum and over fourteen offices positioned strategically across Australia. Though its early foundations concentrated largely around providing engineering services on a smaller- scale in the residential subdivision space, the BMD Group has evolved and expanded rapidly, with the firm now incorporating five distinct business divisions, including BMD Constructions, BMD Urban, Empower Engineers & Project Managers, JMac Constructions and Urbex - the sum total of which combine to provide their public, institutional and private clients a full-service offering across the property development, engineering design, transport infrastructure, civil construction and
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Patron, BMD Northcliffe Surf Life Saving Club Patron, Wynnum Golf Club Patron, Honorary Lifetime PGA Membership and Wynnum Manly Leagues Club Patron. Following in his father’s footsteps, Scott Power currently serves as the BMD’s Group Chief Executive Officer, a role he has held since November 2020 following a career of nearly three decades with the company. Scott is a graduate of the Queensland University of Technology, having completed a Bachelor of Engineering (B.Eng., Hons.) as well as a graduate of MIT’s Sloan School of Management, having completed a Master of Business Administration (MBA) degree. In addition to leading BMD through its next phase of growth, Scott is a Board Member of Infrastructure Partnerships Australia as well as a Board Member of Australian Owned Contractors. Our exclusive interview with Mick and Scott Power shares their incredible journey & success behind the BMD Group, the practical business lessons they’ve learnt over more than four decades and the fundamentals for building and maintaining strong corporate culture.
Fraser Property Group), completing infrastructure and civil works across a number of residential subdivision projects. By 1993, BMD was generating over $40m of revenue and had 120 staff with the business continuing its rapid growth including a Major Properties and Major Projects division and the opening of new offices in Townsville in 1994, Darwin in 1997 and Melbourne in 1998. Fast forward over the next two decades and under Mick’s leadership, BMD further expanded into New South Wales (2000), launched its own development company (Urbex), 2003, acquired construction firm JMac (2005), expanded into South Australia and the ACT (2007), Western Australia & Tasmania (2015) and the Philippines (2017) - during this period, the business also launched its Industrial division in addition to growing out its service offering across its various business lines. In his current role as Group Board Chairman, Mick provides high-level oversight & guidance to the Board of Directors and across the BMD business whilst also having pursued a number of other interests, including 27 years as a Board Member of the South Bank Corporation, Board Member of the Brisbane Lions Football Club, Honorary Ambassador to the City of Brisbane, accreditations by Engineers Australia, Surf Life Saving Foundation Vice
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February /March 2024 – 9
The Interview
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CHARLIE BASS
With Rob Langton
FOUNDER - BASS GROUP
transitioned into other resources including coal, manganese & iron ore. In 2014, Aquila Resources was acquired in a c. $1.4bn deal between Baosteel-Aurizon, enabling Charlie to pursue a number of external interests and pursuits in the technology, internet & venture capital sectors. Charlie is also the Founder and Managing Director of Eagle Mountain Mining (EM2), a copper focussed exploration and development company which he established in 2017 with the core objective of becoming a low emission producer to supply the rapidly growing green energy market. In 2006, he launched the Bass Family Foundation, a charity vehicle purposely designed to provide education for disadvantaged children (particularly in remote area’s) as well as to provide resources & support to indigenous programs throughout Western Australia. Charlie is also the Founder of the Centre for Entrepreneurial Research and Innovation (CERI), an organisation established in 2015 and which is primarily funded by the Bass Family Foundation to provide targeted programs, grants, events and resources to power the entrepreneurial pursuits and business ideas of future generations of Western Australians. To-date, CERI has raised over $7.5m in funds to support more than 600 aspiring entrepreneurs. Charlie was also named 2024 Senior Western Australian of the Year and invests privately through his family office, Bass Group. Our exclusive interview with Charlie Bass explores his background, his transition from the US to Australia, the key pillars of his success, fundamentals he’s learnt from a lifetime in business and what he regards as his key achievements in a remarkable five-decade long career.
