Learning and aged projects to prop commercial sector

Written on the 7 April 2009

by Jason Oxenbridge

EDUCATION, health and aged care could be the tectonic saviours of the crumbled property industry as the Gold Coast holds its breath for a return to prosperity.

A demand for services driven by an ageing population bracket will put pressure on the health industry and aged care as developers scramble to build smart invest assets that cater to a growing need.
International construction consultants Davis Langdon predicts growth in education and health-aged care of 11 per cent and 7 per cent respectively. The firm’s national research director Rachel Kelloway, says the volume of these sectors will increase in dollar terms by more than $400 million (education) and $200 million (health and aged care). But the increase will not account for the pent up demand and the infrastructure backlog that already exists.
Davis Langdon has called for more of the Federal Government’s economic stimulus funding to be directed into health and aged care, particularly into nursing homes.
“The ageing population, positive net migration, growing population and our increasing life span are all combining to put massive pressure on the aged care sector,” says Kelloway.
“At a time when the government is looking at significant pump priming across the board, then this is one sector which should get more than its share of attention. It would be a real win-win if major works could be undertaken in this area as you would not only be creating jobs and helping the economy, but you would also be helping address an accommodation need which has been allowed to run down and which also has a significant ongoing community benefit.”
The economic slowdown is a reality strike to those developers that have known only the good times. According to spin from CB Richard Ellis, Australia’s commercial property sector has re-emerged as a key investment target for Asian buyers. It claims that major transactions and development deals totalling more than $300 million have been negotiated with South East Asian buyers seeking to capitalise on the recent softening in property yields and the weaker Australian dollar.
Key deals this year include the $220 million purchase and development of the Southport RSL by Korean group City Plan; the $34.5 million acquisition of Chesser House in Adelaide by a Malaysian syndicate; the $38 million purchase of 61-79 Quay Street in Sydney by a Chinese joint venture and the $20.12 million acquisition by Korean developer Mirae of a development site in Brisbane’s West End.
CBRE senior managing director Richard Butler attributes the demand to institutional and private investors, predominantly from Singapore, Hong Kong, Malaysia and Korea.
“Australia is proving to be a popular choice for foreign buyers due to a range of factors, including the relative strength of the local economy, the weaker Australian dollar, low interest rates and the recent easing in investment yields, together with transparency of the market and the ease of undertaking transactions,” says Butler.
“With initial yields softening in most property asset classes, a positive spread to the cost of debt is emerging. This is underpinning increased demand from buyers with access to capital.”
Butler believes the flurry of investment activity mirrors the trend which occurred during the last property market downturn in the mid 1990s. During the period 1995-2003, Asian buyers were the dominant buyers of Australian commercial property assets.
As the Australian market property strengthened from 2003 onwards, local buyers re-emerged as the dominant buyer group accounting for 95 per cent of transactions from 2005-2007.
“Asian owners became net sellers of real estate into the booming market from 2003-2006, often repatriating their capital and making substantial gains on assets and currency,” says Butler.
“What we’re now seeing is that foreign buyers have again become active, particularly as many of the Australian listed property trusts have become net sellers of real estate in order to reduce gearing. This, combined with a weakened Australian dollar, low interest rates and rising yields has opened a rare window of opportunity to buy Australian real estate at exceptional value.”
But Cheryl Callanan of MC Commercial says Hong Kong investors are treading water.
“The reality is that the money is staying at home in Hong Kong,” says Callanan, following a recent trip to HK.
Callanan says a modicum of rented product is slowly shifting, but highlighted a significant over supply of office space. The latest Midwood Report forecasts office vacancies to rise to 22 per cent during 2009, an oversupply of more than two years.
“We have been run off our feet with enquiry and investors are looking but that is not being converted into sales. There is money out there, people are looking but not committing,” she says.
“In 2006-08 the commercial property market was hot, but we don’t expect a turnaround until 2011.”
MC Commercial has offset diminishing property sales with a 2000-strong industrial and commercial property management portfolio.
Commercial lawyer Frank Higginson, a partner at Hynes Lawyers, says properties without yields are holding their own but the days of 6 per cent yields are gone – for now.
“Vacant stuff is very hard to sell in this market,” he says.
“Existing industrial product in some suburbs will take 10 years to sell. There is an oversupply of strata sheds and a lack of demand. The big ticket stuff is not selling. Places like the Corporate Centre are struggling with sales and buyers that once snapped up 800sqm of prime office space are very thin on the ground.”

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