The State of Play in Construction

Sarah Slattery is the Managing Director of Quantity Surveying firm Slattery. Sarah has more than 30 years’ experience as a QS across Australia and the UK and specialises in costing complex, design-oriented projects, namely in education, arts and culture, health and transport developments. Her expertise has seen her become a trusted advisor to significant government, developer and private clients.

In this update, Slattery provides an overview of the construction market including the volume of work nationally, the pain points across various states, labour and supply chain impacts, and what this means for cost escalation.

The cost escalation forecast and what it means

Slattery is forecasting escalation averaging 4% per annum for the next 3 years with supply chain impacts currently posing the biggest risk to projects. This is mainly due to material costs, and freight and exchange rate fluctuations driving up pricing and pushing out programmes. In this current market, extensive financial due diligence of contractors and their subcontractors is critical. The key is to ensure that contractors and sub-contractors have the suitable financial capacity to deliver projects. As an industry, we need to keep in mind that the closure of State and National borders are limiting the flow of skilled, unskilled, and seasonal migrant workers to Australia. This is creating a major skills shortage across the board which will have flow-on effects now and into 2022.

Disruption through 2020

In 2020, construction productivity decreased across most sectors due to health and safety issues relating to COVID-19 and the various lockdowns across the country causing major disruptions. To add to this, a number of projects had been completed before the pandemic hit and with a slow pipeline of work following behind it, this enforced the reduced activity in most sectors - the few exceptions being logistics, industrial, civil, and infrastructure. Despite the hype and budget commitment, there continued to be limited market activity in the Government space – apart from transport infrastructure. The promised rollouts for social housing, health, and schools took some time to get to market. With low margins and increased competitiveness, Slattery witnessed price reductions across the board – in some circumstances, north of ten subcontractor pricing per trade. The consultant space suffered also with limited opportunities in the market driving down fees. As a result, many companies reduced staff numbers, or at the very least, put a freeze altogether on recruitment. With momentum now building in 2021, we are seeing the market shift.

Volume of Work

The ACIF Construction Forecasting Council Figures on the Value of Work Done [image one], provides an overview of the construction industry. In the residential sector, there has been an uplift in residential building, driven by stimulus and short-term temporary support measures. This is unlikely to be sustained, with the stimulus soon ending, and reduced immigration reducing demand in the medium term. For non-residential building, there has been a sustained decline from the peak in 2020 over the medium term. The forecasts foreshadow a drop in demand for new Offices, Retail, and Entertainment, with Industrial building activity plateauing.

Infrastructure construction is expected to grow by 5% in 2022, as expanded government infrastructure programs fully flow through into activity on the ground. Key areas for growth include rail and electricity supply. Heavy industry including Mining is expected to increase significantly – growing by more than 5% per annum in the next 2 years, driven by expanded activity in coal, gas, and iron ore and newer areas such as hydrogen and lithium-ion. Mining has been the quiet achiever over the pandemic. ACIF reports that the total volume of work of the 4 components mentioned, will peak in the current year, at $243.1B, dipping by 0.7% in 2022 and increasing by 1.9% again in 2023. The type of work is changing, with residential and non-residential being replaced with infrastructure and heavy industry.

Cost Escalation

After a relatively flat 2020, cost escalation is real and needs to be factored into budgets. Some of the drivers behind this are:

Material and supply chain impacts

• COVID-19 recovery programs intended to stimulate the economy have placed a huge amount of pressure on supply chains not only in Australia but globally

• We have seen this within Steel, Joinery, Timber, Metalwork, Copper, PVC, Masonry, Reinforcement – just to name a few.

• COVID-19 outbreaks have led to congestion at major ports, compounding the supply issues and increasing freight costs. Market feedback indicates shipping times from China have increased from 28 to 40 days, and the cost per container has approximately doubled from pre2020 levels. The flow-on for the supply issues are delays to the program, resulting in increased preliminaries costs and loss of income as completion dates push out.

• Industrial action by the Maritime Union of Australia is impacting ports across Australia, with strike action at Sydney, Melbourne, Brisbane and Fremantle wharves, adding pressure to an already constrained materials supply chain.

• Another major impact is exchange rate fluctuations for materials supplied from overseas. The AUD was buying just over 57 US cents when COVID-19 hit in March 2020 and increased to a high of almost 80 US cents in February this year, and now back to circa 72 US cents. These fluctuations play havoc with tenders for imported materials, which can make up a large proportion of a tender.

  Example : Steel production and the impact

• Over the past 12 months, steel production has reduced due to peak carbon emissions and disruption from COVID-19. Some reports say China has reduced steel exports by more than 50%.

  • In Australia, we import at least 30 percent of our steel supply, most of it from China. While both of Australia’s large steel mills have kept their prices relatively competitive compared to the world market – this is changing.

  • Prices for steel from China have also been hit with export taxes and the recent removal of the manufacturer’s tax rebate to compound the supply issues.

• While Slattery acknowledged some of these material rises last year, tender returns indicated that the full extent of price increases was not being passed on.

• Now, Slattery is seeing subcontractors and contractors qualifying their tenders for increases moving forward, for example, exchange rates or steel supply. However, projects that were locked in before these increases will be hit hard.

Labour rates and availability

• The impact of EBAs, although predictable is ongoing with roughly 3-5% Year on Year increases – this automatically guarantees escalation rates of around 2% per annum.

• The closure of State and National borders are limiting the flow of skilled, unskilled as well as seasonal migrant workers to Australia.

• Skilled labour shortages in Australia have been an issue for some time with an ageing population and investment in apprenticeships not keeping up with demand e.g. bricklayers.

• Slattery is seeing contractors using more tier 2 & 3 subcontractors in the current environment to stay competitive, which may have ramifications on solvency and quality

Margins and competitiveness

• A desire to ride out the pandemic saw sharp declines in tender sums driven by reduced opportunities, resulting in margins as low as 0.5 – 1.0%.

• Contractors improved competitiveness by reviewing staff salaries, negotiating non-union EBA agreements where possible, and tightening programme durations.

• Trades were very competitive due to available capacity in the market and tenderers were taking on COVID-19 programme and cost risk.

• Slattery continues to see competitiveness in the trades and Contractors continue to bid for work outside of their core sectors to fill their order books, but we are seeing margins for both trade and head contractors return to pre-2020 levels

Our Forecast

Slattery is currently forecasting around 4% per annum for the next three years on the mainland. Tasmania is the exception currently with escalation peaking up to 12% in FY2022. This will not be across the board and will affect projects differently. The biggest impact will be on long-term projects. When a budget was set a few years ago and has only recently been given the go-ahead, it is important to review the base price for robustness – it’s not simply a matter of updating for cost escalation.

Risks and mitigation strategies

Contractor selection

Contractors are starting to be more discerning about what they will tender on and good builders will become choosy in this market. Communicating and engaging with the builders to make sure they are interested first is key. Minimise project risks before-hand and make the tender package as attractive as possible.

Procurement selection

Clients are moving away from ECI procurement unless there is significant programme drive. While Slattery notes cost escalation impacts - contractors still need to fill their order books and on the back of a poor 2020 – will still be competitive.

Contractor and subcontractor performance

In this market, extensive financial due diligence of contractors and their sub-contractors is critical to ensure they have the suitable financial capacity to deliver projects. A major risk is insolvency. This is enhanced currently with low margins and changes to trade market pricing on projects locked in last year.

State by State Focus - Common Trends

Many impacts are common nationally, however each state is facing its own local impacts, opportunities and challenges. To read a state by state focus, access Slattery’s full report here…

Melbourne MarketBeat Report: Office Q2 2021

John Sears leads Cushman & Wakefield’s Research team in Australia and New Zealand. John and his team are responsible for driving research, insights, and thought leadership to support the growth of Cushman & Wakefield in Australia and New Zealand. John and his team also help clients with market data and analysis to help them identify suitable investment opportunities. Prior to starting at Cushman & Wakefield, John was head of research at Vicinity Centres.

Economic Overview

The COVD-19 pandemic caused a short sharp recession in Australia during Q1 and Q2 2020. Data to March 2021 indicates the Australian economy returned to growth in Q3, rising 3.4% over that quarter with a 3.2% increase in Q4 and a 1.8% increase in Q1 2021.

Demand in Victoria did not follow the same trend, due to the lockdown restrictions in place. Assuming the pandemic is contained globally, both Victoria’s and Australia’s economic growth rates are expected to remain positive over the forecast horizon with relatively strong growth expected over the next few years. Deloitte Access Economics forecast real gross state product (GSP) to increase by 6.3% over calendar 2021 and 3.5% in 2022 and 3.2% in 2023. Over the past 10 years, Victoria GSP annual growth has averaged 2.0%.

Melbourne CBD

Supply and Demand

After 351,900sqm of stock was added in 2020 and 65,500sqm was withdrawn, the first six months of 2021 saw a mere 13,200sqm added and 13,500sqm withdrawn. A further 157,400sqm of new and refurbished space is due for completion in 2021, of which over 66% is pre-committed. A further 185,900sqm is due for delivery in 2022 though some of this supply may be delayed.

In terms of current and future demand, business confidence is strong and smaller, local businesses are making decisions on three and five-year terms. Larger tenants are slower to commit with many opting for short term extensions. Workers return to the office has been kept to a maximum of 25% by Government decree. The rollout of the vaccine over the final quarter of 2021 can be expected to see the lockdown end and a return to higher levels of occupancy in 2022.

Rents

Net incentives stabilised in Q3 2021 and are expected to remain at these levels for the remainder of the year before falling as the recovery gathers pace in 2022 and workers return to the CBD.

Premium grade net incentives are 39%. The average A grade net incentives were stable at 41%. Currently, B grade net incentives are 38%.

Premium grade net face rents were up slightly over the quarter to average $695/sqm, A grade were also up slightly and average $635/sqm. There was also a slight rise in B grade net face rents with rents averaging $530/sqm.

Metro Melbourne

Supply and Demand

2020 saw eight metro office projects reach completion, delivering 128,000sqm of floor space to market. Looking forward there is some uncertainty around the medium and longer term pipeline with COVID creating disruption and uncertainty around the delivery of projects. Nevertheless, there are ten projects being completed in 2021, delivering over 140,000sqm of new space to the fringe office market and well over half is pre-committed.

In terms of current and future demand, business confidence is strong and smaller, local businesses are making decisions on 3 and 5 year terms. The rollout of the vaccine over coming quarters can be expected to see an acceleration of business commitment.

Rents

Despite the turbulent year across the city, the metro markets net face rents have remained relatively stable over 2020 and 2021. Upward movement in net incentives has placed downward pressure on net effective rents, with Southbank recording a 9.3% year on year (YoY) fall to reach $362/sqm. For St Kilda Road it is a similar story with net effective rents dropping 14% YoY to reach $284/sqm. It is expected that incentive increases have now run their course, helping to stabilise net effective rents across Metro Melbourne.

The strong underlying trends making retail property an attractive investment

Richard Germain is a Managing Director at MA Financial Group. Richard helps manage and grow the Real Estate Asset Management business which includes sourcing appropriate fund investments and investment capital, both institutional and high net worth and the establishment and investment management of real estate funds and assets. Richard was previously an investment advisor and portfolio manager at Lend Lease Corporation Limited including providing portfolio management, product design, and advice to the company’s funds on appropriate investment.

Real estate has proved to be one of the most resilient and best risk adjusted performing investment classes in Australia since the early 1900’s.

Retail real estate in particular offers investors an attractive counter-cyclical investment opportunity, underpinned by a range of strong underlying trends.

Long history of consistent and resilient retail sales growth

The sector has been underpinned by a long history of consistent, resilient and solid growth in retail sales.

Over the past five decades or more, the Australian Bureau of Statistics have not recorded a single year of negative retail expenditure growth – including during periods of economic uncertainly.

In the 12 months to December 2020 retail expenditure grew 10% despite significant COVID-19 related disruptions. During the global financial crisis retail expenditure grew on average 12% p.a. between 2007-2009, despite increasing unemployment and sharp corrections in equities markets.

People and food the key drivers

Australia’s high population growth has been a catalyst for this increase, and has supported non-discretionary retail categories such as food in particular.

Since 1982, ‘Total Food Retailing’ and ‘Total Cafes, Restaurants and Other Takeaway Food’ have delivered the highest average annual growth rates of 6.3% and 6.6% p.a., respectively.1

Australian shopping centres, anchored by national supermarket retailers such as Coles and Woolworths, account for a significant portion of total retail sales.

Low supply, high barriers to entry

The Australian retail market exhibits very different characteristics to other retail markets around the world, in large part due to the high barriers to entry but also comparative low supply versus the major markets of North America.

Less than half the supply of the US

Australia has retail supply of approximately 1.06sqm per person compared to the US which has more than double this.