Renowned businessman, entrepreneur and philanthropist, Charlie Bass is Founder of the Bass Group. For more than five decades, Charlie has been an instrumental figure in corporate Australia, playing a leading role in the establishment and success of companies in a diverse range of sectors, including mining, resources development, technology & entrepreneurial research. Born in Reading Pennsylvania, Charlie was raised in Florida to entrepreneurial parents, with his father a small business owner who frequently moved the family in pursuit of new opportunities including to Toronto, wherein Charlie later completed his secondary school education. With a passion for the outdoors from a young age, Charlie enrolled in university studies in geology, mining and later mineral processing, completing undergraduate and post- graduate degrees, culminating in a Scholarship to complete a master’s degree at Queens University in Ontario. Following two years working in the US with mining firm Amax Inc, Charlie re-located to Australia in 1978 and began working on Amax’s Mount Newman Iron Ore project, later establishing a software mining company known as MeTech in 1980. Alongside fellow Western Australian business identity, Tony Poli, Charlie Co-Founded Eagle Mining Corporation in 1992, a business that grew throughout the course of the 90’s and fast became one of the most successful local exploration firms, before being acquired five years later in 1997 in a c. $250m deal. Three years later in 2000, the pair combined again to establish Aquila Resources Limited, an ASX-listed business initially focused on gold exploration but that later
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The Interview
THE PROPERTY DEVELOPMENT REVIEW
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TONY HOWARTH AO
With Rob Langton
BUSINESSMAN
Tony served on the University of Western Australia Senate for 12 years, and was an inaugural Chairman of the University Club and was a key driver in the creation of the UWA Business School where he led the Fund Raising and served as Deputy Chair for over a decade. Tony ‘s community involvement included Chairman of Western Australian Rugby Union; inaugural Chairman of the Committee for Perth; President of both the Western Australian and Australian Chambers of Commerce and Industry and the International Chamber of Commerce of Australia.
Tony Howarth AO, is a prominent Australian company director and corporate advisor. His extensive five-decade plus career has taken in the heights of Australia’s financial and banking sectors, including high-profile roles leading renowned organisations Challenge Bank and Hartleys as Chief Executive Officer as well as Chairman positions with Altina Energy and Home Building Society. Tony’s board positions have included roles as an Non-Executive Director of WesFarmers (2007 - 2019), Deputy Chair of the Bank of Queensland (2007 - 2010), Non-Executive Director of private investment vehicle AWB and Non-Executive Director and Chair of St John of God Health Care. Across a broad portfolio of current roles, Tony serves as a Board Member of Coventry Group, BWP Trust, Viburnum Funds and Altina Energy. Born in Bathurst, Tony left school in year 10 and joined the local bank branch, studying accounting whilst working his way up through the ranks including to General Manager of Community Banking at the State Bank of New South Wales (managing 300 branches) as well as gaining experience in retail and commercial banking in Sydney, London and New York. In 1991, Tony moved to Perth and was appointed Chief General Manager and later, Chief Executive Officer of Challenge Bank, a period which saw him leading the bank through a strong re-build before it was acquired by Westpac four years later in 1995. Since that time, Tony has been a trusted sounding board for both public and private organisations and has built an enviable profile across Perth’s business community.
February /March 2024 – 11
Podcast
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CATHERINE SCOTT
With Rob Langton
ASSOCIATE DIRECTOR, INVESTMENT SERVICES - COLLIERS
With more than ten years of experience across commercial property, Catherine has been a key pillar in the disposal of some of the Nation’s most prominent office assets, utilising her unique skillset and background in marketing and campaign strategy to drive strong outcomes for both private and institutional property groups.
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JIMMY TAT & MARCELLO CASPANI-MUTO
With Rob Langton
CBRE HEALTHCARE
Working closely with both domestic and offshore capital, CBRE’s Healthcare & Social Infrastructure division is Australia’s market leader in providing strategic advisory and transaction services across a broad range of asset classes including hospitals, aged care, allied health, child care, education and emergency services. Our discussion with Jimmy & Marcello unpacks the key themes and trends that have and continue to drive market activity, utilising practical case studies to underscore the fundamentals of why this is an attractive sector for public, private, HNW and institutional.
