The three-part Talking Property podcast series examines where CBRE’s Australian clients see the best market opportunities in 2024, including any opportunities for industry transformation.
In the thrid part of the 2024 property outlook series, the host, CBRE’s Kathryn House speaks with Aware Real Estate’s Michelle McNally and Aliro’s David Southon.
The episode focussed on many key talking points. Some highlights from this Talking Property podcast includes:
While there will still be some development challenges in both the industrial and residential markets in terms of planning and construction risks, Michelle sees good tailwinds in residential, in supply challenges, immigration and a growing economy, with Aware Real Estate having also identified some good buying opportunities in the retail market as groups manage their gearing levels to fund developments to re-rate out of property to other markets and meet redemption requests.
“For a new business like ourselves with capital to invest, we look at this as being a really positive time to be in the market in 2024.”
Michelle McNally, CEO, Aware Real Estate
Aware Real Estate is also focused on housing essential workers and providing a greater range of housing across the board.
“I think it shouldn’t just be one form of housing we’re looking at here. It needs to be a really diverse range of housing across all locations. There’s as much need in regional Australia as there is in our cities as well. And so, we’ve got a big task ahead of us over the next five to ten years to supply the housing that we need. But it’s really great to see, particularly, changes happening at the state government level in planning that should facilitate a greater level investment in residential.”
Michelle McNally, CEO, Aware Real Estate
David sees the tailwinds for industrial and Build to Rent continuing given the undersupply in both of those sectors, which is driving rental growth and total returns. Aliro also sees deep value emerging in the office sector and more transactional activity in the market overall in 2024.
“I think at the moment, office is a bit of a dirty word in real estate. Most investors, institutional investors, are overweight office. We’ve seen the impact on other markets around the world of significant resets in value that we really haven’t seen here in a meaningful way in Australia as yet.
“Australia typically is a laggard market, so it does take a little bit longer for things to filter through, but what I think we will see over ‘24 is some deep value emerging in that sector. And what I mean by that is that we will start to see the valuation reset come through in ‘24.
“I think there’ll be an opportunity to access the markets, fairly tightly held in Australia usually, but there’ll be an opportunity to access product in the gateway markets where typically you couldn’t previously do that, particularly for global investors who want to hold some of the iconic buildings in gateway markets. And I think you’ll be able to buy those buildings at a discount to replacement cost and in some instances, possibly even a discount to construction costs. In other words, wiping the value of the land out altogether. And I know that sounds a little dramatic, but for some of the secondary assets, we are already starting to see a little bit of that emerge because if it is a secondary asset, you have to really think about whether it’s reached the end of its lifecycle, and if it has, then the improvements actually have a negative value.”
David Southon, Executive Chairman, Aliro
Aliro is also focused on the Build to Rent sector, providing product that is institutionally backed and has a brand around it from an operational perspective, for the circa 33% of Australians who rent.
“I think that as we see that sector really emerge, we’ll see more local capital get behind it, which I think will be a significant change. The early movers are typically backed by global investors who see this sector really working well in other parts of the world. I think we’ll see it continue to emerge strongly here in Australia. We really need it. There’s a significant undersupply of stock relative to the demand, particularly with our immigration aspirations here in Australia. We’ve got to provide accommodation, as affordability is a real issue. Some of the inflationary pressures that we’re seeing coming through is impacting the build to sell product as well. Gone are the days where you could just sell 80% to 90% of your apartments with a 10% deposit and hope you could deliver them for the cost that you thought you could. And so that is putting a real lid on supply of stock, which is impacting affordability.”
David Southon, Executive Chairman, Aliro
In regard to the opportunities for transformation, David spikes out the need for agility and the need to keep the doors open for global capital.
“We need to make sure is that our governments here, both state and federal, want to continue to attract that global capital, which will help the growth of Australia rather than trying to overtax it, which I think is unfortunate and creates a degree of sovereign risk that for many years we didn’t have.”
David Southon, Executive Chairman, Aliro