Retail space provision - Australia vs United States

Restrictive zoning regulations

In Australia, the supply of new retail floorspace per additional person has been decreasing – from 2.6sqm p.a. in 1995-1999 to 1.1sqm p.a. between 2015-2019.

This reduction can be attributed to the fact the supply of new retail floorspace in Australia is tightly controlled by restrictive zoning regulations, and our high population growth has led to greater emphasis on residential planning schemes.

This restricts the ability to develop new retail shopping centres in established metropolitan areas, meaning new retail supply is often introduced into high residential growth areas along the metropolitan periphery which has no material long-term impact on established shopping centres.

High occupancy rates, diversified tenant base

Occupancy rates for Australian retail assets are high, with a national average vacancy rate of only 6.9% and a 10-year average of 4.2%.2

Retail assets are assisted by the diversity of their tenant base. While Australian shopping centres are generally anchored by the major supermarkets and often discount department stores, the sub-regional and regional centres also have a diverse range of smaller tenants reducing the exposure to any individual tenant.

Strong and resilient Australian economy

The strength in the retail sector is supported by a strong and resilient Australian economy.

Until the exceptional circumstances brought on by COVID-19 in 2020, Australia had not experienced a recession since 1991.

The economy has been driven by strong population growth, increasing productivity and access to in-demand natural resources. It remains a highly desirable destination due to our favourable standards of living, including a top tier medical system, stable governance and strong agricultural production.

The sector is well positioned to continue on an upward growth trajectory and is increasingly being sought by institutional investors.

This article was originally published by M A Financial. Read it here…

Making sense of macro-prudential changes

Eliza Owen is the Head of Residential Research Australia at CoreLogic. She has a wealth of experience in property data analysis and reporting. Eliza worked as an economist at Residex, a research analyst at Domain Group. She specialises in descriptive and inferential data analysis, data visualisation and framing data trends with broader economic concepts.

This article was originally published by CoreLogic. Read it here…

The past few weeks have seen mounting speculation around what changes could be coming for the housing lending space. The Council of Financial Regulators, which includes the banking regulator APRA, flagged the need for sound lending standards to be maintained, with signs of “some increased risk taking” appearing in mortgage lending.

Examples of a more risky debt and lending environment have been trickling through various data releases over the past few months. RBA data shows housing debt-to-income ratios reached record highs for owner occupiers at 102%, annual housing credit growth (5.6%) is outstripping income growth (1.6%), and APRA data shows a higher than usual concentration of new loans on high debt-to-income ratios.

It became increasingly clear that ‘macro-prudential’ intervention (policies aimed at securing financial stability) was a case of ‘when’, not ‘if’.

Wednesday’s announcement from APRA outlined changes to the way lenders assess new borrower’s ability to service a mortgage. Essentially, banks would be expected to test whether a borrower could repay a mortgage, if the mortgage rate is three percentage points higher than the product rate on offer. APRA advised the buffer should be implemented by the end of October 2021.

Importantly, major banks already have a required buffer of 2.5 percentage points in the serviceability assessment process, which was introduced in 2019, or a minimum interest rate level to assess serviceability (also known as a ‘floor’ rate), which averaged 5.09% across the major banks in June. This includes a proactive increase to the floor rate of 15 basis points from CBA in June. Banks must use whichever rate is higher to assess serviceability, which plays in to the subtle targeting of this new recommendation from APRA.

Because owner occupier mortgage rates are lower than investor rates, these changes may actually have more impact on the investment segment of the market. Additionally, as APRA notes in their announcement, investors tend to be more leveraged in their borrowing behaviour and may be carrying additional housing debt which would also be subject to the increased serviceability assessment.

Figure 1 compares the change to interest rate assessment based on the current average mortgage rate for new owner occupier loans (which was 2.36% through August) and investor loans (2.72%).

Using the average owner occupier rate as an example, APRA’s announcement would mean borrowers could need to demonstrate the ability to repay a mortgage with an interest rate of 5.36%. But given floor serviceability rates would have been pretty close to these levels anyway, the measure is not as drastic a change for owner occupiers, with the hypothetical showing an increase in assessment rates of 27 basis points from 5.09%, to 5.36%. This is opposed to a 50 basis point rise for investors. Owner occupier borrowers may be more likely to be assessed on the buffer rate under these changes, rather than the floor rate.

Figure 1. How does serviceability assessment change for owner occupiers and investors?

But even in this scenario, the mortgage rate buffer going from 2.5 to 3.0 percentage points seems like a subtle approach to financial stability and will likely only impact at the margins of borrowing demand.

Perhaps this is also a lesson learned from the relative shock created to the housing market in 2017, when new interest only mortgages were limited to 30% of new housing lending. A chart of monthly housing market movements across Sydney against previous macro-prudential measures can be seen in Figure 2.

Housing market values experienced a peak to trough decline of -8.4% off the back of macro-prudential changes in 2017 at the national level. The decline was sharper across heavily concentrated investment markets like Sydney (-14.9%) and Melbourne (-14.1%). This subtler change to lending conditions is far less likely to move the housing market into negative territory, and APRA estimates the typical maximum borrowing capacity would only be reduced by about 5%.

Figure 2. Month-on-month change in dwelling values, Sydney

More to come? 

While APRA’s announcement may seem like it won’t have much impact on demand for credit, it is worth noting that this may not be the end of macro-prudential changes. A lot of focus has also been on high ‘debt-to-income’ ratios – a statistic expressing a borrower’s pre-tax income divided by their total debt levels. 

In his letter to lenders, APRA Chair Wayne Byres flagged that if new mortgage lending on high debt-to-income ratios remained at high levels, it “would consider the need for further macro-prudential measures”. It has also been stated by the regulator that implementing a limit on high debt-to-income ratios is “operationally complex”.  

Therefore, while the announcement may seem like a subtle change to housing lending conditions, there may be more tightening to come as the Council of Financial Regulators monitors trends in housing credit and household debt.

The quiet tech revolution delivering ground-breaking results for real estate

Daniel Lepore is the Head of Asset Technology for AMP Capital Real Estate. He is responsible for overseeing a portfolio of initiatives designed to enhance AMP Capital’s Office, Logistics and Retail sectors, including: cyber security risk and potential impacts to data and physical assets; successfully establishing the foundations for sophisticated smart building applications; use of data analytics and artificial intelligence to generate meaningful actionable insights; organisational enablement and readiness for technology change, channelled through centralised support; and enhanced customer experience through a shift in workplace and retail expectations.

In the decade since Netscape founder Marc Andreesen said software would eat the world, the statement has become somewhat of a truism in most aspects of our daily lives. The real estate industry is no exception.

Buildings that were once solely attended by a team of human security, maintenance and cleaning staff are now leveraging sophisticated artificial intelligence (AI) applications and sensors to help streamline their operations.

It has been somewhat of a quiet revolution, but the roll-out of software and AI systems into the real estate industry is delivering ground-breaking results for landlords, investors and tenants – and changing the way real estate is managed.

Improving ESG a key driver of change

One of the key drivers of change has been a desire from investors and tenants alike to improve their buildings’ sustainability on a range of environmental, social and governance measures – most notably through reducing real estate’s carbon footprint and energy usage.

Traditionally, reducing the carbon impact of a building has been a manual affair – lowering the air conditioning, turning off the lights after closing time, encouraging recycling and ensuring space is being used efficiently.

But modern buildings are deploying new AI technology to supplant and improve the role that conventional automation and facilities management once played. Autonomous heating, ventilation and air-conditioning (HVAC) controls are a leading example.

Autonomous HVAC technology a first for commercial real estate

Heating, ventilation and air-conditioning are among a building’s largest operational contributors to greenhouse gas emissions.

Using sensors, data analytics and machine learning algorithms to manage heating and cooling, autonomous HVAC systems offer the twin benefits of reducing energy usage while delivering better comfort outcomes for occupants.

AMP Capital is the first commercial real estate manager to deploy autonomous HVAC control across its entire portfolio – and the early results are outstanding, showing up to a 17 per cent reduction in base building energy consumption and costs.

This result comes primarily from the fact that the heating and cooling systems run approximately 40 per cent fewer hours when managed by autonomous systems than they do when conventional automation is in charge.

Even so, the thermal comfort levels of building occupants – measured by how a room’s temperature meets the desired set point – are 30 per cent better.

How is the software achieving this? Essentially by studying how a building operates and analysing the external factors impacting it such as weather, wind, sunshine and occupancy.

In fact, AMP Capital’s Smart Building Platform captures over 365,000 sensor data points every 15 minutes, while the HVAC software pre-emptively adjusts temperature and airflow every five minutes.4

And it’s not just environmental performance where software is supporting the property industry. The data collected is also used to predict, detect and request maintenance.

This ‘data-driven’ maintenance is already paying dividends for investors, reducing maintenance cost and promising to extend the life of equipment.

AMP Capital deployed the system earlier this year in 35 major buildings including 33 Alfred St and the Mascot Corporate Connect Centre in Sydney and Bourke Place in Melbourne.

So far, more than 700 maintenance tasks have been escalated to site teams by the automated systems, which are constantly watching for events as simple as a stuck air conditioning valve that would likely go undetected by traditional building maintenance systems.

Promising results in early trials of cleaning innovation

Technology is also taking on one of the most human tasks of all – cleaning. Cleaning innovation is at an earlier stage than energy and maintenance management, but it is showing promising results.

At Melbourne’s Collins Place, a network of Internet of Things (IoT) sensors and robots have been deployed to improve end of trip facilities and common area cleaning practices through autonomous vacuuming, sweeping, mopping and disinfecting – and freeing up human cleaners to focus on high touch areas to support the health and safety of our customers and visitors.

The robots even politely interact with visitors, entertaining their human guests while they go about their work. But there’s a serious side to it too. Not only does robotic cleaning free up humans for more important work, but the robots use 80 times less water than a manual cleaner.

The rapid deployment of technology across real estate is coming with an even better outcome for investors – it’s essentially paying for itself.

Reduced energy usage delivers immediate cost savings for tenants and landlords and vendors of the AI systems are paid only if they deliver on promised outcomes and savings.

Advanced Automation proving successful

At Stud Park shopping centre in Melbourne’s Rowville, automated systems have delivered a 16 per cent reduction in base building energy usage. In Sydney, at 33 Alfred St – one of Australia’s oldest skyscrapers – heating and cooling systems run 15 per cent fewer hours and thermal comfort is up 50 per cent.

At the Mascot Connect Corporate Centre development that includes office buildings and ground floor retail, HVAC is running 20 per cent less with a 30 per cent increase in comfort.

Beyond energy costs, automated systems also reduce the costs of maintaining and repairing expensive capital equipment by catching small problems before they become big ones.
It’s early days, but this should help building owners extend the life of some of their equipment.
If a HVAC system is running 20 per cent fewer hours, it can reasonably be expected to operate beyond its former useful lifetime.

So, what’s next for building tech?

Arguably, we are only at the beginning of a great transformation for the real estate industry that will deliver benefits for investors, landlords, tenants – and the planet.

Already, developers are working on using augmented reality to help people find their way around buildings using their mobile phones. It’s also possible for phones to replace the smart cards we use for building entry.

But soon, facial recognition will allow tenants to breeze through security gates while sensor monitoring networks will watch building usage in real time, proving tenants with data on where people are gathering, why some meeting rooms are more used than others and how shopping centres can get better traffic to the little used corners.

All of this will be run by integrated network operations centres watching and managing multiple buildings, delivering better experiences for tenants and guests – and better outcomes for landlords and investors.

This article was originally published by AMP Capital here.

Is there a new lease of life for former aged care facilities?

Marcello Caspani-Muto is a Senior Negotiator - Healthcare & Social Infrastructure at CBRE. He is a qualified, experienced and award winning agent who has established himself as an expert across all healthcare and social infrastructure markets. He joined CBRE in 2017 as an Analyst and in 2020 was recognised with the prestigious industry award, REIV Outstanding Young Agent of the Year. Enthusiastic and driven, Marcello has an expansive skill set and market knowledge that allows him to establish strong client relationships and achieve premium results for clients.

What’s next for Australia’s aged care services market after 18 months of forecast change? Taking centre stage are new mixed-use health and wellbeing precincts as former aged care facilities get a new lease of life.

These vacant aged care homes are presenting opportunities for alternate use operators including rehabilitation, Specialty Disability Accommodation, National Disability Insurance Scheme providers, medical centre, consulting suite operators and mental health and wellbeing services, as the country continues to embrace the challenges of continued and longer lock-downs and a rise in mental health concerns.

Key players in the market include syndicates of doctors and specialists with stakes in their businesses, who are unlocking the value in former homes by repurposing them into precincts that bring together like-minded tenants offering complementary and specialised health-related services.