12 – February /March 2024
Podcast
THE PROPERTY DEVELOPMENT REVIEW
SCAN OR CLICK TO LISTEN TO THE INTERVIEW IN FULL 32 MINUTES
ERIN VAN TUIL
With Rob Langton
PARTNER & HEAD OF RESI - KNIGHT FRANK
Commencing her career in London in 2007, Erin managed two Knight Frank Prime Central teams and was also responsible for generating new business, winning both single instructions and large portfolios. Following a successful tenure with Knight Frank in the UK, Erin returned to Australia in 2014 and has led the local firm’s residential project marketing division, having been appointed a Partner of the business in 2018. Over the course of the past decade or so, Erin has worked extensively on Australia’s largest development projects including Crown Residences (One Barangaroo) in Sydney - a landmark that has changed the landscape for generations to come.
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TIM HOLTSBAUM
With Rob Langton
PARTNER & HEAD OF ALTERNATIVES - KNIGHT FRANK
With over fifteen years of experience within the commercial real estate sector, Tim brings a diverse skillset across corporate finance, corporate capital markets, institutional sales and most recently, as a key industry player in the marketing and transaction of alternative real estate opportunities including student living and build-to-rent developments.
February /March 2024 – 13
Market Insights
HOTEL UPSURGE TIPPED DESPITE REVENGE TOURISM PETERING OUT
A render of the 28-38 Pearl River Road, Docklands project, which will include a 200-key Collection by TFE Hotel and premium 105-room A by Adina hotel.
Author: Clare Burnet Urban Developer
International visitors are due to return in droves to Australia this year but is our hotel industry ready for it?
“Subsequently, [revenue per available room] levels across Australia have grown significantly and have continued to outpace inflation, providing a positive outlook for the sector in 2024.” CHANGING DEMOGRAPHICS One of the factors potentially softening ADRs in the coming year will be a move away from “revenge tourism”—making trips that were cancelled or rescheduled during the global pandemic, although that should be offset by the return of Asian tourists. “The softening of DRs represents the market segmentation switch from Leisure FIT (free independent traveller) and the so-called revenge tourism boom after the pandemic back to corporate business and international leisure,” Zographou says. The main driver back to pre-pandemic traveller levels is the return of tourists from China, which overtook New Zealand as Australia’s most important tourism market after the Global Financial Crisis. • TFE Hotels also launched plans for a $150-million Southbank hotel alongside MaxCap and Time & Place. It is set to open in 2025. “In 2019, China ranked first for inbound travel to Australia, however, in 2023 they are sixth,” Zographou says. “Visa approval was granted to short-term groups in August, 2023 but Australia is now awaiting the return of the higher spending Chinese free independent travellers.” With the average length of stay for a Chinese tourist averaging 40 days, coupled with high spending, this return could mean an impressive uptick for Australian tourism. Clearly, there is major headroom for growth, especially with Chinese tourism returning, and on-the-ground hotel developers such as Capital Alliance, which has 500 rooms in operation in Melbourne, have noticed the same. “Specifically speaking about Australia, we’ve not really seen the
Reliant on international tourism, and to a lesser degree immigration, Australian hotels took a big hit during Covid and have only just started to bounce back in the past 12 months. But we should expect a boom this year as international traveller numbers ramp up, with expectations from Tourism Research Australia that by 2028 Australia will have 1.9 million visitors from China alone—that’s one in six international arrivals. TFE Hotels and Capital Alliance are major players in the space, recently teaming for a $340-million Docklands hotel development, which was greenlit in mid-2023 with construction set to begin this year. TFE Hotels director of development John Sutcliffe says that their hotels portfolio continued to exceed expectations. “Much of this was buoyed by the ongoing return of international visitors, as well as increased events including concerts and the Women’s World Cup,” Sutcliffe says. “And although domestic leisure demand is expected to soften to some extent after the excitement of post-Covid, we continue to experience increasing visitation from overseas. “And once Asian markets pick up, we hope to see occupancies continue to improve.” Experts at CBRE are expecting further growth after occupancy levels grew across all major markets in 2023. “Sydney, Brisbane and Melbourne all increased by more 12 per cent compared to the previous corresponding period,” says CBRE director, Capital Markets – Hotels, Vasso Zographou. “Annual daily rates (ADR) materially outperformed 2019 rates across all major markets. Brisbane has been the largest beneficiary of ADR growth, up 31 per cent when compared to 2019 levels.
