At the Australia-Israel Chamber of Commerce’s 2018 Property Lunch ‘Property 2030’ on 1 November 2018, a panel of experts including Lucy Turnbull AO, Chief Commissioner, Greater Sydney; Louise Mason, Group Executive and CEO, Commercial Property, Stockland and Kylie Rampa, Chief Executive Officer, Property Australia, Lendlease discussed the burning issues facing the property industry today and the face of Australian property in 2030. The discussion was moderated by Ticky Fullerton, Presenter, Sky News Business.
The event was sponsored by: Macquarie Capital and Quintessential Equity.
Some of the key insights to come out of the discussion:
It’s perfect storm for property developers - ANZ CEO Shayne Elliott said it’s going to be one of the “toughest times” going forward. What is in this property storm?
Louise Mason said you have to look at it sector by sector, there are currently the lowest vacancy rates in commercial property, while residential changes market by market. But there is definitely a moderation.
Kylie Rampa said it’s dangerous to generalise, there are cycles and cycles create opportunities and discipline within businesses. She said we are through the top of the residential property cycle but it does vary from market to market. There are headwinds – we’re shifting from interest only to interest and principal loans, however, there is still demand and strong income growth in office markets.
How much further can the market run?
Louise said the supply and demand fundamentals are strong in Sydney, and increases in interest rate rates will affect all property cycles. Three to four years ago in Sydney and Melbourne we would have been concerned by the downsizing of law firms, professional services firms, etc. but there is growth in the tech sector to take that place.
Kylie agreed that as sectors reduce their occupancy, new sectors have come in. There are no signs that things are changing in the office market.
The Greater City Commission is trying to build three cities - the Western Parkland City, Central River City, Eastern Harbour City. Where do you see the market heading when you look to plan?
Lucy Turnbull said that at the Greater City Commission we are not property market experts, we respond to population forecasts. We plan for well-distributed education, health, jobs and transport across Sydney. We try to bridge the gap and create connectivity between the three cities, we can’t just concentrate everything in one part of the city.
She gave the example of the transformation and rebirth around Circular Quay, Lendlease and others are involved in doing big new business there. She said that type of transformation is happening all around the city, for example, the City of Parramatta. Parramatta will become like our inner city in the next 20 years. Sydney’s polycentricity is finally coming true.
Kylie said that the notion of three cities an amazing opportunity for the property industry.
There is growing concern about how dense urban renewal projects are. Will there be a backlash if we have too many people living in a small space?
Louise said it’s a matter of government and industry working together to design well. They need to be connected (close to amenities), healthy (walkable with lots of green spaces) and smart (access to education and digital).
Lucy said we need to plan for a city supported by infrastructure. Public transport, walking and cycling connectivity is key to health, we have to build that amenity into our cities. Density designed well and delivered well can enhance liveability.
Could there be a cap on density?
Lucy said Sydney is going through a transit infrastructure boom that hasn’t happened since the 1920s. We need to build temporal connectivity through infrastructure. The Greater Sydney Commission needs to work with transit, infrastructure and health to make sure it all comes together.
The Premier’s population policy
Kylie said we should congratulate the Premier for establishing certainty, most cities and countries have population policies.
Louise said economic prosperity and social health needs population growth, that is what has built Australia.
Lucy said the net population does not include the visitor economy and foreign students. We need to be sensible about how population will grow, and we need to have a dynamic understanding of who’s on the bus and who’s in the street – there are tourists and students who are not immigrants.
Kylie said Australia’s property industry has done well out of immigration – Stockland, Mirvac, Lendlease and Westfield were all founded by immigrants.
Are you comfortable with the level of infrastructure, particularly when it comes to urban renewal?
Louise said in NSW the focus is transport, health and education – the question is, are keeping pace? We need a partnership approach between industry and government to build communities, soft infrastructure in also needed, not just the transport piece.
Lucy said health and education precincts have been identified for the first time, we can turn these into innovation centres. There are innovation precincts near Central, Everleigh, Ultimo, Anzac Bridge, Sydney University, UTS and Notre Dame. We need to build on what there is there and make it exceptional. Same with Parramatta Westmead. Government needs to optimise the impact of investments that have been made, the private sector does this every day.
Is there renewed interest in foreign investment?
Kylie said foreign capital is still being invested in Australia. Different parts of the world experience growth at different times for different reasons. Real estate also holds a prominent place.
