GRANT THORNTON · Shift in mix to apartments, particularly in Inner City locations 0% 10% 20% 30%...

GRANT THORNTON

BANKERS’ BOOT CAMP

Where are we in the cycle? Yield compression slowing, rents growing

• Yields bottoming…but the bottom could last till 2020

• The end of yield compression brings income return to the fore and higher-yielding assets outperform

• Sydney and Melbourne have outperformed in terms of rent growth…this will continue over the medium term

• Brisbane recovery has started - countercyclical investment play now

• Perth recovery still a couple of years away - countercyclical investment play soon

Where are we in the cycle?

Office Rents at forecast bottom Vacancy begun its slow, sustained recovery Recovery to come sooner in higher grades

Industrial Approaching bottom of cycle Vacancy still further to unwind - impacted by supply additions Demand focused in core locations

Retail Two-speed market emerging Prime assets performing well, strong demand Older assets continuing to face rental pressure

Residential Resi market tends to lag commercial sectors High end of market seeing recovery Mid- to low-range resi continues to drag market downwards

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

Net Overseas Migration Net Interstate MigrationTotal %

Population growth – Western Australia Interstate migration is bleak

Source: ABS, Deloitte Access Economics, CBRE Research

Sydney housing at record relative expensiveness Another exodus imminent?

Source: REIA, ABS, CBRE Research

40%

45%

50%

55%

60%

65%

70%

75%

80%

-40,000

-35,000

-30,000

-25,000

-20,000

-15,000

-10,000

-5,000

0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

NSW net interstate migration and Sydney relative house prices

NSW net interstate migration

Young families leave in droves

Buy a house elsewhere or 50% of a house in Sydney?

Employment growth - Western Australia Private sector jobs market growth the missing element

Source: ABS (Original data series), CBRE Research

• WA employment growth positive in 6mths to Aug

• Driven by public sector -strongest of all states

• Added 40,000 jobs in 6 mths

• Private sector still a drag on

employment

• Total employment growth roughly on par with Victoria

-40

-20

0

20

40

60

80

100

WA NSW VIC QLD

Change in Employment - Public v Private Feb-17 to Aug-17

Public Private

Housing sector lending

Applying the brakes

Source: APRA, CBRE Research

Motivations

APRA, RBA: • not targeting affordability

but financial stability • targeting investors and

developers

State Governments: • improve affordability • targeting overseas investors

Result: decline in growth of bank property exposures

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

FY14 FY15 FY16 FY17

Three main commercial sectors Land developmentResidential (investor) Residential (own/occ)

Commercial property sector lending

Domestic banks all but retreated in FY17


Foreign banks filling the void…

…resulting in exceptional growth

-4

-2

0

2

4

6

8

FY17 FY17

Domestic Foreign

Annual change in property exposures ($b)

Three main commerical sectors

Land development/subdivisions

Other residential

-10%0%

10%20%30%40%50%60%

FY17 FY17

Domestic Foreign

Annual change in property exposures (%)

Three main commerical sectors

Land development/subdivisions

Other residential


Housing sector lending

Not a consistent story between the States

Source: Australian Bureau of Statistics,

CBRE Research

30%

35%

40%

45%

50%

55%

60%

65%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017An

nu

al r

esi

den

tial

inve

sto

r ac

tivi

ty (

$b

)

Residential Investor Finance (rolling annual, excluding refinancing)

New South Wales Victoria

• New South Wales and Victoria rebounded after initial APRA tightening, but are just starting to show signs of easing again.

• Queensland and Western Australia have steadily eased.

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LOWER MARGIN

1/6

2/6

4/6

5/6

1/4

3/4

1/2

3 columns = 2.75” wide

4 columns = 2” wide

Source: ABS; CBRE Research analysis

NATIONAL RESIDENTIAL MARKET – BUILDING APPROVALS Shift in mix to apartments, particularly in Inner City locations

0%

10%

20%

30%

40%

50%

60%

70%

80%

House Townhouses One/two

storey flats

Three storey

flats

4+ storey

flats

Proportion of Residential Building Approvals by

Type

1996 2006 2016

2016/17 apartment activity

– Perth ~ 35% of activity within

0-5kms of CBD

– Melbourne ~ 32% of activity

within 0-5kms of CBD

– Sydney – more decentralised

only ~ 17% of activity within

0-5kms of CBD

Consumer preference shifting to

higher density living.