14 – February /March 2024
THE PROPERTY DEVELOPMENT REVIEW
Asian-bound tourists return,” chief executive of Capital Alliance Mohan Du says. “Keep in mind that the current influx of travellers to Australia aren’t necessarily the traditional tourists we are used to seeing. “Most people travelling to Australia in 2023 were mostly here to visit family, friends and attend special events. In 2024 we expect to see more traditional tourists return. • TFE’s Adina Bondi Beach has also been integrated into The Hub Hall Street, offering boutique eateries. “International visitor numbers are] starting to ramp up and will continue to strengthen the sector.” John Sutcliffe agrees and says that markets have been slow to return up until this point. “Current trends support a positive outlook for 2024,” he says. “The challenge will be the timing between a reduction in domestic travel levels and the return of Asian inbound travellers.” CHALLENGES IN THE SECTOR But there are challenges facing the sector this year, however. Two of the biggest are the stabilisation of hotel performance and construction costs, according to Capital Alliance’s Du. “There will always be investor interest in the sector. But given what has happened during the past couple of years, institutional investors want to see a stabilisation of hotel performance first,” he says. “Construction costs will most definitely impact new builds and refurbishment of older properties. Many developers, us included, are considering waiting it out to better understand the rates environment and if a cut will actually happen this year.” • Sites in the Sydney CBD have always been scarce, so developers are always exploring opportunities in that market, CBRE says. As reported last week, Sydney hotels have been described as the best performing in the Australian market, and that isn’t likely to change, even though other locations are opening up. “Melbourne and Sydney will continue to be destination of choice for the majority of visitors as gateway cities, which means the majority of opportunities for new development will remain with these two cities,” says Du. “The outlook for Melbourne can only improve from last year.” CBRE’s hotel experts say that despite a softening of average daily rate growth, investors remain interested in the Australian hotel market, considering it an “investment safe haven”. “This is a result of Australia’s mature markets, stable political system, legal and financial transparency and its multicultural society offering appeal to visit from all international countries,” Zographou says. In terms of hotel sales, Australian has had a strong rebound. In 2023 there was around $2.55 billion in accommodation hotel sales. CBRE handled about 70 per cent of those transactions TFE Hotels’ John Sutcliffe says interest from local and overseas investors remains strong, and there is potential for refurbishment and new builds in various markets. “New, well-located hotels will always perform well, with ageing non- refurbished products typically more exposed in periods where there is a supply and demand imbalance. • Integrating hotels into mixed-use developments, such as the Interlude at Pentridge, has proved successful for developers and operators. “The TFE team will continue to work with our owners on refurbishment programs to ensure a quality portfolio of assets and strong market performance.
