The outlook is positive but we’ve got some choppy seas to navigate, said Brookfield's Sophie Fallman, Stockland's Tarun Gupta and Charter Hall's David Harrison on Friday. Here’s what you may have missed…
The big shift is about to begin. Locked-down states have their roadmaps out and businesses are grappling with what life will look like as we move to the new phase of living with COVID-19.
How will this play out for the property industry? Property Council chief executive Ken Morrison moderated a dynamic discussion with Brookfield's Sophie Fallman, Stockland's Tarun Gupta and Charter Hall's David Harrison during a Property Council webinar last week.
The road out of lockdown “won’t be straightforward,” said Tarun Gupta.
Gupta, who sits on the Property Council’s board, was appointed managing director and CEO of Stockland in July, taking the reins from Mark Steinert.
Australia will soon have among the world’s highest vaccination rates, Gupta noted. That, and the lessons from other countries, were reasons for optimism, he said. With that confidence business conditions will improve.
Fallman, Brookfield’s managing partner for real estate and the Property Council’s national vice president, agreed. She expects COVID will remain a “prevalent” but “receding” risk within six months. Other risks that had been placed on the “back-burner” would re-emerge.
Building owners would retain their laser focus on safety and hygiene, but expect fewer obvious signs of COVID safety, “like stickers on floors, less signs and hand sanitiser,” she said. Landlords will pivot towards activities and activations that entice people back to buildings.
Restarting the engine
Harrison, the Property Council’s national president and managing director and group CEO of Charter Hall, hailed Australia’s vaccination push as “best in class” globally. While government support had kept our economy ticking over, it was time for this to “taper off”, Harrison observed. “Governments can’t keep pump priming the economy with handouts.” He says the “natural unemployment rate” must “find its own level next year and beyond”.
More than $20 billion previously spent on overseas holidays had been circulating locally for the last 18 months, Harrison noted. Once borders reopen some of that will once again head offshore. Corporations must adapt and “stand on their own two feet”. This was the “big unknown” for the economy, Harrison said.
Another big unknown? The impact of the “two-year pause on net migration,” Harrison said.
Gupta agreed the immigration question was an important one. “We already have skills shortages,” he said, adding that this was an issue for every CEO in the industry. While Australia is likely to enjoy an economic bounce back early in 2022, “to sustain that economic growth we have to open our economy up”.
Pent up demand the residential market is strong, but that is “feeding off immigration from three years ago,” Gupta observed. That will come to a halt within the next year or so.
Harrison said restarting the nation’s “natural growth engine” would be imperative, with Australia one of the few economies globally to not experience recession since 1991. “It’s all because of migration. You can't take out 300,000 people each year and think the economy won't be impacted.”
“Fearmongering” around migrants taking Australian jobs had proved unfounded, with industries like hospitality desperate for workers. Don’t underestimate the importance of international students, Harrison warned, as they fill those jobs, consume and bring in capital.
Curation is the key
The return to the office will also be “patchy,” Fallman noted. But with a large percentage of the Australian population vaccinated, landlords can “instill confidence” in customers as they return to work. How do they do that? In a word, “food,” said Fallman. Brookfield will be welcoming its customers with “free coffees, warm donuts and beautiful bunches of flowers” to change people’s patterns of behaviour.
Fullman said the “big picture” was not a change in overall demand for office space, but a change in the way people used space. “Net-net we don’t see that will result in a reduction for office space,” she said.
Harrison pointed to Google’s plan to purchase a New York City office building for US$2.1 billion, even as most of its workforce remains remote, as a signpost to the future. Google understood the “long-term importance of physical space” and the benefits of agglomeration in a big city to “attract the types of people they need to grow their organisation,” he said.
"What I’m saying to investors and what they are saying to me is very similar. While industrial has got all the headlines, the demand for office investment assets is very strong,” Harrison said.
Charter Hall has pre-leased nearly 100,000 sqm of new office space, and this confirms that major tenants are “looking through COVID and are saying they need to plan for the return of their workforces”.
COVID has accelerated the “bifurcation” of assets, with tenants demanding new buildings that support the highest standards of health and hygiene. Very good, older buildings will be required to undergo “massive transformations” to compete, Harrison also observed.
“We are not going back to 2019,” Gupta added. How Australians work, use technology and live in their homes had undergone “fundamental changes”. Stockland’s new designs were already reflecting this change, he said.
“Flexible and hybrid working will endure,” Gupta said. He expected a short-term flight to quality and echoes of the “green revolution” a decade ago as building owners chased higher sustainability standards. “I think we are at the start of something like that in office market where existing buildings will need to be repurposed.” Capex will be required, but also new approaches to curation. Workplaces will be more “heavily curated” to attract people wanting to come together for “ideation, culture and team building,” he said.
What are the biggest lessons these three leaders have learnt from lockdown?
Harrison said the most “remarkable” outcome of the last two years had been his team’s “resilience”. Covid has “brought us closer to our customers,” Harrison said. Fallman said COVID had unearthed the “human side of work” and encouraged a “celebration of diversity”.
COVID had elevated conversations around wellbeing, mental health and “cultural care,” Gupta added. “Taboos on flexible working have been broken” and “that builds diversity and inclusive workplaces”. But Gupta was confident people would return to the office. “You can't build relationships on Zoom.”