THE PROPERTY DEVELOPMENT REVIEW
Transaction volumes in the retail space throughout 2023 have been quite thin the most significant transaction occurred when JLL assisted Charter Hall to sell the Brickworks Marketplace for $85 million reflecting a yield of 5.43% to FRP Capital. Two other retail assets are in Due Diligence presently and should be announced before the end of 2023. 2023 saw a significant number of pub transactions of which JLL were responsible for 6 with a combined value of $87.1 million reinforcing the appeal of the pub sector and the importance that investors place on the covenant of publicly listed operators providing defensive cash flows. Who were the most active buyer and seller groups in 2023? Was there a depth of off-shore investment and from which countries did you see most investment flow? The most active buyers in 2023 far and away have been private investors; simply we have not seen much participation from Listed or unlisted funds as they have been net sellers nationally. Locally and nationally Syndicators have been reasonably passive in the second half of 2023 as they digest the increase in interest rates and recalibrate their return to investors. We have not seen any participation from offshore investors in the South Australian market as has been consistent with National and Global patterns. The year wasn’t without its challenges; namely a volatile interest rate environment, building cost pressures, supply chain issues to name a few, but there appears to be some relief in sight. What is your outlook for 2024 We have seen a significant increase in construction costs in 2023 and we are starting to see the economic rents catch up to enable new development to be feasible – this appears to be levelling off somewhat this should bring some stability back to the market. The increase in construction costs has certainly increased the appeal of existing built form as some assets have traded below replacement cost; particularly in the office sector. Interest rates have been a dominant factor this year and the most recent 25bps increase on Melbourne Cup Day had a moderate impact on investor confidence as most groups appear to have already factored in this and perhaps another 25bps in the new year. The overwhelming school of thought is that interest rates will retract in the back end of 2024 increasing investor confidence. Overwhelmingly across all asset classes however particularly at the larger end of town 2023 has been a year of investigation, examination and consideration as owners grapple with the
prospect of selling and purchasers with what level reflects good value. Which asset classes do you anticipate leading the charge in 2024? 2024 will be a fascinating year as it plays out – We can’t see demand for well located industrial and employment land decreasing at all, in fact we expect this to accelerate particularly as there is more certainty around the supply chain mechanics of the AUKUS agreement. The Port and the northern region are well placed to capitalise on this. We expect to see heightened activity in the living sectors in 2024. The generationally low residential vacancy will drive the need for an increase in activity from the living sectors – we expect the Build to Rent (BTR) sector to mature in 2024 as rents continue to increase justifying the returns and allowing groups who are active in Victoria to gain some diversity in their portfolio. The community housing providers will also play a key role in the coming years providing outcomes for well located dwellings in the light of recent legislative changes to the sector. Given the extremely low levels in 2023 we expect to see an increase in office transactions in the CBD, particularly as purchasers recognise the discount to replacement cost that is on offer and the need for sophisticated investors to reweight their holdings in Adelaide. Thinking specifically about the development site space, do you see more activity opening up in 2024 given interest rates and building costs seem to have peaked and will most likely stabilise or reduce? We expect to see significant demand from the residential sector in 2024; particularly in close proximity to public transport, key infrastructure or the CBD. We expect to see some growth, particularly as the north west of the CBD and beyond has had plenty of attention in 2023 with the maturing of the Biomedical precinct, the sale of the SA Brewing site to the State Government and the remediation of the former Gasworks site well underway we should see continued investment into 2024 The amalgamation of the 2 universities cannot be forgotten in 2024 with an increase in enrolments forecast beyond 2026 there will likely be a shortage in student accommodation beds in and around the universities and northern CBD. Given the gap between construction and replacement costs for commercial office space we would not be surprised to see older office stock acquired for conversion to student digs.
November / December 2023 – 125
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