“An increase in demand, particularly for specific events and over high demand periods, will also boost occupancy levels into city fringe hotels, an area becoming more popular with investors.” As well, TFE is seeing increasing opportunities to partner with developers as part of larger mixed-use sites, or for the conversion of current buildings into hotels from their current use, says Sutcliffe. TFE’s The Interlude, part of the $1-billion Pentridge lifestyle precinct, has proven this model to the group, he says. THE FUTURE OF HOTELS Thankfully, while international visitors are set to boom, adequate supply does exist in the hotels sector, according to CBRE. Between 2020 and 2024, supply will have increased by 24,050 rooms Australia wide, the hotel agents say, with 2.8 per cent growth expected this year. • CBRE is forecasting ADR growth in 2024—up by 3.8 per cent in Brisbane, 2.75 per cent in Sydney and 2.0 per cent in Melbourne. “However, supply-chain difficulties and general increases in construction costs [including labour] impacts the feasibility for newbuild hotels,” Zographou says. “This requires developers and financiers to critically review all new projects from a feasibility perspective.” Another challenge facing the sector this year is the capital expenditure required for refurbishment of older stock to ensure the asset stays competitive. “Living sectors such as build-to-rent (BTR) and co-living have emerged as a popular asset classes duirng the past 12 to 24 months, and we expect this to continue in instances where repurposing the asset class will present a better alternative.” However, other operators are not so certain given the extent of changes needed to renovate hotels into residential properties. “There has been a lot of talk about converting old hotels to residential use—I doubt this will happen in 2024,” Du says. • Revenue per available room is also expected to grow throughout 2024: in Sydney by 7.1 per cent, Melbourne by 7.9 per cent, Brisbane by 3.9 per cent and Perth by 5.6 per cent. But progress is being made with major developments including the TFE/ Capital Alliance Docklands project, which received planning permission six months ago. Elsewhere, TFE has The Eve Hotel Sydney and the Hannah St Hotel at Melbourne’s Southbank in the works. “We continue to actively seek leases for our casual living Adina brands across Australia and are in advanced talks with developers with regards to including Adina Apartment Hotels as part of their larger masterplan developments, as well as conversion of commercial spaces to apartment product,” TFE’s Sutcliffe says. Hotels will also have to adapt to the changing times to take advantage of traveller numbers exceeding expectations. “Hotels and brands will continue to focus and evolve experience-based offerings, with certain consumer segments seeking out more authentic, bespoke, and engaging offerings,” Sutcliffe says. “The success of new international brand entrants will lead to further announcements and new entrants and the continued growth and success of independent bespoke lifestyle brands will see this as one of the faster growing market classes.”
February /March 2024 – 15
Investment Insights
HOW TO THRIVE THROUGH TO ‘25: OPPORTUNITIES FOR COMMERCIAL PROPERTY
the tertiary sector, is an emerging sector ripe for investment. In recent years we have seen universities take up space within office assets as an alternative to campus style facilities, however, many institutions continue to sit on large land parcels which could partner with the private sector to develop and value add. While this is a small sector of the market, the growth of private education facilities across the country could be an opportunity for those looking for “outside the box” investments. 4. SUSTAINABLE ASSETS With many owners setting new goals around ESG principles for their accommodation needs and investment portfolio, the appeal of assets which meet these objectives will rise in attractiveness. This is across all asset classes. A focus on responsible investing including environmental features such as electrification, renewable resources, waste and water management, together with social influences surrounding well-being and comfort, will become market expectations. Green leases, as businesses strive towards net zero emissions, will grow in attractiveness. Assets which can achieve these are expected to see premiums and are an area in which investors could see opportunity. 5. SUBDIVISIONS Englobo land, while diminishing in volume, is expected to continue to be a clever way to capitalise on market pressures. The need for land for residential and industrial uses in particular has not reduced and the requirement of serviced subdivided land will grow in line with our population. With construction costs continuing to increase and pressures on labour further growing the cost of development, the ability to on-sell the land component, leaving the construction risk with the end user, may be an attractive opportunity for some savvy investors. The broader commercial property market has had some difficulties this year with reduced volumes and rising finance costs resulting in upward pressure in yields. While these pressures will remain for much of 2024, opportunities will emerge. The next 12 months will be a period where informed buyers rise to the top ready to unlock opportunities in this cyclical property market.