These groups are targeting existing premises that meet their requirements and offer access to short stay accommodation and rehabilitation facilities that are compliant or offer the capacity to be repurposed as such and often have high-quality existing fit outs and standards that would otherwise be unattainable.

Buying and converting these existing facilities also comes at a much lower cost than undertaking a new development.

For example, a 15-year-old, 75-bed aged care home in Northcote recently hit the market with a $9 million plus price tag via CBRE. To build this same facility today would cost above $15 million, so you can see why smaller health services groups are attracted to these sites and are capitalising on their existing infrastructure.

Another example involves the former Wakefield Hospital and adjoining Wakefield Clinic in Adelaide. This facility was recently sold, and the existing spaces are being marketed for lease, with the former emergency department now positioned as a healthcare hub within a vibrant mixed-use precinct that will include numerous medical centres, specialists, and hospital/rehabilitation users together with retail childcare and aged care groups.

Investors considering these health-related property investments need to be savvy and highly competent as the healthcare market is highly specialised and has strong barriers to entry.

For instance, if investors are considering purchasing an established aged care home and continuing with its existing use, the age of the facility and its maintenance history are critical factors.

In most cases, experienced residential aged care operators adhere to a strict maintenance and refurbishment schedule, particularly for homes located in metropolitan areas. This is primarily for residential quality of life; however, it also ties in with the ability to secure higher levels of government funding.

Set against this are the substantial construction costs to build a new aged care facility, which can range anywhere from $200,000 per bed to north of $350,000 (subject to quality), which is why purchasing an existing site can be appealing.

So, to conclude, there are major opportunities in the aged care and health services property sector. As outlined above, it’s an evolving, dynamic sector, but it’s also important to consider all the factors at play as you make your investment decisions.

This article was originally published on CBRE’s website. Read it here…

‘It’s almost like grooming’: how anti-vaxxers, conspiracy theorists, and the far-right came together over COVID and the construction industry

Dr Joshua Roose is Senior Research Fellow in Politics and Religion at the Institute for Citizenship and Globalisation at Deakin University, Melbourne. His research focuses on the intersection of masculinities, radicalisation and political and religious violent extremism and terrorism. He is currently a Chief Investigator on an Australian Research Council funded study The Far Right: Intellectuals, Masculinity and Citizenship (2021-2023) and Victoria Police Counter-Terrorism Command funded study titled A Rapid Evidence Assessment of Alternative Narratives.

The protests this week shocked people across the country. Whilst they didn’t initially involve the property industry, the protests eventually manifested into arguments regarding the Victorian construction sector and the role of the CFMEU.

Scenes of protesters clad in hi-vis jackets and shouting anti-vaccination slogans have dominated the news this week. As the ABC reported:

Some of those gathered held a banner reading ‘freedom’, while others sang the national anthem and chanted ‘f*** the jab’.

Some attacked union offices, drawing criticism from officials such as ACTU chief Sally McManus, who described the protests as being orchestrated “by violent right-wing extremists and anti-vaccination activists.”

These images may shock some but for researchers like me — who research far-right nationalist and conspiracy movements, and explore the online spaces where these people organise — these scenes came as no real surprise.

Far right nationalists, anti-vaxxers, libertarians and conspiracy theorists have come together over COVID, and capitalised on the anger and uncertainty simmering in some sections of the community.

They appear to have found fertile ground particularly among men who feel alienated, fearful about their employment and who spend a lot of time at home scrolling social media and encrypted messaging apps.

I’ve already seen one Melbourne anti-lockdown group advertising another ‘protest’ outside CFMEU tomorrow in an encrypted chat.

It was only a few weeks ago when anti-vaxxers co-opted the concerns of some truckies & now it seems they are doing the same with tradies in Victoria.

— Eden Gillespie (@edengillespie) September 20, 2021

The latest in a continuum

It’s important to see what’s occurring with these protests as part of a continuum rather than a series of unrelated incidents. This week’s protests are related to anti-lockdown protests held in 2020, and earlier this year.

It was at first limited to the conspiracy theorist and anti-vaxxer crowd. Some were just upset by lockdowns but most of the planning conversation online was being led by anti-vaxxers and QAnon activists.

These movements thrive on anxiety, anger, a sense of alienation, a distrust in government and institutions. It’s really no coincidence this is occurring most vigorously in Melbourne given what this city has been through with lockdowns.

It has really built momentum over the last year and, more recently, been infiltrated by far right groups.

The far right are capable recruiters

If you go back two years ago, anti-vaxxers were a tiny minority. They have grown significantly in size and influence online.

I have observed in my research the far right consciously appropriating the language of anti-vaxxers, of the conspiracy movements, seeking to exploit their anger and distrust.

I spend a lot of time on the encrypted messaging groups used by these groups and in the online spaces where they organise. I have seen the same names popping up, and growing use of hard right or far right national socialist iconography.

It is almost like grooming. The far right are a lot more capable of recruitment than we give them credit for. They have found an audience who are angry, frustrated and looking for someone to blame.

This is particularly the case among young men who are increasingly attracted to right wing nationalism and make up the majority of protesters. Victoria Police Commissioner Shane Patton has said the majority of protesters at the Saturday protest were men aged 25-40, who came with violent intent.

Many of these groups share similar ideas: that there is a cabal of politicians and elites who are oppressing you. That freedom is at risk, that one must stand up for liberty, that there is a wealthy and unelected ruling class controlling you.

COVID — with all the fear, uncertainty, lockdowns, policing and employment impacts it brings — has helped bring these groups together.

Victoria police earlier this year warned a parliamentary inquiry into extremism that:

online commentary on COVID-19 has provided a recruiting tool for right-wing extremist groups, linking those interested in alternative wellness, anti-vaccination and anti-authority conspiracy theories with white supremacist ideologies.

The far right has really sought to mobilise frustrated people and push them more toward right-wing narratives, particularly white nationalist narratives.

There is a strong historical animosity toward trade unions (as the vanguard of the political left) by the far right. It would be disingenuous to view the far right as unintelligent thugs. They are learned in the history of national socialism and fascism and the preconditions for its rise.

So you see the far right working very hard to undermine trade unions and the way they represent the organised working class. There is an attempt to undermine trust in trade unions and paint them as traitors and sell-outs who are in bed with the government.

Among the protesters there was a really self conscious effort to represent themselves as themselves as tradies and workers. Some observed protest organisers encouraging people to wear hi-vis clothing to these rallies.

@sallymcmanus @CFMEUJohnSetka pic.twitter.com/6Eqfg1wJvH

— Leftwing Bastard (@_SocialDemocrat) September 21, 2021

It’s important to note the construction industry and trade union movement in general are incredibly diverse, and there will be different and competing views around vaccines, masks and lockdowns.

Some of these protesters actually are tradies, some may not be. Some are union members, others are not. But the broader point is there is a group of people who are incredibly angry about the situation they find themselves in, and resentment is proving fertile terrain for organised groups.

Where to from here?

This is not an easy knot to unpick, but there are three main approaches I think would really help.

The first is we really need to get people back to work. That is critical. People’s self esteem and livelihood is tied up in work and the ability to put food on the table, in staying busy and socially connected (which is often via work).

By ensuring safe, secure employment for people, you really take away one of the main drivers of anger, resentment (and too much time to scroll around social media) that is helping push people toward extremism.

The second is politicians need to think hard and fast about what they can do to help rebuild trust in them, in government and in our institutions. Politicians can’t hide behind press conferences and press releases to get their message out. They need to get out and build trust, face-to-face with the community. Of course, that has been constrained by lockdown but this work is urgent and important. Politicians need to lead and create relationships with the community again.

The third thing is we as a society need to think carefully about social media, and perhaps about regulation. We need a long-term approach to media literacy training, to teach media literacy in schools and to educate people about social media echo chambers.

This article was originally written for The Conversation. Read it here…

The effect of COVID-19 on the Australian economy so far

Shane Oliver is responsible for AMP Capital’s diversified investment funds and providing economic forecasts and analysis of key variables and issues affecting all asset markets. Shane is a regular media commentator on major economic and investment market issues, and their relationship to the investment cycle.

Three months ago, if the government and economists were told that the economy would grow by 0.7% during the June quarter, they might have been disappointed.

Back then the employment market was picking up pace, big sectors of the economy such as construction and retail were enjoying a government assisted spending boom, and the main concern on the horizon was the potential for inflation.

Fast forward to last week when the Australian Bureau of Statistics (ABS) released the Australian GDP growth figure for the June quarter, which actually came in at 0.7%. There was a metaphorical sigh of relief about the better-than-expected outcome, and likelihood that Australia had avoided a double dip recession.

The change in outlook, of course, reflects the lockdown along the east coast of Australia and the large number of COVID-19 positive cases in the community. The lockdowns and restrictions mean the current quarter is likely to contract by around 4.0%.

But first to the June quarter.

The June quarter saw GDP rise 9.6% from the lockdown depressed June quarter of last year, but quarterly growth slowed to 0.7%, quarter-on-quarter. Domestic final demand rose a strong 1.7%, with consumer spending up 1.1%, business investment up 2.3%, dwelling investment up 1.7% and public demand 1.9% higher. Stocks and net exports detracted from the final figure.

The official economic figures were consistent with the June half year earnings reporting season, where listed company profits rose nearly 50% last financial year, helped along by resources and banks. Around 75% of companies reported higher profits. The big positive was a huge return of capital to shareholders, with 89% of companies raising or maintaining dividends driving a record dividend payout of nearly $40 billion, and over $20 billion in buybacks.

That’s the good news.

Since the end of June, the news flow has been bleak.

Locally acquired coronavirus cases have surged, driven by big jumps in New South Wales, and cases in Victoria and the Australian Capital Territory. This has led to various hard lockdowns, notably in Sydney and Melbourne, which are likely to extend well into October.

Our rough estimate is that the lockdowns since late May are costing the economy around $28 billion in lost output. That’s why the economy is expected to go backwards by about 4% this quarter.
There are also psychological costs of lockdowns too.

All this bad news is hitting when over developed nations are reopening thanks to being further ahead in vaccinations. There’s a sense that Australia is being left behind.

Even when reopening comes as vaccination targets are met, it will be very different to last year. Back then the number of COVID-19 cases had fallen to zero or around there. This time, numbers will be much higher and that will take some getting used to.

And the degree and speed of reopening that can safely occur, avoiding problems in the hospital system, when vaccination rates are 70% and then 80% may be limited as at these levels there will still be many who haven’t been vaccinated.

But it’s not all grim news.

While it would be wrong to get too confident – coronavirus has had a few occasions over the last 18 months where it looked under control only to flare up again – there is reason for optimism.

Lockdowns are painful but Australia’s policy of suppression has saved lives, and if we’d taken a laxer approach and had the same per capita number of deaths as the UK and US, we could have lost around an additional 48,000 people.

Also, vaccines are highly effective in preventing serious illness, even if they are less effective in preventing the Delta variant of COVID and may need booster shots. This has become clear in the UK, where deaths are one-fifth the level predicted based on the last wave.

In Australia, the death rate is now running about 30% below the level predicted based on Victoria’s second wave last year. And the pace of vaccinations has doubled from one million vaccines a week to 1.9 million a week over the last six weeks. The first re-opening target of 70% should be hit by late October, and 80% in November.

There are reasons on the economic front to be positive as well.

People will have to learn to live with COVID-19 and so the initial recovery might be slower than seen last year. However, there’s pent up demand, thanks to government support payments and constraints on spending in lockdowns. There’s a reasonable degree of job security, reflecting government business support payments.

And the ABS business investment survey of July and August still points to significant growth in investment this financial year.

Monetary policy will likely be easier for longer, as the hit from the lockdowns and a slower initial recovery results in a higher unemployment profile through next year than the Reserve Bank had been assuming.

And finally, Australia will benefit from the cyclical global recovery. Peak global growth will probably occur this year at around six per cent, followed by a five per cent expansion next year.

Putting all that together, the economic recovery will experience a setback this quarter, but thanks to the June quarter economic growth figures, it’s far less likely to see a double dip recession. The start of a gradual reopening from October will gather pace later in the year and into 2022 as higher vaccination rates are achieved.

Growth through this year is likely to be zero to 1.0%. But it’s likely to be around 6.5% through 2022.

The Great Australian Dream? New homes in planned estates may not be built to withstand heatwaves

Dr Emma Calgaro, Victoria Haynes and Prof. Dale Dominey-Howes are human geographers specialising in disaster risk reduction (DRR) and sustainability at the University of Sydney. Dr Emma Calgaro’s research focuses on the factors and processes that create and perpetuate differential levels of vulnerability, resilience and inequity within and across communities. Victoria Haynes’ research explores the vulnerability and resilience of those living in climate-affected areas. Prof. Dale Dominey-Howes’ research considers ‘disasters in terms of coupled human-environment processes’.

