Knight Frank recently released the 2015 Wealth Report, highlighting not just global real estate trends but also the investment strategies for wealthy individuals around the world. Matt Whitby and Citi’s leading economist, Paul Brennan, delivered their insights at the launch of the report and JAGONAL was invited to follow-up with Matt (MW) afterwards:
On the panel, you and Paul spoke of the varying speeds that exist in the Australian property market. Does your research show that investment opportunities in commercial real estate are being created because of this uneven environment, if so where can they be found?
The economy is patchy and unlike the past 5-10 years when resources investment and a mining boom, there is a two speed economy in play at present, skewed towards growth in the non mining sectors of the economy. This is driving outperformance in Sydney and Melbourne across office, retail and hotel property sectors. The residential market of Sydney also remains hot, but this is being driven by strong demand set against a backdrop of under supply.
There will be select opportunities in markets like Brisbane and non-core suburban office markets in the Sydney metropolitan area in 2015, as investors and developers seek higher risk and higher returns. We expect yields to tighten materially in the Sydney suburban office markets in 2015 and expect continued strong performance in NSW and Victorian retail assets. Sydney industrial will also record strong capital growth, especially in core, traditional hubs around the port and the M4/M7 interchange.
Does Knight Frank research support recent reports that suggest commercial properties, particularly in capital cities, are attracting a greater variety of tenants? And also, the average size of tenancies are decreasing due to this new mix?
We are seeing a real emergence in technology and creative based tenants, predominately in Sydney CBD and the Sydney fringe markets. Knowledge workers are increasingly younger, edgy, but talented professionals and there is a real push for these types of tenants to be located in the A-grade offices in the CBD or in edgy, functional office space at the edges of the city, whether in traditional office space or converted warehouses such as Surry Hills, Alexandria and Pyrmont.
We are also seeing the rise in Fintechs, which are a convergence or aggregation of financial and technology based tenants – this convergence of multiple sectors will be one of the major drivers of growth over the next decade and will be a key theme in the office markets. Think resources companies using technology or Google and driverless cars and Apple and electronic payments as examples. Expect more co-location enterprises to make their mark also, which is the next step in the serviced office model, where start-ups, tech companies and these other sectors can come together and share office space, effectively collaborating and networking.
What is the one statistic you would use to summarise commercial real estate performance over the past 12 months?
Exponential growth in total sales volumes (record year in office sales $16 billion in 2014), near record in retail and near record in industrial. Also record investment into Australia (and globally) from China, with exponential growth occurring over the past 3-4 years, predominately focussed on residential development, office and to a lesser extent hotel sectors.
What is it about your office or workplace that you enjoy most?
When the internet came along, pundits wrote the obituary for offices saying we would all work from home in the future and more recently the ABW model and hot-desking accentuated this forecast. However, unlike the last decade, over the next decade employers will increasingly want their staff onsite and employees want collaboration, interaction, idea generation, exchange of information etc – The reason for this : it’s all about people.
All industries, not just tech or creative based firms are focussed on attracting and retaining quality staff. The future of Australia’s economic prosperity will lie within the knowledge sector and harnessing our human capital. Workplaces of the future will serve the sole purpose of connecting people to learn, collaborate and innovate. At Knight Frank, we are currently actively changing the way we work, interact and collaborate – we are a dynamic and growing business with some really good operators.