Vanessa Rader Head of Research
Ray White Corporate
1. BLOCKS OF UNITS As much of the country is facing a housing supply shortage, rents continue to grow and house prices have also maintained their upward momentum. With the population continuing to increase the pressure on housing remains and beds will be top of mind for many savvy investors. While build-to-rent grows in popularity across the institutional sector, private buyers have been quick to acknowledge these market forces and look to snap up blocks of unit investments. These offer not only strong regular income but many attractive exit strategies, capitalising on the strength of the residential market. Market activity in this space has been limited in 2023, with assets tightly held which is likely to continue in 2024, however we expect the market appetite to increase. 2. VACANT INDUSTRIAL Industrial continued to show good results this year as rental demand has stabilised, but low vacancies will ensure rental growth does continue. Increased cost of finance has influenced yields, which is likely to remain in the coming year, which may see more distressed assets come to market. Given the strong growth in construction costs, the viability of new developments has been put under the spotlight and assets which offer opportunity to reposition or renovate may be a clever way to get into the industrial sector. Vacant assets with potential may be an affordable means of entering the industrial market with future income growth opportunities. 3. EDUCATION Alternatives such as medical and childcare have all been strong performers in recent years. However, like many alternatives, a growth in buyers and a fear of missing out saw volumes spike and values reach sometimes unsustainable levels. Education, notably
16 – February /March 2024
MARKET MOVES
THE PROPERTY DEVELOPMENT REVIEW
QLD
VENDOR/ PURCHASER
DESCRIPTION
AGENCY
SALE $
The Railway Hotel, which was established in 1977, was offloadd by veteran publican tephen Paterson. Local food distributor Colless Foods sold a 19,291 sqm refrigerated warehouse in Katoomba as owner Tom Colless is set to retire.
V: Stephen Paterson P: Adrian Evans V: Colless Foods P: Private Purchaser V: Group of Melbourne- Based Investors P: Arcana Capital" V: Lendlease P: Fawkner Property
Undisclosed
87 Perry Street, Bundaberg North
Savills' Leon Alaban
CBRE’s Matthew Alessi and Brendan Wein
$5.05 million
32 Woodlands Road, Katoomba
17 Greenfields Boulevard, Mount Pleasant
Real estate investment firm, Arcana Capital, purchased a large format retail asset 3km from the Mackay CBD.
CBRE's Joe Tynan, Michael Hedger and Harrison Coburn
$12.3 million
Melbourne-based fund manager Fawkner Property has acquired Cairns Central, a highly successful regional shopping centre in Far North Queensland.
CBRE’s Simon Rooney (representing the purchaser)
$390 million
1/21 McLeod Street, Cairns City
A Queensland-based property developer purchased a 1,083 sqm fully occupied site, with development potential for a eight-storey residential development. The freehold 7,499 sqm McNevin's Logan Park Motel sold with approval in place for 34 additional guest rooms. A high-net-worth Syndey-based private investor has acquired Flagstone Village in South East Queensland for more than $26 million following a hotly contested Expressions of Interest campaign.
CBRE’s Adelaide O’Brien and Will Carman
$6.1 million
70 Sylvan Road, Toowong
P: Pradella
4168 Pacific Highway, Loganholme
HTL Property's Andrew Jackson and Paul Nyholt
$6.1 million
P: Private Owner-Operator
V: Coles Group P: Sydney-Based Private Investor"
Circa $26 million
CBRE’s Joe Tynan and Michael Hedger
6/24 Gates Road, Jimboomba
CBRE’s Will Carman, Adelaide O’Brien of CBRE’s Brisbane Metropolitan team and Marcello Caspani-Muto, Sandro Peluso and Jimmy Tat
The State of Queensland Department of Housing has purchased a vacant residential village, comprising of 124 apartments, a large community centre, a fully equipped commercial kitchen, a pool, an AV room, a salon and a library.
V: Aveo P: The State of Queensland Department of Housing
$44 million
3745 Pacific Highway, Loganholm
The Mercure Kawana Waters has sold to the Australian Rugby League Commission (ARLC) in what is said to be the largest hotel transaction on the Sunshine Coast in over five years.
