Property Australia

Property chiefs look back on 2019

PROPERTY AUSTRALIA December 10, 2019

A ‘lower for longer’ interest rate environment, the biggest residential downturn in three decades and political uncertainty shaped 2019. We checked in with some of the biggest names in property for their insights.

Stephen Conry“The property industry faced a range of cyclical and structural issues in 2019,” says Stephen Conry, the Property Council’s national president and CEO of JLL Australia.

Uncertainty came at us from all sides: federal and state elections, external risk factors stemming from trade wars, Brexit and unrest in Hong Kong. The Australian economy slowed and the Reserve Bank responded by lowering the official cash rate to 0.75 per cent.

“We could argue that the biggest issue for our industry in 2019 was the one that never eventuated – the Labor Party’s proposed changes to negative gearing and capital gains tax if they were elected to government,” Conry says.

Photo-Darren-Steinberg-Hi-res-Aug-2017Darren Steinberg, Dexus chief executive officer, emphatically agrees. He says the biggest concern of 2019 was undoubtedly the outcome of the federal election.

“The Property Council did a great job in managing both sides of the political spectrum which meant we could hit the ground running post-election,” Steinberg says.

It’s been “uncharted territory,” says Carmel Hourigan, AMP Capital’s global head of real estate.Carmel Hourigan

Hourigan points to the low interest rate environment, 10 years of continuous cap rate expansion and a “much less predictable” investment cycle “at a time when disruption and innovation are driving rapid change”.

“Managing investors’ expectations around cyclical performance and risk premiums has been critical. I believe, as an industry, we have handled it exceptionally well. Australian real estate is increasingly recognised globally as a core asset class,” Hourigan explains.

Residential rebound

FC19_mark-steinertStockland’s managing director and chief executive officer Mark Steinert can’t go past the “stagnation” in the residential market as the federal election loomed.

“Given it was the biggest residential property downturn in 30 years I think companies have handled it remarkably well, maintaining conservative gearing and focussing on inventory management. It’s great to see buyer confidence returning and translating into double digit increases in enquiry and sales over the past six months.”

MinterEllison expected housing affordability and demographics to be key drivers of the housing marketE_Syd_Virginia_Briggs_600x400 in 2019, and these predictions were confirmed, says the firm’s managing partner for infrastructure, construction and property, Virginia Briggs.

“The first quarter saw a drop in house prices. However, a more stable federal government and an understanding of trends in interest rates – thanks to the RBA’s careful cash rate release – saw the housing market stabilise in the second half of 2019 and, as we know, it’s currently a sellers' market.”

Buildcorp principal Josephine Sukkar AM nominates building quality as the industry’s top test in 2019.

Josephine Sukkar“The property industry began to feel the consequences of building defects as a number of projects failed structurally, impacting off the plan residential sales,” Sukkar explains.

This issue will continue to play out throughout 2020 she adds, as companies grapple with “skyrocketing” insurances premiums and professional indemnity cover. It will remain a live issue “until a national response is delivered, which the Property Council and other industry bodies are working with government on”.


Retail resilience

carolyn vineyVicinity Centres’ chief development officer Carolyn Viney says Australia is adjusting to the “lower for longer” economy and “retail is no different”.

Retail landlords must adapt their product to match changing customer preferences and expectations in this environment, Viney explains. Vicinity Centres is doing this by “broadening the appeal of key destination centres” with five-star hotels and residential developments enhancing the appeal of retail assets.

Viney says strategically positioned suburban centres will benefit from “increasing densification and population growth along the eastern seaboard”. The secret to success in 2020 is “getting the right product into the locations where long-term growth is inevitable”.

Scentre Group CEO Peter Allen expects the physical store “will continue to influence sales across allPeter-Allen-for-website-S622-176-landscape channels including in-store, online and marketplaces as well as enabling ‘click and collect’ and last mile distribution”.

“We will continue to work with our retail partners to maximise the proximity of their store networks to customers and fully leverage the ‘last mile’ advantage we offer. There are a lot of new ideas in this area given physical stores are the most cost-efficient way for brands to deliver products into the hands of their customers.”


Technology drives structural shifts

Reini Otter“The weight of capital looking to enter the industrial sector has seen record low yield compression and multiple new competitors entering the market,” says Reini Otter, CEO of Frasers Property Industrial.

The “underlying thematics”, though, centre on the structural changes driven by “consumer expectations and enabled by rapid technological advances and, increasingly, government regulation”. The companies that understand these structural changes are those positioned for the future.

Briggs says the use of big data, “particularly in the retail space” will be a high priority for propertyjonathan-callaghan_ceo-investa companies in 2020, and Investa’s CEO Jonathan Callaghan agrees.

“There is a lot of current discussion about big data, artificial intelligence, proptech and digital transformation. And it is true that our organisations are sitting on vast, ever-growing, quantities of data,” Callaghan says.

“But it is not about the data. In the next few years, data will become increasingly available. The leaders in the Australian commercial real estate sector will need to evolve to unlock meaningful insights and provide greater user experience for tenants, investors and customers or risk being left behind.”

Stockland’s Steinert also picks big data as an “issue and an opportunity” for 2020.

“How we make business decisions based on the data is going to become increasingly critical. Importantly, it gives us enormous opportunity to be more focussed on our customers,” Steinert says.


Looking ahead to ‘lower for longer’

David HarrisonDavid Harrison, Charter Hall’s managing director and group CEO, names “multiple layers of taxation – and potential increased taxation from all levels of government,” as a big influencer in 2019.

“Community scrutiny has also shaped expectations that large corporates will ‘do the right thing’ for all stakeholders,” Harrison adds.

He expects “more of the same” ahead in 2020 “as the impacts of a ‘lower for longer’ inflation and interest rate environment play out across the economy.”

This ‘lower for longer’ interest rate environment is on Briggs’ radar, although MinterEllison doesn’t believe Australia will see a zero rates environment.

Otter is already thinking about the “ongoing pressure” of land availability. “The current constraints in the core locations is already having an effect on supply chains and leading to a re-weighting of the markets. This will require close co-operation with the various levels of government to ensure the value that the sector provides to the community is clear,” he says.

Dexus chief Steinberg says the most important issue in 2020 will be the economy, and the government’s actions to stimulate growth.

“Further cuts in the cash rate, although necessary to keep the Australian dollar internationally competitive, will not be enough to stimulate growth. Fiscal policy will most likely be more effective in driving economic growth.”

Conry says Australia’s property industry must keep a watching brief on the economy.

“A slowing economy would impact on business and consumer confidence and that would result in less job creation, tenant demand and retail spend,” Conry says.

“On the global political front, the ramifications of the UK election will be felt in early 2020 and the US presidential election is scheduled for November 2020. Our eyes will be fixed on the aftermath of these two elections and the subsequent impact on financial markets and business confidence.”

Watch this space.