The design and construction of new homes in Australia may leave residents vulnerable to heatwaves and local councils can do little to fix the situation, our new research has found.

Our study focused on the Jordan Springs development at Penrith in Western Sydney. We found the estate may not be fit to withstand future heatwaves, potentially putting residents at risk and leaving them dependent on increasingly expensive air conditioning.

Australians are already experiencing significant heatwaves. And the Intergovernmental Panel on Climate Change this month warned heatwaves will become even more frequent, intense and longer.

Rising house prices in Australia’s major cities are driving many people to more affordable housing estates on the city fringe. But without interventions from state governments and local councils, such estates may be unsustainable as heatwaves intensify.

Exacerbating hot temperatures

Jordan Springs is a ten-year-old planned housing estate located 7km from Penrith. As of the 2016 Census, the estate was home to 5,156 residents. It currently consists of 1,819 homes and it is forecast to grow to about 13,000 residents in 4,800 homes.

Our research involved:

• collecting secondary information about the area, including climate forecasts, regional growth forecasts and planning law

• conducting surveys and interviews with residents, government and council officials and scientific experts

• examining the estate’s physical exposure to heat through aerial imagery and ground cover analyses.

Inland suburbs are significantly hotter than those on the coast, due to the lack of cooling coastal breezes. That is true of Penrith, which lies 60km west of Sydney’s central business district. On average, Penrith experiences three times more days above 30℃ than the CBD.

Jordan Springs is compliant with building regulations and individual homes are compliant with NSW’s Building Sustainability Index (BASIX). However, we found the estate’s built environment exacerbates the region’s hot temperatures and exposes residents to higher indoor temperatures. This points to a need for better planning regulations and building design.

We suspect our findings may be true for other planned estate developments across New South Wales and Australia, but more research is needed to confirm this.

What we discovered

Homes in the estate are built close together, with minimum side and rear distances from adjoining properties of 1.8m and 6m respectively. This can prevent air flow and allow heat to accumulate during the day. The close proximity also reduces space for vegetation.

The estate’s streets are wide and buildings are low. This reduces shade and maximises exposure to the sun of roofs, roads and other hard surfaces.

Almost 59% of Jordan Springs is heat-trapping hard surface cover such as concrete and asphalt. This compares to just 10% combined tree and shrub cover. A lack of greenery can contribute to the accumulation of heat.

Houses, roofs, and surrounding surfaces (such as roads, walls and fences) are generally dark-coloured, which increases heat absorption. For example, dark roofs have been recorded as 20-30℃ hotter than light coloured roofs (see images below).

A variety of dark and light coloured roofs. Sebastian Pfautsch

Thermal imagery shows the dark roofs are significantly hotter than light ones. Sebastian Pfautsch

The NSW government last week recognised the problem dark roofs pose in hot weather, announcing light-coloured roofs will be mandatory in new homes in parts of southwest Sydney.

At Jordan Springs, we found some houses were poorly insulated and draughty. Yet many of these homes still attained a high BASIX star rating for energy efficiency.

The Conversation sought a response from the developer, Lend Lease. A company spokesperson said given the technical nature of the findings, it could not provide an adequate comment by deadline.

A persistent problem

During heatwaves, the built environment can exacerbate already dangerous conditions for humans. Many people turn on their air conditioners to beat the heat, increasing energy use and leading to higher electricity bills.

So why does this situation persist?

One councillor believes the profit imperative of developers is a factor, telling us:

the developers are only thinking about their shareholders and directors … I don’t believe that the developer is eco-friendly.

Meanwhile, a scientific expert said:

Today people don’t build double brick because of the cost […] they are about building fast and moving on and building more because of the profit they make […] everything must be cheap or else you can’t be fast.

In recent years there have been media reports of private certifiers signing off on buildings which do not meet planning guidelines. One local councillor told us this can result in homes that don’t perform well in hot weather.

And even if councils could enforce stricter rules, they risk losing interest from developers – and associated financial benefits. A frustrated council official said if one council had strict rules around housing developments and heat, and the neighbouring council did not, then:

developers are more likely to go there to build housing … It’s a tricky balance. We still want growth, and we want to work with developers, but we want to improve how we are doing things.

Councils wanting to impose stricter planning rules fear loosing developments to neighbouring councils. Shutterstock

So where to now?

Clearly, many planned housing estates are not fit-for-purpose in our changing climate. But residents can take action to help their homes and estates stay cooler in hot weather.

Where possible, install heat-resistant features such as blinds, shades and awnings to increase passive cooling and reduce air conditioning dependence. Plant trees and shrubs in home gardens and encourage communities to engage in estate-wide greening initiatives.

Councils and developers should ensure prospective residents understand the benefits of light-coloured materials, passive design and urban green space. This will encourage them to make more informed decisions during the construction process.

But ultimately, the responsibility to ensure the heat-resilience of current and future housing rests with state governments and developers. While building new homes and returning profits is important, the well-being of citizens in a warmer world must be the paramount concern.

About the authors…

Dr Emma Calgaro

Emma is a human geographer specialising in systems thinking in the context of disaster risk reduction (DRR), vulnerability, resilience and social inclusion/exclusion. Her work focuses on understanding and mapping the multiple interlinked and multi-scaled factors and processes that not only create and perpetuate differential vulnerability and resilience levels within and across communities but also underpin systemic issues like poverty, inequity and injustice, environmental degradation, and climate change. Her work is highly applied and involves working with government, multilateral organisations (notably the United Nations Development Programme and UNA2R), NGOs and advocacy groups in Australia, Asia and the Pacific to foster inclusive disaster risk reduction practices and processes that benefit all.

Victoria Haynes BSc (Hons) MDS

Victoria is an early career human geographer with interests in climate change, disaster risk reduction, urban geography, and sustainability. Her past research has explored the intersections of climate change and urban development through analyses of planned estates in Western Sydney. Through her work, Victoria seeks to understand how climate change may affect those living in urban fringes, consider ways to improve liveability in a climate changed world, and to challenge structures that enhance vulnerability and limit resilience

Professor Dale Dominey-Howes BSc (Hons) PhD FGS FRGS

Dale is a Geographer with expertise in natural hazards and various aspects of disaster risk reduction and management policy and practice. He works at the interface between natural and human systems and considers ‘disasters in terms of coupled human-environment processes. He has, and continues, to work on a variety of hazard types, disaster events and projects across the globe. 

Dale has undertaken work for organisations including the United Nations, The World Bank, insurance and reinsurance companies, State and Federal government departments and risk/disaster management agencies. Dale is an ongoing advisor to State and Federal disaster and emergency service organisations’ and is Chairman of the United Nations UNESCO-IOC Post-disaster Policy and Protocols Working. Group.

The future workplace imperative

Claire Moran is a Director within Project Management & Building Consultancy at Knight Frank. She joined Knight Frank in 2011 and has over 13 years’ experience in the property industry specialising in workplace strategy and delivery. Claire has worked for clients such as Sandran, AMP Capital, Barclays Global Investors, Macquarie Bank, SMEC, Canon Australia, SAP Australia, Fujitsu, Nestlé, Vistaprint, Singtel Optus and Rabobank. Claire is a member of the Royal Institution of Chartered Surveyors (MRICS).

Why can’t I connect? The screen won’t present and I’m meant to be on in five minutes! I’ve spent an hour in traffic and all the desks are gone! I can’t find Jane, she said she’d be in. Sitting in front of that grey wall again. How does that bloke do it – rain or shine, he greets me with a smile.

Does the above sound familiar? As many question the need and purpose of the office and the future of ‘hybrid’ working as we embark upon our heightened and far more dynamic future, one thing is for sure – the increased importance of ‘the experience with work’ has never been more paramount for organisations.

In an ever more competitive landscape where we’ve seen the rise of the employee voice, providing a seamless experience with work is becoming a top priority. Why? Well, if everything works, those little touches are thought of and we’re not treated as a number, what will we give to that organisation? 200%. And not because we have to, but because we want to.

Whilst tech is and will continue to play a significant part in our overall experience with people and place, what underpins a truly great day at work is people and the human interactions and experiences.

Many years ago when I worked in Sydney, I got my coffee from the same café opposite the office. Every morning, along with hundreds of others. Why did I go there? Well it wasn’t because of the quality of coffee. It was because as I approached the counter my order was lovingly waiting for me at the perfect temperature, because I got ‘good morning Claire’ without fail, and because they actually asked, ‘how was the water this morning?’. Out of hundreds of people they served, they remembered the little things and what was important to me. I was a person, not a number. 

Now, I can shift the conversation here to the impact of the pandemic and its irreversible effects on shifting work patterns, how we use (or don’t use) the office and how organisations need to take it seriously. But I won’t, because we already know this is true and real.

However, the workplace has been and always will be somewhat valueless without a fully curated and layered experience consideration. As our worlds re-emerge though, our people are demanding more from their workplace platforms in order to give their vote. Why the office today but not home? Why Sydney and not Bowral? And more importantly, why you and not another company? If you think this is not real, ask any recruiter!

So, what does a great day look like? Let’s not just focus on what our office will look like, or what brand of PC we will give (both of which are equally important by the way), but let’s understand and provide the menu of places our people really want to be in and why. Where do they need to be and what’s their real purpose? 

Let’s explore technology that actually does what it needs to do and truly help us do great things. Enable us to find and book places and spaces we need right now and find the people we want to see today. Train us and re-train us.

Let’s consider how the buildings and precincts we select support the experience we are striving to provide for our people – are there places or spaces to offer choice outside our own space, are there running tracks, bike paths, places to work outdoors, food options that drive greater health outcomes, network and community events being offered to promote business activity and social interactions?

Let's celebrate and support diversity and focus on our social responsibility so we understand what it is we’re doing all this for!

The imperative today is to look at our places, technology, processes and policies, culture holistically, and immerse ourselves in the creation of a ‘great day’ to ensure business survival. This is not just for ourselves or our own workforce but for our clients, customers and neighbours. 

If we have learnt anything from the pandemic, it’s that people are our most valuable of assets and exceptional things are born out of adversity. We are ready for a future workplace that enables us to get pumped up for that ‘one pitch’; that brings out our creativity to deliver the impossible; supports our downtime, reflection and focus; but always remembers we are human.

Embrace the small things. The simple. The ones that transform a good day into a great one – those warm ‘hellos’ from a stranger, being a name and not a number, and perhaps even offer that splash of coffee served at my perfect temperature!

This article was originally published by Knight Frank. Read it here.

The Partnership opportunity for increasing social and affordable housing in Australia

Shaun Whittaker, Partner at Holding Redlich, has worked in the infrastructure and finance sector for 14 years and specializes in new economy transactions revolving around social and economic infrastructure, technology and impact investment. His recent experience includes advising on the delivery and funding of various social and affordable housing projects, built-to-rent projects, specialist disability accommodation projects, hospital and healthcare projects, childcare facilities and technology platforms integrating with these sectors.

Australia faces a number of challenges in its housing sector. Affordability is a constant concern in the capital cities, while many regional centres are suffering acute shortages of rental accommodation, making it more challenging to attract and retain a local workforce and capitalise on regional job opportunities. The COVID-19 pandemic has only accelerated these challenges due to heightened demand for property in the regions from city employees and also in the major cities with migration and wage growth stalling. As a result, policymakers and developers now face a testing time delivering housing stock that is both sufficient to meet demand and “fit for purpose” for the broader community.

Access to social and affordable housing is one area of particular concern, given increasing demand and a level of investment that, according to the National Housing Finance and Investment Corporation (NHFIC), falls short of overall household growth. The issue is gaining prominence at all levels of government and within communities. Among the factors of note is the impact on the infrastructure sector, in which investments with an emphasis on environmental, social, and governance issues (ESG) that also provide solid financial returns are highly prized.

Indeed, the natural alignment between ESG considerations and social or affordable housing provides opportunities for private-sector developers and investors in this emerging infrastructure asset class. Equally, there are opportunities for governments to leverage private-sector developers and investors attracted by the potential for long-term stable returns, but also looking for their portfolios to deliver positive social outcomes. This intersection of interests would seem a natural focus of collaboration for government, developers, housing providers, and investors through the use of partnership or alliance models, as we’ve recently seen with the initial phases of the Public Housing Renewal Program (PHRP) in Victoria and the Community Housing Redevelopment Program (CHRP) in New South Wales.

The funding gap

Social and affordable housing, by their nature, involve some level of subsidy—and therefore are made available at a discount to market—given that the housing is provided to people on low to moderate incomes. Broadly speaking, social housing is set out at up to 30 per cent of a tenant’s income, while affordable housing is set at no more than 75 per cent of market rent.