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Source: ABS; CBRE Research analysis

NATIONAL RESIDENTIAL MARKET – BUILDING APPROVALS Shift in mix to apartments, particularly in Inner City locations

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Ro

llin

g 1

2 m

on

thly

ap

pro

vals

Australian Annual Residential Approvals

Australia Houses Australia Apartments

Residential unit approvals Inner city share of unit approvals dropping on the east coast

0%

10%

20%

30%

40%

50%

60%

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

% o

f to

tal u

nit

ap

pro

vals

Major metro building approvals - inner share (Units)

Melbourne Sydney Brisbane Perth

Source: ABS, CBRE Research Note: Data covers approximately a 5km radius of the GPO

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Source: Australian Bureau of Statistics

GREATER PERTH BUILDING APPROVALS Apartment approvals dropping from their peak

0

2,500

5,000

7,500

10,000

12,500

15,000

17,500

20,000

22,500

25,000

27,500

30,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rolling 12-month approvals

Greater Perth Annual Residential Approvals

Greater Perth Houses Greater Perth Apartments

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PERTH INNER CITY BUILDING APPROVALS Inner City share of total unit approvals still high

Source: ABS; CBRE Research analysis Note: Data covers approximately a 5km radius of the GPO

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

Nu

mb

er

of

Ap

pro

vals

Perth Inner City Building Approvals

Houses Units

10%

15%

20%

25%

30%

35%

40%

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

% o

f to

tal u

nit

ap

pro

vals

Perth Building Approvals - Inner Share

(Units)

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Source: Australian Bureau of Statistics

GREATER PERTH INNER UNIT BUILDING APPROVALS BY LOCALITY Perth City dominates

636 710 557 765

384

981

0

1,000

2,000

3,000

An

nu

al a

pp

rova

ls

Greater Perth Inner Residential Approvals - Units Perth City

Victoria Park - Lathlain - Burswood

South Perth - Kensington

Subiaco - Shenton Park

Wembley - West Leederville -

GlendaloughMaylands

Yokine - Coolbinia - Menora

North Perth

Mount Hawthorn - Leederville

Mount Lawley - Inglewood

Como

Residential price differential Sydney and Melbourne are at historic spreads

Source: Real Estate Institute of Australia Note: Data refers to Greater Capital City metropolitan areas

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

Me

dia

n p

rice

($'0

00

)

Median house price (quarterly)

Sydney Melbourne Brisbane Perth

• Perth’s median house price (REIA data) is just: • 43% of Sydney’s • 63% of Melbourne’s

• Historically, these spreads

were last seen in around 2001-2002. But in dollar terms, the spreads are two to three times as great.

• Similar story for apartments.

Settlement risk On-the-ground evidence

• Actual measures of settlement risk are difficult to quantify with certainty.

• But …. evidence from the ‘coal face’ suggests • We are still in the early stages of the settlement cycle. • Process is being carefully managed at present – early engagement with purchasers and

working through unit-by-unit. • Tactics include help with broker contacts, developer finance through to more direct

methods such as cash back incentives. • Valuations tending to come in ~10% below contract price – some much worse off. • Project settlement has stretched from 6-weeks to 2 to 4 months. • Project by project circumstances are different. • Some issues with offshore buyers in fringe/suburban locations.

Online retail – North American case study Department stores have been hit the hardest

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Mar

-92

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-96

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-98

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-02

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-16

US retail trade 1992-2017

Supermarket and grocery storesDepartment storesPharmaceutical, cosmetic and toiletry goods retailingCafes, restaurants and catering services

50

70

90

110

130

150

170

190

210

230

250Canada retail trade 2004-2017

Supermarket and grocery storesOther specialised food retailingElectrical and electronic goods retailingDepartment storesPharmaceutical, cosmetic and toiletry goods retailing

Jan 2004 = 100 March 1992 = 100

Australian retailers preparing for disruption Online competition set to rise

The rise of online retailing is not a new trend • Local retailers have already lifted their games in the face of competition from online

retail and also international brands Australia’s retail assets are more defensive • Lower concentration of department stores in shopping centres except for in sub-regional • Supermarkets in shopping centres • Large format insulated in the near term but that won’t last But there will be disruption • Market share could account for 1.5%-2.0% of retail sales • Logistics providers will also be adversely impacted

GRANT THORNTON

BANKERS’ BOOT CAMP

GRANT THORNTON · Shift in mix to apartments, particularly in Inner City locations 0% 10% 20% 30%...

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Transcript of GRANT THORNTON · Shift in mix to apartments, particularly in Inner City locations 0% 10% 20% 30%...