P: Australian Rugby League Commission (ARLC)
$44 million
9 Florey Boulevard, Birtinya
JLL's Gareth Closter
SA
VENDOR/ PURCHASER
DESCRIPTION
AGENCY
SALE $
V: Melbourne-Based Private Syndicate P: GDA Diversified Property
A significant campus-style office asset fully leased to Lockheed Martin Australia has sold off- market for $28.2 million in a show of confidence in the Adelaide market.
5-10 Third Avenue, Mawson Lakes
Knight Frank's Max Frohlich
$28.2 million
Centuria Captial has purchased a greenhouse and glasshouse facility within the Adelaide Plains through its open-ended unlisted Centuria Agriculture Fund (CAF), taking the fund's assets under management to $351 million.
$21.5 million
234 Carmelo Road, Riverlea Park
P: Centuria Capital
Direct
WA
VENDOR/ PURCHASER
DESCRIPTION
AGENCY
SALE $
Canadian investment firm, Alberta Investment Management Corporation, and Australian sustainable agricultural investment firm, New Agriculture, have purchased a 2.9 million hectare aggregation in Western Australia.
V: Youngawalla Pastoral Co and Argyle Cattle Co P: New Agriculture
LAWD's Danny Thomas and Simon Wilkinson
Kimberly
$300 million
A fully leased, multi-tenanted freehold industrial property was sold to a private group, reflecting a yield of 4.4%.
V: Private Vendor P: Private Group
Cushman & Wakefield's Alec Di Lollo and Emma Quill
$3.05 million
10 Karratha Street, Welshpool
Active Perth-based funds manager Greenpool Capital has purchased Dianella Plaza in Perth’s northern suburbs to close out 2023.
V: Vicinity Centres P: Greenpool Capital
CBRE’s Simon Rooney and James Douglas
$76.25 million
366 Grand Promenade, Dianella
NT
VENDOR/ PURCHASER
DESCRIPTION
AGENCY
SALE $
Anmatjere
P: Charlie Shahin
LAWD's Danny Thomas and Olivia Thompson
Aileron Station, a 408,000-ha station with over 5,000 head of cattle, As well as Aileron Station, the nearby Oolloo Farm, a 1,047ha fodder-producing property sold.
Speculated $25 million
February /March 2024 – 17
MARKET MOVES
VIC
VENDOR/ PURCHASER
DESCRIPTION
AGENCY
SALE $
249 Middleborough Road, Box Hill South
HMC Capital's HomeCo Daily Needs REIT offloaded its HomeCo Box Hill centre in an off- market sale to private investors, with the final sale price reflecting a yield of 5.5%.
V: HMC Capital P: Private Investor
$67.5 million
JLL's Stuart Taylor and Tom Noonan
V: IP Generation P: Tiang Chiin Ling and Roger Tiang Chiin Yew
Boutique fund manager IP Generation has offloaded Torquay Village for $50 million, representing a $10 million premium to its May 2021 purchase price.
$50 million
41 Bristol Road, Torquay
Fitzroys' Paul Burns
Fully integrated real asset group, Dexus, sold over 30,000 sqm of premium industrial land in Melbourne's west to two owner-occupiers.
V: Dexus P: Private Owner-Occupiers
CBRE’s Tom Murphy, Harry Kalaitzis and Fergus Pragnell
$25.3 million
20 Distribution Drive, Truganina
Charter Hall's Core Logistics Partnership has offloaded a large 46,933 sqm industrial property tenanted by online retailer Catch and Efflog operations, with the final sale price reflecting a passing yield of 4.7%. The Manningham Medical Centre was sold to a local private family investor, marking the largest strata healthcare sale in Victorian history, and one of the largest in Australia since 2021 at the time of sale.