Invariably, then, this is an infrastructure class requiring some level of government support, whether financial or nonfinancial, to ensure economic viability. The support required mirrors many of the same supports provided in traditional infrastructure asset classes, including operational or tax subsidies; long-term concessional debt finance (such as that provided by the NHFIC); the grant of land at no cost, at a significant discount or on peppercorn lease terms; as well as expedited planning and project processes that facilitate “commercial” elements of a housing development (i.e., housing sold or rented at market values) cross-subsidising those social and affordable housing components which would otherwise be uneconomic in their own right.

One important mechanism that can be used to close this funding gap, and with which the infrastructure investment sector is quite familiar, is the payment of operating subsidies by the government to the private developer or operator, tied to various performance measures relating to use, operation, maintenance, and availability. This mechanism, and the provision of concessional debt finance from the NHFIC, were featured in the first housing package to reach financial close under the PHRP in Victoria.

The Public-Private Partnership opportunity

Under the recently announced first stage of the PHRP (project value of approximately AU$500 million), public-housing estates in several metropolitan Melbourne suburbs will be redeveloped, delivering some 745 social or rent-reduced units and 365 homes for private rent, replacing 445 outdated homes. The project is structured as a quasi-public-private partnership (PPP) and involves an innovative ground-lease model with nominal rent and periodic service payments from Homes Victoria for the ongoing operation and maintenance of the residences by the project proponent during the 40-year lease term. At the end of the lease, the land and houses will be handed back to Homes Victoria.

A first for Australia, the project demonstrates the potential for partnership or alliance models, such as PPPs, to drive the delivery of social and affordable housing and the opportunities as an investment model for infrastructure funds looking to deploy capital for long-term returns while helping deliver positive social outcomes for the community.

What next?

For governments, these alliances represent a chance to leverage much-needed investment from the private sector, ensuring standards and responsibility for ongoing management and maintenance of community housing stock while retaining ownership of the asset in public hands—all at a time of low interest rates, strong investment appetite for infrastructure assets (and potentially significant foreign investment interest in Australian assets when pandemic travel and other restrictions are lifted), and an alignment of public, community, and business interests in ESG commitments. As a significant land holder, government could also look to “recycle” underused land assets through PPP structures while ensuring that they ultimately remain in government hands and are not privatised.

This article was originally published in the 2022 Edition of Australia's Best Lawyers.

Thematics in property investment

Adam is the co-founder of Forza Capital, a property funds management business that specialises in value added and opportunistic investments on behalf of high net worth investors. Over the 11 years of operation, Forza Capital has built an enviable reputation through delivering investor IRR’s (net of fees) on concluded transactions of over 23%.

Adam heads up the investment side of the business. Adam has a strong interest in governance, sustainability and philanthropy – he was the former Vice President of the Property Funds Association of Australia (PFA), founded its Sustainability Committee and is currently involved as a Committee Member of Gruppetto, a philanthropic sub-fund of the Australian Communities Foundation.

Thematics’ have been a key driver of property investment decisions of late. Whilst they can be important indicators of market direction, they can be often overemphasised and should be considered secondary to core investment fundamentals.

When markets become dysfunctional, there is often a ‘flight-to-quality’ effect where investors rotate to perceived safer asset classes. In comparison to equities which have seen unprecedented levels of volatility in the wake of COVID-19, it’s not difficult to see why real estate is attractive given the ‘bond-like’ steady income streams that are often secured by strong covenants and long-term leases.

Increasingly investors and fund managers have invested heavily in ‘thematics’ in search of these long term income streams. Some of these thematics include healthcare, certain industrial and logistics property as well as childcare, non-discretionary retail, service stations and hardware (Bunnings).

Broadly speaking the interest in these sectors is justified – the tenants themselves are specialised and have been buoyed by structural changes and demographic or economic tailwinds which have resulted in increased revenue and stronger balance sheets.  In many cases however, properties that have exposure to these thematics are being bought at very full prices where buyers are paying a premium for the tenants rather than the underlying assets.

Importantly, this can create significant downside risk for three key reasons:

1. Even if the tenants are specialised, often the properties themselves and the spaces they lease are not. One example of this is medical practices, which typically require fairly basic fit outs. Whilst the tenant fits the keenly sought after healthcare dynamic, there may be little preventing them from relocating to another nearby site at the end of a lease term. If considering a thematic property investment, one must ask - if the tenant underpins the value of the property, what are the barriers to them leaving?

2. It is important not to overpay for thematic-backed property. Whilst strong tenant performance may mean they are less likely to default, the landlord does not share in the profitability of the tenant’s business. In most cases, the only guaranteed return for landlords is the contracted rent.

3. Often where thematic are involved, a premium is paid for exposure. If the dynamics change, the resulting impact on capital value can be devastating. In 2019, the Charter Hall Long WALE REIT held the Virgin Australia HQ office in Bowen Hills Brisbane at a value of $95.5 million – a price driven by an apparently blue chip lease covenant. When Virgin announced they were vacating despite having more than 6 years remaining on their lease, the property was revalued at $52.5 million – a staggering 45% write down, with the fall in value far greater than the 6 years of lost income under the lease.

 The alternative to buying the tenant is to start by analysing the fundamental value drivers of an asset. Rates per square metre of land and building area are good places to start, and all considerations relating to the leases and tenants are secondary.

By focusing on these key attributes, it facilitates a defensive investment position whereby the property value is less dependent on specific tenants or lease covenants. This is what really constitutes ‘buying well’, which is how the best investment strategies begin. Buying well is also important in attracting and retaining tenants because it creates a competitive advantage by enabling lower rents (for the same investment return as the competition) while providing attractive leasing spaces via new fit outs, new EOT facilities or new amenities.

 It is also preference that any investment has a multiplicity of uses. The first reason is that it is easier to attract tenants. Niche tenants can be harder to find and secure, and being able to appeal to a greater market of replacement tenants fundamentally reduces the risk of the investment position. Assets with a range of uses are more resilient to structural change and can also provide greater flexibility to pursue alternate or higher and better use outcomes, adaptive reuse options, or repurposing of unused space for value creation and alternate exit strategies.

Whilst interest rates appear to have bottomed out and are now trending sideways, yields in many sectors have tightened. In addition to cheap credit, the sheer weight of global capital willing to accept low returns for getting exposure to the Australian property market makes it increasingly difficult to generate compelling, risk-adjusted returns.

Furthermore, over the last few years, bullish investors, local and overseas alike, have been rewarded as marginal deals have turned into windfalls as property has traded at sharper and sharper yields. This has conditioned the market and further reinforced the notion that the only direction for property is up.  

While the argument can be made that there may still be room for further cap rate compression, our view is that this should be the ‘blue sky’. It can be dangerous to use hope-based strategies that rely on assumptions outside ones control to generate returns.

Regardless, the aggregate of these trends is that, in many cases, properties are traded above their fundamental, or ‘sum of the parts’, valuations. This means it is increasingly difficult to buy well, and it is necessary to actively drive value creation and work to manufacture upside in order to reduce downside risk and generate investment outperformance.

It is often said that investing is simple but not easy, and this is as true in property as any sector. To focus on capital preservation, one must determine value and the pricing of risk, both which can be skewed by overemphasising thematics.

It’s not that thematics aren’t important - it’s simply a case of ensuring that a significant premium is not paid for exposure to such thematics. 

Optimistic outlook for Melbourne's residential property market

In his role of Managing Director CBRE Residential Projects, Andrew is currently managing a number of Melbourne’s highest profile off the plan residential projects with a number of large listed domestic developer clients as well as some of Asia’s largest residential developers from Singapore, Malaysia and mainland China. Andrew is an industry leading, highly capable and hard-working professional that established the Residential Projects business line for CBRE in Victoria in 2010.

Six lockdowns, state and international border closures, spikes in vacancy rates, and increased property taxes have made for an eventful year for Melbourne’s residential property industry.

However, off the back of a bleak 2020 and ongoing lockdowns, we have had an encouraging start to 2021 with strong transactions of townhouses and house and land products. Early predictions suggest that market sentiment will remain positive for the remainder of 2021, following an acceptance that COVID-19 is here for the foreseeable future.

Restored buyer confidence to make decisions and seek out housing investment options over a volatile share market is good news for Victoria, with median house prices ticking over the $1 million mark.

It’s expected that interest rates will remain low due to the current lockdowns and continue to drive record housing price growth.

In tandem, strong downsizer demand is driving sales of high-end, owner-occupier products to local buyers purchasing off-the-plan, who are prepared to wait for completion to secure higher sale prices from their family home sale.

However, investors have left a big hole in the medium-to-high density apartment market, with sales numbers significantly lower than what we have seen in the past.

This has been exacerbated by border closures, which have prevented international students entering Australia and, while interest rates remain at an all-time low, lending criteria is tough.

That said, the gap between apartment and house prices has become so wide that savvy local investors will be anticipating apartment price growth soon.

House and land sales are very strong thanks to occupiers and first home buyers, particularly for property within 20 kilometres of the Melbourne CBD, which is close to public transport. Developers have very specific mandates and need sites to be large enough, with favourable planning policies to achieve their required yields.

If we rewind to the end of 2020, deepened Government home buyer and builder grants as well as stamp duty exceptions encouraged young couples to enter the property market. The trend we are now seeing is first-time buyers driving demand for house and land packages, with a supply and demand imbalance and incentives to assist the purchasing decision, making these attractive projects for developers.

The State Government subsequently announced increases to stamp duty and land tax in May, which led to an initial rush in transactional activity. However, since June 30, the stamp duty increase doesn’t appear to be much of a consideration in buyer decisions and developers have accepted that this is the new playing field and are moving forward.

On the apartment front, Melbourne’s middle ring suburbs remain attractive for apartment, but they are purely for a build-to-hold model as developers are confident in those rental markets.

However, developers are also targeting locations where products are selling well. Our data highlights that 80% of all residential housing site transactions settled across Victoria over the past 12 months have occurred within the outer metropolitan areas, such as Cranbourne or outer growth areas such as Officer and Truganina, but also in regional Victoria, mainly some of the peninsula locations.

While location is important, today’s buyers are keeping developers on their toes and placing more importance on the orientation of apartments – specifically the design of bedrooms, kitchens, and family rooms. The projects in good locations that consider this will find buyers.

Notwithstanding these positive signs, market conditions in the apartment sector are still challenging for developers.

Decisions on how to move an unprecedented overhang of unsold stock is forcing some developers to sell these apartments at a significant discount and while there is potential to pivot to a longer term, build-to-rent model this does have GST implications. Residual stock can be a significant pain-point, with nearly every Melbourne project that’s settled in the past two years having unsold or unsettled product.

Furthermore, material supply delays have increased the overall cost of construction. Buyers are the only winners with fixed-cost building prices keeping their budgets under control.

There has also been a significant shift in capital lending over the past few years which is changing the way private developers fund their projects. This has been driven by a decrease in bank-lending which has led some developers to source finance from non-bank lenders.

But, despite capital constraints, development pitfalls, lack of high-density apartment investors and the current lockdowns, we are confident in the residential property market in Victoria.

What 2022 has in store is still unclear, but our current view is that interest rates will remain low, which will help drive the housing market.

We also remain optimistic that the vaccination will be effective, allowing our borders to reopen and the return of immigration and international students to reinvigorate the high-rise apartment market. However, it may not be until 2023 that developers reap the rewards.

Is the housing market decelerating? – Paul Abrahams

Paul is a co-founder and director of Debuilt Property. Paul has extensive experience in construction, project management, development management and asset management.

What is the current outlook of the housing market?

Australia’s house prices have increased a further 1.6% in July which takes national house prices 14.1% higher than they were at the beginning of 2021 and 16.1% higher than they were a year ago.

However, there are possible indications that the supercharged property market is losing steam.

The monthly rate of growth has been on the decline since March, when prices rose 2.8%.

(CoreLogic, 2021)

Lending

ABS data confirms that home loan commitments fell 1.6% in June (seasonally adjusted), indicating a slight deceleration. The small decline follows a period of rapid growth from Jul 2020 to Feb 2021 in which the value of new loan commitments rose by 150%. This would seem to indicate that the booming home loan market may have peaked after a year long climb where loan commitments hit record highs and lifted almost $10 billion a month above pre-pandemic levels. 

The ABS statistics also revealed that during June, owner occupier loan commitments fell by 2.5%, the largest fall seen since May 2020. Despite the easing of growth, owner occupier commitments remained 76% higher compared to a year ago and 64% higher than pre-Covid-19 in Feb 2020.

A large contributor of the reduction in loan commitments by owner occupiers was a 17% fall in commitments for construction of new dwellings, likely due to the winding down of the HomeBuilder program which ended in April. In addition to this, there was no growth in lending for the purchase of existing dwellings.

