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Australia Real Estate Report Q1 2013

Australia Real Estate Report Q1 2013

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Meta Description Australia Real Estate Report Q1 2013
Publisher Business Monitor International
Date of Report Sep 1, 2013
Quick Overview
The Australia Real Estate report examines the commercial office, retail, industrial and construction
segments in the context of a sector with muted growth prospects in the medium term. With a focus on the
principal cities of Melbourne, Sydney, Brisbane and Perth, the report covers the rental market
performance in terms of rates and yields over the past 18 months and examines how best to maximise
returns in the commercial real estate market, while minimising investment risk and exploring the impact
of the country's resources boom.
Australian commercial real estate continues to be fairly balanced because, structurally, the industry
functions in a way that restricts overdevelopment. It operates in an economy that, despite weak consumer
sentiment and structural changes, is performing reasonably well. The economy and sector are
underpinned by resources and demand from China, a reducing threat of interest rate rises, low
unemployment and a strong infrastructure sector. We caution, however, that our short-term outlook for
the economy is bearish, and the country will be negatively affected by the slowdown in Chinese economic
growth.
Having consulted our in-country sources in July 2012, with our most recently collected data covering the
first six months of the year, we can confirm that rents in some regions experienced strong growth.
However, it seems our view for a slowdown in Australia's economic growth has already started to play
out and affect the sector, although the office market seems to be resisting this trend for the time being.
Key Points
?? We believe that Australia will remain among the top destinations for foreign direct investment,
even with recent months of vocal opposition to various takeover bids from foreign firms. Despite
uncertainties, we expect neither the ruling Australian Labor Party nor the opposition coalition
party to make major changes to current screening processes. Rather, we expect the government
to increase conditions attached to sale approvals to help limit the impact arising from various
issues, such as market power and environmental sustainability. At the margin, this may increase
costs for businesses and deter foreign investment at the least appropriate time as Australia heads
towards recession.
?? Australia's economy is on the brink of recession as the unsustainable pillars of growth are giving
way. The structural shortcomings that we have highlighted over recent years are now being
revealed, and we see potential for a period of significant economic instability as the country's
much-needed rebalancing process begins in earnest.
?? A slump in Australian housing demand supports our view of persistent weakness in the market,
and suggests that the construction industry will fail to perform as strongly over the second half
of 2012. Due to general macroeconomic stagnation within the Australian economy, we forecast
that real growth in the sector will come in at 2.1% over 2012. Despite this a strong backlog of
engineering projects, teamed with the potential for relatively debt-free regional governments to
bolster infrastructure spending, leads us to forecast average industry real growth of 3.5% per
annum between 2012 and 2016.
?? Construction activity in the first quarter of 2012 (January-March) has surprised on the upside,
with engineering construction activity registering a record high. This has prompted us to revise
up our full-year forecasts for the Australian construction sector, with real growth reaching 2.1
%in 2012 (from a previous forecast of 0.5%). However, we do not believe that engineering
construction activity for the rest of 2012 will surpass the highs seen in Q1, and this is primarily
due to the reduction in capital expenditure for mining and infrastructure projects, brought on by
a Chinese economic slowdown.
Table of Contents
Executive Summary ......................................................................................................................................... 5
SWOT Analysis ................................................................................................................................................. 7
Australia Real Estate/Construction SWOT ............................................................................................................................................................ 7
Australia Political SWOT ...................................................................................................................................................................................... 8
Australia Economic SWOT .................................................................................................................................................................................... 8
Australia Business Environment SWOT ................................................................................................................................................................. 9
Real Estate Market Overview ........................................................................................................................ 10
Real Estate Market Analysis - Office ........................................................................................................... 15
Rents And Yields ....................................................................................................................................................................................................... 15
Table: Historic Rents - 2011-2012 (AUD per m2/month) .................................................................................................................................... 15
Table: Net Yield, 2011-2013 ................................................................................................................................................................................ 15
Table: Terms Of Rental Contract/Lease - H112 .................................................................................................................................................. 15
Industry Forecast Scenario ....................................................................................................................................................................................... 16
Table: Forecast Rents - AUD per m2/month ........................................................................................................................................................ 16
Table: Forecast Net Yield, 2010-2017 ................................................................................................................................................................. 16
Real Estate Market Analysis - Retail ............................................................................................................ 17
Supply And Demand .................................................................................................................................................................................................. 17
Rents And Yields ....................................................................................................................................................................................................... 17
Table: Historic Rents - 2011-2012 (AUD per m2/month) .................................................................................................................................... 17
Table: Net Yield, 2011-2013 ................................................................................................................................................................................ 18
Table: Terms Of Rental Contract/Lease - H112 .................................................................................................................................................. 18
Industry Forecast Scenario ....................................................................................................................................................................................... 18
Table: Forecast Rents - AUD per m2/month ........................................................................................................................................................ 18
Table: Forecast Net Yield, 2010-2017 ................................................................................................................................................................. 19
Real Estate Market Analysis - Industrial ..................................................................................................... 20
Rents And Yields ....................................................................................................................................................................................................... 20