On negative gearing
Louise said if you take the Labor policy and not applying it to new product, Stockland is a large developer in new dwellings. 50% of what we sell is to first home buyers, so from our point of view, it can be positive for the residential new market.
Kylie said it’s a substantial structural change for market to absorb, even with Labor’s proposal around grandfathering. We need to be careful about when it is implemented. It would be better if there was slow implementation when there was more acceptance in the marketplace. It’s one thing to announce it as a policy, we need to really think about when it is implemented.
Lucy said the only asset class which doesn’t exist in Australia is institutionally owned build-to-rent like in the US. If you could build a framework to support it, it would be good to have in the mix.
Lucy said industrial-zoned land in Sydney should be protected from competing development types, including residential, to support long-term population growth. She said if we need lots of last-mile delivery because of more online purchasing, we have to understand that if we turn everything into what might be the best and highest use at a single point in time, it may contract the options that we have to support the metabolism of the city, especially in central Sydney and the western city. She said it’s not good enough to concentrate industrial-zoned land and facilities in outer western suburbs as it would not efficiently service residents and businesses living closer to the Sydney CBD. She cited the example of how residential development constrained the operational hours of Sydney ports. To reduce the productivity of Sydney ports because there’s been a few hundred apartment units built is like a false economy between productivity and housing supply, you don’t want to see those sorts of things happening again.
Louise said more flexibility around the competing uses of land was needed to deliver the demands of a growing city. There is a continual blurring of the lines and, at the end of the day, it’s about services and amenity that the population demands. Industrial is changing rapidly – it’s more about automated logistics which is a very different beast than the old industrial of 20 years ago.
Can you talk about IoT – will data be open source by 2030? How far are we behind Israel?
Louise said we can learn a lot from what Israel is doing, the change has been coming but the Australian property industry is late to the party – there is work to be done in Property Tech. Stockland has a Partnership with Blue Chilli accelerator for Property Tech start-ups, we’ve had over 200 applications.
Lucy said that one piece of technology that she loved in Israel is that when you go into a car park anywhere in Tel Aviv, you don’t need a separate transaction. It makes a huge difference to efficiency, and not having to give your credit card details over and over locks down your data more securely.
Kylie said Australia’s investment in tech is much lower than in other countries. We need to look at how Israel has brought together government, industry and higher education to fuel innovation. We are well behind here. Lendlease is constantly looking at innovation and investing heavily in that space.
On retail: how are developers to cope with retail businesses shutting up one after the other? How do you deal with this as landlords and developers?
Louise said retailers and landlords have to be more flexible and adaptable. They need to understand the customer and what they want, their physical and digital needs, and offer better amenity and experience. If you’re not going to buy online, make the physical experience easy, as per the car parking example that Lucy gave.
Kylie said it’s about mixed-use opportunity. Retail has always evolved and will continue to evolve.
Is it harder in regional Australia to get the formula right?
Louise said that Stockland doesn’t have a generic offer, we curate the retail mix for each local community.
How will co-living and co-working look in 20 years?
Lucy said it’s a global phenomenon, it’s a good model for business start-ups, consistent with commercially zoned premises. She said she can’t see anything wrong with it if there’s a demand for it.
Kylie said major corporate tenants like having co-working nearby as it brings a cohort who wouldn’t normally go there into major areas. It’s a terrific additive for the industry.
Where are we going with aged care and retirement living?
Kylie said Lendlease is not an aged care provider, we do retirement living. We have an ageing population base and we need to improve what’s available for them. She said as different demographics come through to retire, they will want different retirement structures.
Louise said Stockland is also in retirement living, it’s a growing sector of the community.
Lucy said that the number of people over 85 is growing, they have special needs and we need to provide amenity for them. They need connectivity and walkability and they like proximity to healthcare. We are conceptualising health and education precincts. Not everyone wants to live in the same kind accommodation, we need to offer choice.
What about unintended consequences, for example, small blips creating transport problems?
Kylie said cities need to be careful of change fatigue, people with large blocks of land might not want to see density where they live.
Lucy said we need to be aware that if we up-zone a neighbourhood by a certain factor, we need to provide infrastructure. We will reduce adverse consequences of increased traffic through stitched-together strategic planning. More ‘whole of government’ planning will reduce the likelihood of unintended consequences.