The reduction in uptake of loan commitments has also been attributed to economic sentiment being strained as numerous States go in and out of lockdown. With Sydney, the biggest contributor to new loan commitments, in an extended lockdown, there could be an even greater cause for economic concern.

These figures demonstrate that whilst the property market remains strong, there has been a slowdown in growth.

With interest rates being held at a record low for the foreseeable future, it could be predicted that such cheap debt would continue to prop up demand. However, despite low rates previously being a key factor in demand, worsening affordability has diminished people’s capability to purchase. With housing values having risen significantly faster than incomes, it is taking prospective buyers longer to save for a deposit and a larger portion of their income to do so.

Dwelling approvals

For a third consecutive month the number of dwelling approvals fell, with June recording a 6.7% decrease. The fall in the total number of dwellings approved in June was driven by an 11.8% fall in private sector houses after they reached a record high in April. Attached housing approvals however grew by 4%.

By state, the number of dwelling approvals fell in Western Australia (-30.5%), Queensland (-18.4%), Tasmania (-14.9%) and New South Wales (-12.7%). Dwelling approvals rose in Victoria (12.8%) and South Australia (8.6%).

The fading effect of HomeBuilder will mean that house approval numbers will continue to ease.  Labour and material shortages are also likely to detrimentally impact construction of new homes.

Therefore, with less housing coming on to the market due to a reduction in approvals and longer construction periods, an undersupply of housing is likely to contribute to maintaining house price growth.

Growth – but how much?

While many factors affect property values, key drivers of growth include supply and demand ratios, interest rates and consumer confidence. With the RBA seemingly unlikely to change its historically low interest rates until 2024, with many people seeming more positive about Australia’s economic outlook post vaccine, and with some supply challenges, it is likely that house prices will still continue to rise.

The growth that we have seen over the past 12 months was unpredicted and unprecedented, causing shock to many in the industry. Fiscal and monetary policy helped sustain the economy and house prices skyrocketed.

However, it appears that the bull run market might be tapering off which in turn will lead to a stabilisation of house values.

If we look forward:

• The government is unlikely to fund another HomeBuilder.

• There is increased nervousness due to repeated lockdowns combined with the lack of government safety nets previously in place such as JobKeeper.

• The recommencement of immigration due to border restrictions seems to be a long way off, consequently reducing the likelihood of a wave of demand for new housing over the next few years.

• Increasingly tighter lending standards.

The current outlook is that the market is expected to remain firm, being supported by low interest rates, government support and steady demand. However, the growth is unlikely to continue at the aggressive pace we have seen over the past 12 months. Despite it being a turbulent 18 months, our economy has proven resilient, and it is unlikely that we will be falling off the ‘fiscal cliff’.  However, the softening of the rapidly rising house prices we have seen is a good indication that trends are normalizing.

Windfall Gains Tax - how might it look? – Michael Taylor-Sands, Partner Maddocks

Michael advises on property development transactions and joint ventures, structuring of acquisitions, divestments and commercial transactions.  He has extensive experience advising residential and commercial property developers in connection with income tax, stamp duty, GST, land tax and GAIC, as they impact land procurement structures.  

He is a current committee member for UDIA and PCA.   

As unpalatable as a Windfall Gains Tax (WGT) might be for the development industry, the Victorian State Government has remained steadfast in its commitment to the new tax since first announcement on 20 May 2021.

Accepting the inevitability of the new tax, discussion in industry circles has started to shift towards what the new tax might look like when it is introduced. The WGT did not form part of the State Taxation and Mental Health Acts Amendment Bill 2021 enacted on 8 June 2021 to implement other 2021/22 State Budget measures. The Government subsequently confirmed that separate legislation will appear in September 2021 to shape the new WGT. Until then, amidst growing market uncertainty, it is timely to ask what might the WGT look like when it commences on 1 July 2022?

Some of the issues we think government will need to consider in the design and implementation of the new WGT are discussed below.

Land captured – details so far around what land the new WGT will apply to are scant. Government has confirmed that it will not apply to land already subject to growth areas infrastructure contribution (GAIC). Given that not all land in the urban growth boundary (UGB) is subject to GAIC, that should not however be taken as an indication that the WGT will not apply to land within the UGB. Land outside the UGB, in so-called ‘regional areas’, is very likely to be affected by the new tax. Similarly, land in and around greater Melbourne, including Melbourne’s CBD, is almost certain to be affected. In announcing (and rationalising) the new tax, government used the example of Fisherman’s Bend. Such an example provides a fairly good indication that the government has land within metropolitan Melbourne in its sights. Government has also failed to rule out regional areas in response to growing market speculation that the new tax will apply Victoria-wide.

Rezone event – the trigger for the new tax will be a rezone event. At this stage we don’t known what a ‘rezone event’ will be, but we do have some indication as to what it won’t be. A rezone event will be linked to the Victorian Planning Provisions and will apply to rezoning between zone types rather than between zone sub-categories. Rezonings to Public Land Zones will be specifically exempt, as will rezonings to and from the urban growth zone (UGZ) within the GAIC area. Given the complexities of Victoria’s Planning Provisions, we expect government will need to invest a considerable amount of time and effort in clearly defining what a rezone event is, and what exceptions might apply in special circumstances.

Calculation of windfall and tax rate – the Government has already said that the new tax will only apply to rezoning decisions that generate a ‘significant value uplift’ and significant means at least $100,000. For rezoning decisions that generate value uplift of between $100,000 and $499,999, 62.5% of the uplift will be paid as WGT. For rezoning decisions that generate value uplift of $500,000 or greater, 50% of the uplift will be lost to WGT. The ‘uplift’ (and therefore windfall) that will be taxed will be the difference between the value of the land before and after it is rezoned, as determined by the Valuer-General Victoria (VGV). It is not clear however what ‘value’ will be used - unencumbered market value, capital improved value or site value are all candidates. It is also unclear at what point in time the ‘before’ value will be assessed. The most likely assumption is that it will be the VGV’s valuation that is in force immediately before the rezoning event. Given how controversial land tax valuations have become in recent years, one imagines that value determination will feature as a key part of the new legislation, and the Government will be keen to limit the ability of landowners to contest VGV valuations as much as possible.

Who is liable – it is difficult to see how it could be anyone other than the landowner at the time of the rezoning decision that will be liable for the new tax. In press releases issued at the time of announcement the Government specifically referenced ‘speculators’ and ‘developers’ as the main beneficiaries of zoning windfalls. However what gets spun to the media and what ends up being included in functional legislation are often two different things. We would therefore be very surprised if government came up with a legislative model that didn’t tax all landowners, including farmers, and didn’t attach the tax liability to the land in a similar manner to GAIC.

When payable – recognising that value uplift created from a rezoning event may not be realised for several years after the rezoning decision that triggers the tax, the Government has foreshadowed a deferred payment regime similar to that which currently applies to GAIC. A landowner will therefore have the option to pay WGT at the time of the rezone decision, or defer paying the liability (probably via election) until the next dutiable transaction or subdivision of the land. Contemplation of such a deferred payment regime is no surprise. After all, banks don’t lend to pay tax. However, drawing inspiration from GAIC, a regime which the Government has never liked, is somewhat confounding and will no doubt introduce a layer of complexity into the payment and collection of WGT that GAIC is renowned for.

Underpinning the GAIC deferred payment model is the principle that tax payment is best aligned with revenue generation. If that principle is carried through to WGT, then we should see concepts such as Staged Payment Arrangements (SPA), Work in Kind Agreements (WIK), and interest payable on deferred tax in the new WGT legislation. Those concepts are already familiar to developers who transact land in Melbourne’s growth corridors, and are readily transferrable to WGT as it will apply to broadacre land.

It is less clear however how a deferred payment regime will apply in the built-form space. For a residential townhouse project for example, the subdivision event will generally occur once, at the back end of the project, when strata titles are registered in the weeks preceding settlement of pre-sold stock. It is difficult to see how government will wait until strata title registration before being paid any part of its WGT. An alternative (earlier) event is therefore likely to be looked for when dealing with built-form projects. When open space contributions are paid council releases the plan of subdivision into SPEAR in a similar manner to what occurs at Statement of Compliance (SoC) on a stage for a land project. There would therefore be some logic (and consistency) in pegging payment of the first 30% of WGT to payment of built-form open space contributions. Earlier events could be when the building permit is issued by the building surveyor or when construction commences. However, neither of those events have an objective council process to them.

To simplify the legislation and expedite revenue collection the Government may be tempted to not offer a staged payment model and just front-end 100% of the new tax. Staging is however fundamental to the revenue alignment principle mentioned earlier. Government would therefore have to come up with an entirely new payment structure which is as equally equitable and practical as staging if it wanted to move away from the GAIC staging model.

If a ‘dutiable transaction’ is a further payment trigger, then consistent with what we already have for GAIC, the following transactions will all trigger the payment of WGT (over and above settlement of an ordinary contract of sale):

• a declaration of trust over WGT land;

• the granting of a long-term lease over land with a premium;

• any change in beneficial ownership in land (wholly or in part); or

• a transfer of 50% or more, or 20% or more, of the shares/units in a company/unit trust that holds WGT-pregnant land.

Land under Contract – as was the case for GAIC, transitional rules will be needed to deal with land already under Contract either before the 1 July 2022 commencement date, or before the 20 May 2021 budget announcement date. In practice, prior to the 20 May 2021 announcement date, prices would have been struck for sites without any allowance for WGT. It can therefore only be fair that such sites are not subject to WGT despite a post-1 July 2022 rezoning decision. This fairness argument is less compelling for sites that go to contract after the announcement date.

However, when it is considered that until Sept 2021 (when the draft legislation is proposed to be released) landowners and developers will only have had the barest of details around what the WGT will look like and how it will operate, it would also not be unreasonable for land subject to contracts entered into between the announcement date and date of release of the draft legislation to also be exempted from WGT.

That then leaves contracts entered into between the date of release of the draft legislation and the 1 July 2022 commencement date. As a rule tax legislation should not apply retrospectively. However, even at a federal level where such rules tend to be adhered to more strictly, there are examples of transitional rules being linked to the date of release of draft legislation. Accordingly, don’t be surprised if WGT is enacted to apply to rezoning decisions made after 1 July 2022 in connection with land put under contract before that date.

Land under option – similar timing concepts as those which should apply to land under contract should apply to land under option. The pricing of land agreed to under an option prior to the announcement date will not reflect WGT. It can therefore hardly be fair to landowner or developer if WGT is retrospectively applied to such land. From the announcement date the principles become less clear. However, consistent with the treatment of land under contract, it would be fair and reasonable for land the subject of an option entered into before Sept 2021 to not be subject to WGT.

Land under Development Agreement (DA) – the treatment of DAs entered into before Sept 2021 should align with the treatment of contracts and options. As with a contract or option, the landowner and developer will have agreed to a pricing mechanism and payment model without reflecting WGT. It is therefore only fair and reasonable that land the subject of pre-September 2021 DAs is not subject to WGT.

Entry into a Development Agreement that triggers the Economic Entitlement Rules in Part 4B of Chapter 2 of the Duties Act 2000 is not a GAIC event. Application of an equivalent rule to WGT therefore also seems both logical and reasonable.

Landholder Rule interaction – given that the transfer of 50% or more of the shares in company, or 20% or more of the units in a unit trust, that holds GAIC-pregnant land triggers a GAIC event, it seems logical (and likely) that under the new WGT regime equivalent ‘relevant acquisitions’ (for the purposes of Part 2 of Chapter 3 of the Duties Act 2000) will trigger a requirement to pay a WGT liability crystallised in connection with an earlier rezoning decision.

Collection and Expenditure Nexus – despite the strong linkage drawn between the imposition of WGT and the funding of future public infrastructure, nothing has been said by government on whether WGT collected in a rezoned precinct will necessarily be spent on infrastructure constructed in that precinct. If GAIC is any guide, government will resist any such nexus. The closest GAIC comes to creating a nexus between GAIC collected and GAIC spent is a WIK Agreement. Despite the optimism when WIKs were retrofitted into the GAIC legislation in 2011, few in the market (and possibly government) would be brave enough to suggest that the WIK regime has been a roaring success. Accordingly, don’t be surprised if not only is there no nexus concept linking WGT collected with WGT spent, but also no concept of WIK Agreements as an alternative model under which a landowner or developer can pay WGT.

In closing

It will be extremely difficult over the next few months for Developers to enter into transactions in respect of property that is expected to be rezoned after 1 July 2022. It is therefore critical that government releases details on the structure and operation of the new WGT as soon as possible.

In order to be a good tax, the WGT needs to be equitable, efficient and administrable. As set out, some challenges lie ahead for the State Government in designing the new tax so those policy objectives are achieved. Basing the new tax on GAIC may work. However, let’s hope the Government engages in genuine industry consultation in the design and implementation of the new tax to help ensure WTG can be the best tax it can be.