Table: Historic Rents - 2011-2012 (AUD per m2/month) .................................................................................................................................... 20
Table: Net Yield, 2011-2013 ................................................................................................................................................................................ 20
Table: Terms Of Rental Contract/Lease - H112 .................................................................................................................................................. 20
Industry Forecast Scenario ....................................................................................................................................................................................... 21
Table: Forecast Rents - AUD per m2/month ........................................................................................................................................................ 21
Table: Forecast Net Yield, 2010-2017 ................................................................................................................................................................. 21
Forecast Scenarios ........................................................................................................................................ 22
Construction And Infrastructure Outlook ................................................................................................................................................................. 22
Table: Australia Construction And Infrastructure Industry Data, 2009-2016 ..................................................................................................... 22
Table: Australia Construction And Infrastructure Long-Term Forecast, 2014-2021 ........................................................................................... 23
Macroeconomic Outlook ........................................................................................................................................................................................... 32
Table: Australia - Economic Activity, 2011-2016 ............................................................................................................................................... 35
Real Estate/Construction Risk Reward Ratings ......................................................................................... 36
Real Estate/Construction Risk/Reward Ratings ........................................................................................................................................................ 36
Table: Asia Pacific Real Estate Risk/Reward Ratings.......................................................................................................................................... 36
Australia's Business Environment ............................................................................................................................................................................ 36
Table: BMI Business And Operation Risk Ratings ............................................................................................................................................... 37
Institutions ........................................................................................................................................................................................................... 37
Table: BMI Legal Framework Rating .................................................................................................................................................................. 38
Infrastructure ....................................................................................................................................................................................................... 39
Table: Labour Force Quality ............................................................................................................................................................................... 41
Market Orientation .............................................................................................................................................................................................. 42
Table: Asia - Annual FDI Inflows ....................................................................................................................................................................... 43
Table: Trade And Investment Ratings .................................................................................................................................................................. 44
Table: Top Export Destinations, 2002-2009 ........................................................................................................................................................ 47
Operational Risk .................................................................................................................................................................................................. 47
Competitive Landscape ................................................................................................................................. 49
Company Profiles ........................................................................................................................................... 54
Bovis Lend Lease (BLL) ....................................................................................................................................................................................... 54
Brookfield Multiplex ............................................................................................................................................................................................ 56
Laing O'Rourke ................................................................................................................................................................................................... 58
Leighton Holdings ............................................................................................................................................................................................... 59
Mirvac ................................................................................................................................................................................................................. 61
Stockland Group .................................................................................................................................................................................................. 63
Demographic Data .......................................................................................................................................... 65
Table: Australia's Population By Age Group, 1990-2020 ('000) ......................................................................................................................... 66
Table: Australia's Population By Age Group, 1990-2020 (% of total) ................................................................................................................. 67
Table: Australia's Key Population Ratios, 1990-2020 ......................................................................................................................................... 68
Table: Australia's Rural And Urban Population, 1990-2020 ............................................................................................................................... 68
BMI Methodology ........................................................................................................................................... 69
How We Generate Our Industry Forecasts ............................................................................................................................................................... 69
Construction Industry .......................................................................................................................................................................................... 70
Bank Lending ....................................................................................................................................................................................................... 71
Real Estate/Construction Business Environment Rating ...................................................................................................................................... 71
Table: Weighting Of Indicators ........................................................................................................................................................................... 72
Sources ................................................................................................................................................................................................................ 74




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