Top 10 takeaways from the Financial Review Property Summit

Looking at trends in the economies beyond Australia offers plenty of reasons to be cheerful. Although there’s a lot of uncertainty in Australia at the moment, with inflation not yet peaking, gross domestic product weakening and interest rates still rising, employment is at record levels and will probably remain so, while signs overseas remain strong, advises Matthew Bouw, CEO Asia-Pacific of Cushman & Wakefield. “China is forecasting GDP growth of 5.5 per cent, India of 5.6 per cent and South-East Asia has pretty strong forecasts,” he said. “Europe will be 1.7 per cent to 1.1 per cent, and the US has dropped from 2 per cent to 1.9 per cent. So the outlook for the Asia-Pacific isn’t strong, but it’s still better than the US or Europe, where in the UK, inflation is essentially 22 per cent. And the China and India recovery could be, in the longer term, for the benefit of Australia.”

The toughest period we face will always be the transition period to our recovery, says Jo Masters, chief economist with financial services firm Barrenjoey. “There’s a lot of tension and not just in the housing or commercial property markets, but right across the country,” she says. “Things are moving and they are complex and quite unfamiliar. But if you look 12-18 months down the track, the picture is reasonably clear; it’s the transition phase that’s the most complicated. Recent research found the most dangerous period is the transition from high to low … inflation and interest rates from low to normal settings period. We know where we are going, but we just don’t know how long it will take.”

New assets are going to be in much greater demand than old, with a growing bifurcation in the commercial real estate industry. Charter Hall CEO David Harrison believes this is true across the retail, office and industrial sectors. “New office assets are going to have up to a 20-25 per cent lower vacancy rate than older buildings, with a lot of big companies wanting modern buildings with a higher level of amenity,” he said. “It’s a lot easier in industrial to put automation into modern buildings than 30-year-old sheds and the new great malls will have higher occupancy and sales growth than some of the old shockers. So people need to be better stock-kickers and much more discerning in the assets they want to own.”

It’s critical to get people back into their offices. Dexus CEO Darren Steinberg says it’s all about culture, collaboration and innovation. “Many businesses now know, after two years of everyone working from home, that those things are absolutely key,” he said. “The culture of an organisation can’t be formed on the internet and without that cultural link, workers will simply go to the highest bidder.” Companies wanting to woo workers back need to ‘earn’ the commute as most workers said the absence of a commute was the main reason they liked working from home, believes Bouw, of Cushman & Wakefield. “So they have to make the office appealing to justify that commute,” he said.

There’s enormous potential in investing in the aged care sector. Brookfield managing partner real estate Sophie Fallman says the company started investing in the sector three years ago and last year signed off a record year of sales – 52 per cent up from the previous year – with this year’s forecast to top those figures. “We have a large investment in seniors’ living and these assets have strong pricing, good business models and are highly resilient, benefiting from an ageing demographic and issues with housing affordability, which are driving changing demand,” she said. “Investors in the future will be looking for investments that can demonstrate a tangible net benefit to the environment and we can see strong price growth coming through as a result of operational work to improve the services offered.”

Workers dragging their heels in returning to the office need to be careful, warns Charter Hall CEO David Harrison. With labour costs such an important part of the business equation, it could well be that companies rethink their employment strategies. “In the logistics sector, the reason they are turning to full automation is that they save a lot of money on labour,” he said. “Our industry has a lot of people employed in doing processing and sales roles. With unemployment so low and people working from home, that’s when employers could start replacing people with robots. Technology has changed so much and it will continue to change and labour forces will be replaced by robots.”

Retail is doing a lot better than many people think, or even hope. Many retailers are pivoting neatly to take advantage of the new appetite for online shopping and working hard to push sales, says Grant Kelley, CEO Vicinity Centres. “Spending on luxury has grown by 30 per cent, as there’s been a lot of promotional activity and events,” he said. “The CBDs have been the laggards but there’s been an increase in visitation since the lockdowns … and the average visitor to the CBD spends 50 per cent more than they did pre-COVID.” In addition, many brick-and-mortar retailers are embracing omnichannel shopping and offering click-and-collect while others are establishing mini processing hubs where they actually dispatch goods to buyers. “They’re now looking at extraordinarily strong results,” said Kelley.

ESG is one of the most important considerations of the property industry today. Environmental, social and governance (ESG) aspects are critical considerations in developing new products or repurposing old ones, especially with global capital now demanding it. For Stockland CEO Tarun Gupta, it’s an absolute priority. “The challenges are in decarbonisation and affordability and social impact and that’s an increasing issue,” he said. “We’re doing a lot of work in how we can continue to play a leading role. The real estate sector is a major contributor to carbon in the atmosphere and we need to reduce that and we’re looking at ways of not only providing clean energy for our new buildings but also to supply that to home buyers.”