‘Die of cold or die of stress?’: Social housing is frequently colder than global health guidelines

Daniel Daly is a research fellow at the Sustainable Buildings Research Centre. His work focusses on the challenge of improving the energy performance and sustainability of our building stock, through the provision of robust evidence-based research and recommendations. Daniel is expert in the field of energy efficiency for existing buildings, and has a passion for multi-disciplinary research, research with impact beyond academia, and research that improves people lives. 

As you huddle inside this winter – possibly as part of a pandemic lockdown – you might be noticing the “thermal performance” of your home. In other words, does your home maintain a comfortable temperature inside, despite cold conditions outside?

If you’re a social housing tenant in New South Wales, the answer may well be no. Our new research examined the relationship between energy consumption and thermal performance in 42 social housing dwellings. We found many homes operated outside the healthy temperature recommendations of the World Health Organisation (WHO) for substantial periods, particularly during winter.

Our research also found many social housing tenants were effectively being forced to choose between keeping their home at a healthy temperature through cooling and heating, and keeping their energy bills manageable. As one tenant told us:

I put the heater on the other night for 20 minutes — it didn’t do much. But the whole time it was on I was freaking about the cost. No good — die of cold or die of stress, take your pick.

The dangers of energy inefficiency

Social housing often brings together low-income households and poor quality building stock.

In Australia, more than one million people live in housing in poor condition – 100,000 of them in very poor or derelict housing.

Yet, little is known about the internal temperatures in social housing, or how tenants experience seasonal temperature change. Our research represents one step to address this knowledge gap.

Exposure to temperatures that are too high or too low has been linked to an increased risk of cardiovascular and respiratory illnesses and other conditions, which can lead to death.

Energy inefficient homes are blamed in part for higher winter death rates in Australia than other much colder nations, such as Sweden. Conversely, research has shown the health benefits of retrofitting housing to improve winter warmth.

Measures to make an existing home more energy efficient include:

• insulating the ceiling, and potentially the walls and underfloor

• sealing gaps and draught-proofing

• installing ceiling fans

• improving the efficiency of heating and cooling systems

• installing efficient hot water systems

• improving windows with shading, heavy curtains or double glazing.

Our findings

Social housing is provided by government, not-for-profit or private organisations, to tenants who are often vulnerable and marginalised.

We examined the thermal performance of 42 social housing properties in NSW between March 2017 and September 2019. Our study included energy audits monitoring of electrical energy and indoor conditions, and interviews with tenants.

We found substantial under-heating in many of the properties. According to the WHO, the minimum temperature for healthy homes is 18℃. But one-quarter of properties recorded winter temperatures below this for more than 80% of winter. More than half were below 18℃ for more than half of winter.

The problem of overheating in summer was less widespread, but still a significant issue in some homes.

Some households consumed higher-than-average levels of energy despite their low incomes (even after correcting for family size and location) while others used far less than average.

High household energy use was predominately associated with air conditioning use in hot summer climates. In most of these cases, tenants had installed window air-conditioning units with extremely low energy efficiency.

Tenants regularly reported having to forgo thermal comfort to manage their energy bills. To keep power bills down, they also spoke of relinquishing essentials such as daily showers, cooked dinners, night lighting and watching television.

What can be done?

The homes in our study subsequently received energy efficiency upgrades, funded by the housing provider and the NSW government. The social housing sector, while operating on tight budgets, is an innovator when it comes to retrofitting existing buildings.

In Australia, social housing upgrade programs typically focus on improving heating, cooling and hot water systems, and in some cases adding solar. This is largely because such upgrades are simple and rooftop solar costs are falling.

However, energy efficiency experts generally say improvements to the building fabric, such as installing insulation and sealing draughts, should be carried out before services to the home are upgraded.

This approach generally requires on-ground assessment of each property and can be difficult and costly to roll out on a large scale. This is a major challenge for housing providers with constrained budgets, and who are often under pressure to deliver new housing.

But building fabric upgrades are long-lasting, don’t increase maintenance costs and deliver benefits regardless of a tenant’s heating and cooling practices.

One social housing tenant told us of the benefits of such upgrades:

[Before the upgrade] I’d have my heater on, say, from half past four of an afternoon ‘til half past eleven, you just would not turn it off. [Since the upgrade] I turn it on at half past four, it’s coming off at about seven o'clock and I don’t need to turn it back on.

While our study involved a small sample size, it provided new empirical evidence of the need for substantial new investment to continue to upgrade the energy performance of our social housing stock. Such upgrades will help reduce energy costs for tenants and enhance their health and well-being.

It would also reduce greenhouse gas emissions, increase resilience to climate change and provide jobs and economic stimulus during the pandemic and beyond.

This article was first published in The Conversation. Access it here…

Property: A Place At The Table or the Whole Table? – Victoria Lindores

Victoria is a Partner at Koda Capital. She delivers investment portfolio and strategic financial planning advice to a wide range of clients with an anti-jargon and no fuss approach. Focusing on a pragmatic approach to allow clients to make informed decisions about their future, she works hard to make complex financial decisions accessible for those that need it to be. Throughout almost 20 years in delivering personalised advice, Victoria always tries to bring joy and real life to all stages of the process. With an extensive knowledge in responsible and ethical investments, Victoria believes in the power of capital to do good.

“It’s an investment.” said the man in the caravan park.

“It’ll never go down in value.”

 He’s right. A perfect condition Torana is scarce, and demand has been driven by cashed-up boomers with a reminiscent streak. He will never sell, because you should never sell something that will never go down in value. Right? 

Firstly, unexpected things happen all the time. With all his life savings in one garage, what does he do then?

Secondly, an investment should always meet your objectives. Going back to the Torana owner, I bet he could have done with some income or being able to chip away at the capital growth. But this investment was giving him neither.

Thirdly, when an investor focuses solely on one asset in which they have expertise or interest, they are likely to miss many more.

Backing a winner more often

There are four key questions to ask when making an asset allocation decision:

• What is the capital return I need to meet my goals?

• What is the income I need?

• How liquid does it need to be?

• How far away can reality be before I am disappointed? That is, risk tolerance.

The most effective method of reducing risk is to maintain a portfolio that has the greatest probability of performing to your objectives, when combined with the benefit of time. A well-diversified portfolio will have a high probability of an acceptable return – the middle of the bell curve.[1] Diversification can be across asset classes, industries, geographies, capital structure, and managers (idea generators).

Importantly, the drivers of return and risk should be as uncorrelated as possible.

Whereas, a portfolio of concentrated bets will have equal probabilities of a fantastic return and of a terrible one – the tails of the normal distribution. [2] A recent CFA Institute study found that “peak diversification” was between 15 and 30 shares, depending on the style bias. [3] As few Australian property investors can boast that kind of portfolio – diversified across geographies and sectors – they are likely to be highly concentrated and inherently risky.  

To increase the chances of success in building and protecting wealth over the long term, property investors should carefully consider their level of risk and compare it with their return expectations, income objectives and liquidity needs.

Using the same philosophy for success

The property market rests on scarcity. Economic scarcity being the intersection of supply and demand (or desire). Psychological scarcity is used in sales promotion. That is, how easily an opportunity can be lost or became unobtainable the more attractive it becomes and the higher price it demands.

Of course, property also offers utility. You can live in a house and you can run your business from a factory, shop or office. However, individual investor utility diminishes as the portfolio grows in number.

Effectively, success in property relies heavily on finding a niche for which buyers (at some point in the future) will pay a premium. It is this uniqueness – along with property’s inherent illiquidity and high transaction costs that works to insulate good property in bad times. 

The scarcity premium model for selecting investments can also be utilised in small company investing and alternatives, and in these asset classes the drivers of both risk and return should be diversified from your property portfolio.

Meeting your objectives, objectively

“If you fail to plan, you’re planning to fail.”

Benjamin Franklin has it all wrong. Jennifer Aniston has it right.

“I always say don’t make plans, make options.”

Any good investment portfolio should deliver you with a set of options. Admittedly, when you have good debt serviceability from other sources, liquidity and yield don’t seem as important as capital growth. If you can take on higher risk, aggressive equity-building strategies like development make sense.

However, as you start to rely on your capital to meet your expenses or have less time to recover from bad timing, having options will be of greater importance. That is, the option to move capital quickly to meet market opportunities and risks, the option to create higher income or the option to sell parts of an investment (divisibility).

Many long-term investors in Australian property are at risk of retiring as asset rich and income poor, with maintenance costs, illiquidity, and indivisibility of their property holdings presenting a real risk to retirement plans. They always thought the property portfolio would meet all their needs in retirement, so never put anything else anywhere else.

Property developers are managing a business, reinvesting earnings into new projects and hanging their hats on the idea that the few projects before retirement will deliver the capital needed to seed a healthy superannuation fund. Yet, the danger is they have a handful of very similar assets to sell.

Objectives-based asset allocation will give investors a diversified set of options when they need it.

Valuing expertise

When you invest for greater liquidity, you are likely to experience greater price volatility. At least this is how you will perceive any investment that is priced more often than a property is valued. However, if you are a true long-term investor (and you should be if you are in property!), then the additional volatility should be outweighed by the benefits of being able to move in and out of positions over the medium term.

While expertise is important when considering asset allocation and investments, lack of expertise should not result in exclusion.  A good adviser will research, inspect and negotiate terms on new investment opportunities, thereby opening your investment universe to a wider set of options. They should balance your existing property portfolio and its risk/return drivers with that of new diversified options as well as guide you through market turbulence.

Every asset class – cash, bonds, credit, property, equity and alternatives – has a position in building wealth. How much comes down to the investor, what they want and (too often overlooked) what they actually need. And of course, this changes with time.

[1] https://www.investopedia.com/terms/b/bell-curve.asp

[2] https://www.investopedia.com/terms/b/bell-curve.asp

[3] https://blogs.cfainstitute.org/investor/2021/05/06/peak-diversification-how-many-stocks-best-diversify-an-equity-portfolio/

Back to the future: What the next 40 years of housing looks like

Paul is a co-founder and director of Debuilt Property. Paul has extensive experience in construction, project management, development management and asset management.

On Monday 28th June, the Treasury published the latest Intergenerational Report (IGR) – a document which attempts to forecast the state of the budget over the next 40 years. Significantly the report’s opening paragraph states that the outlook has been severely impacted by COVID, ‘which has caused the most severe global economic shock since the Great Depression’.   

The IGR revealed that the Australian economy suffered dramatically and will take years to recover. Despite emerging from recession quickly, the economy is forecast to grow by 2.6% each year for the next 40 years, well below the current 3% average.  

The economy’s 3P’s – population, participation and productivity – were the focus of the IGR. Population growth, or the lack thereof, is a particular driver of the economic slowdown. 

In 2020, Australia’s population dropped by 0.014% from June to December. In the same period, Victoria’s population dropped 0.52%, the largest decline of all the states.  

The IGR indicates that Australia’s population is expected to hit 38.8 million in 2060, significantly lower than the 44 million previously forecast. Ageing also reduces participation rates in the long term.

JP Morgan analysis indicates that Australia’s working age population is already about 300,000 less than the pre-Covid trajectory. This will compound over the coming years.  

Since border closures, Australia has lost its largest contributor to the nation’s finances – skilled migrants. This cohort is also younger than the average Australian which helps balance the ageing population. The return of immigration could add $260bn to the economy in the next 40 years. 

What about the property market? 

For now, much of the property market is booming. 

Australia is currently experiencing a surge in supply of homes since mid-2020 due in part to the HomeBuilder stimulus and low interest rates. The housing pipeline is full and is showing few signs of slowing. Building construction rose 2.5% in the March quarter across the nation.  

However, the IGR paints a dreary picture for the future of the sector.  

Under the IGR’s forecasting, housing undersupply, which is one of the main drivers of our decades-long property boom, will probably reverse during the next forecast period. This is bad news for property owners and investors and will be a blow for developers and builders. According to Shane Oliver, chief economist at AMP Capital, the sector will likely evolve into a saturated, and more affordable, market opportunity for first-home buyers.  

In reflecting on the IGR, Shane Oliver told the AFR that if migration levels return to pre-pandemic levels by 2024-25, and do not make up for lost ground through the pandemic, our population will be nearly one million smaller than previously assumed. He expects this will create a net loss in demand for homes of around 350,000 over five years compared to pre-COVID expectations.  

However, not all property professionals have faith in the IGR’s forecasting. And migration and population are not the only drivers of the housing market’s success.  

Chris Richardson, a partner at Deloitte Access Economics, criticised the IGR’s underlying assumptions about the size of potential rate rises. He believes that the weaker economy and wage growth will keep the cash rate low and house prices higher.  