V: Charter Hall P: Barings"
Cushman & Wakefield's Tony Iuliano $94.1 million
2-30 Saintly Drive, Truganina
200 High Street, Templestowe Lower
P: Local Private Family Investor
CBRE's Sandro Peluso, Jimmy Tat and Marcello Caspani-Muto
$52 million
V: R.Corporation P: Melbourne-based private self-managed super fund
259 Normanby Road, South Melbourne
Property developer R.Corporation has sold a ground-level Coles and Liquorland at its 6-level R.Iconic residential tower in South Melbourne.
Fitzroys' Chris Kombi, Chris James and Ben Liu
$17.5 million
205-207 Northbourne Road & Campbellfield and 34 Yellowbox Drive, Craigieburn
Colliers' Mitch Purcell and Corey Vraca
$5.2 million
Two industrial assets with a total land area of 5,679 sqm sold in an off-market deal.
P: Private Owner-Occupiers
Property development and investment manager Cadence Property purchased an over 121,000 sqm industrial asset with large-scale manufactoring capabilities.
"V: Private Vendor P: Cadence Property"
$48.25 million
25-175 Patullos Lane, Somerton
Direct
Isaac Property Developments has sold a premium fast food and childcare investment property, with the final sale price reflecting a yield of 4.98%.
V: Isaac Property Group P: Sydney-Based Investor
Burgess Rawson’s Yosh Mendis, Darren Beehag and Geoff Sinclair
$22.21 million
752 George Street, South Windsor
A purpose-built facility leased to Country Hearing Care has sold under the hammer for $2.18 million against a reserve of $1.75 million.
V: Private Vendor P: Private Buyer
Burgess Rawson’s Matthew Wright and Rick Jacobson
$2.18 million
203 Ontario Avenue, Mildura
After calling Camberwell Junction home for over 4 decades, the Real Estate Institute of Victoria (REIV) has successfully sold its suburban headquarters to high-end residential developer ANGLE, with the final price reflecting a land rate approaching $7,000/sqm.
Circa $26.5 million
335 Camberwell Road , Camberwell
V: REIV P: ANGLE
CBRE’s Tom Ryan, Scott Orchard, David Minty and Nathan Mufale
A local investor purchased a 510 sqm industrial investment, featuring 12 off-street parks and $67,980 leasing income per annum.
CVA's Luca Angelica and Craig McKellar
$1.46 million
190A Holt Parade, Thomastown
P: Local Investor
A corner-positioned industrial asset was purchased by a private investor, with the final sale price reflecting a building rate of 2,253/sqm and a yield of 4.01%.
Luca Angelico, Craig McKellar and Ian Angelico
$3.3 million
36 Temple Drive, Thomastown
P: Private Investor
Cushman & Wakefield's Oliver Hay, Daniel Wolman and Leon Ma, with Tom Byrnes and Scott Keck of Charter Keck Cramer working as transaction advisors
V: Kongold Family P: Chinese Syndicate & Local Investor
352-362 Lonsdale Street, Melbourne
A Chinese syndicate and a local investor have jointly acquired Melbourne CBD's iconic Mitchell House, concluding more than five decades of Krongold family ownership.
$56 million
44 and 52 National Drive, Truganina
Two underdeveloped industrial-zoned blocks in Truganina were purchased by owner- occupiers for a combined price of $12 million.
P: Triple Star Fencing & Boardpro
CBRE’s Lachlan May, Cameron Giles, Fergus Pragnell and Tom Murphy
$12 million
Charter Hall has successfully divested their recently refurbished Rosebud Plaza, which is anchord by Woolworths, Coles, Kmart and Dan Murphy's.
V: Charter Hall P: Sydney-Based Investor
$134.5 million
McCombe Street, Rosebud
JLL's Nick Willis and Sam Hatcher
345-353 South Gippsland Highway, 51-65 Nathan Road, and 88-90 Nathan Road, Dandenong
Colliers' Gavin Bishop, Sean Thomson, Gordon Code, Daniel Telling and James Stott
Cadence Property Group and Assembly Funds Management have offloaded three warehouses in Dandenong, ahead of an investment underwrite.
V: REIV P: ANGLE
$47 million
18 – February /March 2024
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