Andrew Wilson, chief economist at My Housing Market, is seeing investor preferences changing, with demand for bigger townhouses increasing and shifting away from high-rise developments. He believes this indicates a change in investor circumstances and could suggest that the past is not an accurate guide to future events.  

What is the overall takeaway? 

It would be foolish to disregard the IGR – it is, after all, the Treasury’s job to make accurate economic predictions. It is obvious that population growth has been temporarily stalled, and it is hard to deny that this will negatively impact housing in some capacity. The symbiosis between Australia’s economy and the property market’s success cannot be ignored. 

Regardless, an optimist would assess the forecasts differently and focus on more resilient modelling.  

At the height of the pandemic, Australia’s economy was depressed and set to crumble – banks were predicting 20% falls in house prices and unemployment was expected to skyrocket. But we managed to adapt and recover. We have since seen unprecedented house price growth and the ASX has hit records time again.  

In Josh Frydenberg’s speech last week he emphasised that the IGR is ‘not a guarantee of what will be, but an insight into what could be’. Importantly he noted that the purpose of the IGR was to inform and educate, and therefore provide a guide for future policy decisions. 

Whilst leadership from government through the implementation of policy and support to alleviate the potential impact of lower migration is anticipated, the resilience of the property industry should not be underestimated. 

With the IGR providing information and a roadmap, the industry will monitor the ‘actual against forecast’ and will react and adapt as it has did through COVID and other economic challenges. 

How our housing can make it feel like a Russian winter – Dr Chris Jensen

Chris joined the faculty from industry bringing extensive experience as a sustainability consultant on a wide range of projects including commercial greenstar rated office buildings to energy modelling in Antarctica. His research interests are focused on the impact of solar, daylight and shading of facades and the opportunities for sustainable construction, often with reference to european trends and systems.

Australia’s housing just isn’t good enough when it comes to dealing with winter temperatures – we need to take lessons from the Northern Hemisphere.

There are a lot of things to love about Melbourne, but the changing weather isn’t always one of them.

Unlike the majority of Australia, which is dominated by sunshine and heat, anywhere south of the 35th parallel, including Melbourne in Victoria and Hobart in Tasmania, is at the mercy of the southern ocean’s weather patterns that deliver Antarctic blasts and cliff-like plunges in temperature.

The Southern Ocean can deliver big drops in temperature during winter in places like Hobart and Melbourne. Picture: Getty Images

For people new to Australia, the sudden cold in a place otherwise known as the “sunburnt country” can be a shock – but the shock is less to do with the outside temperature and more to do with how it feels indoors.

“I’ve never been so cold in my life,” some will say, adding incredulously that “the windows only have one pane and there’s an inch-high gap under all of the doors”.

I don’t know where the term ‘glorified tent’ originated, but that is what many think of our Australian housing.

Perhaps the poor insulation of our cooler climate homes is the result of being on a continent dominated by warm weather, where airflow and big windows make sense. But whatever the reason, the reality is our housing performance lags behind most other comparable countries.

As far back as 2005, our research for the Australian Greenhouse Office showed that Australia’s then Five Star minimum standards were actually about Two Stars below the equivalent standards in the UK, US and Canada.

And Europe is miles ahead.

High performance standards like the Passivhaus (Passive House) Standard in Germany, Minergie in Switzerland and Réglementation Thermique 2012 in France, that have been around up to 30 years, aim to improve the design of houses and their passive temperature control, rather than relying on artificial heating and cooling.

In many cases, the winter performance of these buildings is now so high that the current problem they face is, in fact, overheating.

So, if you have a coffee-like addiction to your heater, it’s a pretty good indication that the house you live in isn’t designed to deal with the cold, unlike a Northern Hemisphere house that boasts thick insulation, tight air seals and high-performance glazing including double and even triple glazing.

Unless houses are well insulated and and sealed, the cosy feeling of the heater will only last for as long as it is on. Picture: Getty Images.

And while it is possible to achieve warmth with a big enough heating system, this is inefficient and expensive, and the pleasant comfort disappears as soon as the heater is off, leaving you with cold surfaces, cold draughts and a hankering for wearable doonas.

The more sensible option instead is to improve the performance of the building itself, with the goal of preventing heat loss through the building materials including through the window panes, door gaps, exhaust fans, fireplaces, down-lights and plumbing penetrations to name a few.

And passive design and construction principles work both ways – by making your house better insulated to keep in the heat during winter, you also make it more efficient at keeping cool during summer, especially if efforts are made to better shade windows and other glass areas.

Any new dwelling in Victoria (and most of Australia) is required to achieve a now minimum Six Star energy rating.

Despite the ongoing criticism that this minimum performance standard is too low and misleading, there is a significant difference between comfort in an older existing house that by comparison probably achieves Zero, One or Two Stars, and this new standard.

But it isn’t wise to rely on the Six Star minimum standard when having your new house built, as there is a lot more that can be done to ensure heat loss is minimised further.

If possible, request that the designer or builder identify what would be required to increase the star rating to Seven or Eight stars and investigate any additional requirements to achieve passive design measures, including meeting the Passive House standard, where heaters are only infrequently used.

Energy efficient housing standards in northern Europe are well ahead of Australian standards. Picture: Getty Images

And it’s not just about the design of the house, it’s also about the the construction’s quality and attention to detail that makes all the difference.

If you are renting, the chances are you won’t put a screw in a wall to hang a picture let alone make changes to the thermal properties of the building.

Fortunately, Victoria recently introduced the Rental Tenancies Act in 2021, which rules that all homes must have a fixed heater in the main living area by March 2021 (and a Two Star minimum heater by 2023). This is a clear indication of how poorly heated some rental houses have been up until now.

The installation of reverse cycle air-conditioning (as the new law requires from 2023) is far superior from an energy performance perspective compared to an old inefficient electric resistance heater like an oil one (as required from now) – but it won’t keep the house warm when it’s turned off.

The new law also prevents landlords from refusing requests from tenants to make minor changes to the property to improve winter performance.

Although still in trial phase, the Victorian Residential Energy Efficiency Scorecard is a new program in which an assessor can visit your house or rental and suggest upgrades to improve its performance.

An unfortunate side effect of sealing buildings to improve comfort in cold environments in an increase in indoor moisture which can lead to condensation and mould.

This is a very serious health problem that must be avoided. Common sources of excess moisture include showers, cooking and un-vented clothes dryers.

One way to ensure ventilation while keeping a house warm is to install a heat-recovery ventilator that draws in fresh air, warming it with the heat of the vented stale air.

Housing design and the quality of construction are important in making houses better able to regulate temperature. Picture: Getty Images

But there is no good reason why us Australians down south streaming our favourite shows during winter need feel colder than people doing the same in Helsinki or Tokyo.

It’s time to wake up and see that while we might be the ‘lucky country’ in many ways, we aren’t lucky with our housing.

We need to think smarter when it comes to protecting ourselves from the extreme temperatures that a combination of geography and climate change are sending our way.

Dr Chris Jensen is a certified passive house tradesperson.

This article was first published on Pursuit. Access it here…

COVID-19 real estate trends: The fire break or the accelerant? – James Maydew

James Maydew is AMP Capital's Head of Global Listed Real Estate, based in Sydney. Mr Maydew commenced in the real estate industry in 2002, starting his career in the direct markets as a chartered surveyor in London working within the capital transactions division of Cushman & Wakefield advising clients on single asset and portfolio transactions. Mr Maydew joined AMP Capital's Shopping Centres division in 2006 as an analyst before transferring to the listed market by joining the firm's global listed real estate team one year later as an investment analyst/portfolio manager. Mr Maydew has advanced through the business becoming deputy head of the team in 2013 and head of the team in late 2016 covering a whole host of geographic markets on both a primary and secondary basis. Mr Maydew holds a Bachelor of Science in Real Estate Investment and Finance from the University of Reading and is a fully accredited member of the Royal Institution of Chartered Surveyors (MRICS).

As the world tried to make sense of the COVID-19 crisis through the first half of 2020, one of the most striking themes was the way in which the pandemic had accelerated a number of trends across commerce and society.

Two of these – e-commerce and flexible working – were particularly significant for the property sector, in their effect and long-term implications for retail, industrial and office assets, respectively.
Twelve months on, have we really seen a step-change in these dynamics or is a gradual reversion underway?

Office

The balance undoubtedly shifted for office arrangements during the pandemic, with employees unexpectedly enjoying a much greater level of input into when, and especially where, they perform work.

To date, this shift has been relatively resilient – perhaps even more so than many expected. Even through periods of zero community transmission in Australia, many workers have stuck to flexible arrangements and a large number of businesses have moved to formalise these new patterns into permanent structures.

In parallel, however, there has been a concerted effort on the part of others to bring their staff back into the office.

Even if some are successful, on a broader scale the days of ‘nine-to-five’ at the desk are frankly over, and real estate investors, like their tenants, need to evolve. The sector is primed to continue its pivot in demand towards modern, tech-savvy premium grade office space, fit for a post-COVID world. High-spec facilities which incorporate hospital-grade filtered air-conditioning, touchless technology, smart lifts and intelligent space allocation, efficiently manage fluctuating occupancy to maximise the benefits of co-location and provide a safe space for employee talent. We expect that spaces that can’t meet this standard may face softer demand as the tenant base will simply shrink.

Putting aside preference for higher quality, we believe that predicting aggregate demand for space is harder due to competing dynamics. On any given day there will be fewer workers in the office relative to history, but companies will be less receptive to high-density seating plans and will likely need higher floor space ratios. Lower desk demand may also be offset by requirements for more collaboration spaces, as offices could predominantly become a place to work together, building culture and team dynamics, while solo work is conducted remotely. Tenant requirements will ultimately come down to how a corporate wants to manage its employee base and will ultimately become a lever in the competition for talent, especially in the technology sector. Looking at the US, it’s been well documented that Goldman Sachs is getting its work force back into the office1, but contrastingly, Amazon recently announced that tech and corporate employees can continue working from home two days a week and work remotely for four weeks of the year (domestically) once COVID-19 restrictions are lifted in the US2.

Where does this put aggregate office demand? Well on balance, we expect that tenants will continue to require less space into the future than before the pandemic. A look around empty CBD offices in an almost COVID-free Sydney on the barbell of the week (Mondays and Fridays), is a pretty compelling argument for further evolution in the sector; current arrangements in many businesses are anything but efficient. But within that overall reduced demand, we believe there are distinct opportunities for well-crafted, high-spec office space to capture a new generation of demand, as you simply cannot build a corporate identity over Zoom.

Retail and industrial

The trend to e-commerce had been on the march for years before the pandemic, but the closure of physical stores forced millions of Australians to change their shopping habits overnight and move to e-commerce platforms, many for the first time.

Easing the pain is the fact that retail spend across the board, including in physical stores, has surged as pent-up savings3  and consumer demand4  manifest themselves in revenge spending patterns. Within this context, the spike in e-commerce penetration has plateaued but shows no signs of reverting to pre-pandemic levels5.

How sustainable is this retail mall renaissance? To the extent it is living off foregone spending on services, we believe the current boom for discretionary malls may prove transitory as reopening normalises to a post-COVID world, and we might find that for physical stores at least, current sales are simply papering over larger structural issues. On the other hand, full reopening (including international tourism) may be some time away and other contributing factors (such as fiscal and monetary stimulus and the wealth effect of rising property prices) look set to continue at least through the short and medium terms, in our opinion.

However, the longer-term structural shift in demand away from the physical discretionary retail space is likely to continue into the future. This isn’t necessarily a doom-and-gloom scenario for real estate investors, as not all retail is in the cross hairs and given the significant opportunities that have opened up in the logistics space to support e-commerce. However, it does challenge current elevated sales data for the sector and investors should remain cognizant to this, and factor it into their capital allocation.

For e-commerce and industrial, the demographics at play are compelling – and it’s not just new generations of digitally-native spenders filling the ranks of consumers. For a significant number of shoppers in the generations above them – including cashed-up Baby Boomers, 2020 was the year that they had their first real experience with e-commerce. The first bite is critical to developing trust and loyalty, and the large e-commerce platforms – with ultra-fast delivery, enormous product ranges and subscription packages that reward repeat purchasing - were well and truly ready to make lifetime online shoppers out of many who would otherwise have not even considered it. We think it’s safe to say, ecommerce is not going anywhere.

1. https://www.bloomberg.com/news/articles/2021-06-14/wall-street-s-return-to-office-divide-laid-bare-by-goldman-citi
2.https://www.aboutamazon.com/news/workplace/amazon-updates-return-to-office-guidance
3. Australian Bureau of Statistics
4. Westpac-Melbourne Institute Index of Consumer Sentiment
5. Australian Bureau of Statistics