Expert commentary

Residential sector

 Brisbane’s ‘once-in-a-century’ floods will negatively impact house prices in affected suburbs, and result in a drop in house prices over the next few years. CoreLogic research director Tim Lawless, stated the price recovery will be slower than in 2011 due to the maturity of the housing market. (Hefty discounting and slower recovery for flooded properties, Nila Sweeney 02/03/22)
 
The devastating effects of the floods are impacting markets across the East Coast including Byron Bay, Lismore & the Sunshine Coast, which previously experienced some of Australia’s most aggressive house price growth. CoreLogic reported on this sobering reminder of the impacts of natural disasters and house-prices…
 
Compared to this time last year, which touted a booming property market nationwide, Australia’s housing markets have changed drastically. Domain has more…
 
The AFR reported that there has been a dramatic drop in house listings. Director of Research4 Colin Keane compared the markets to a “skydiver without a parachute”; For example in Sydney the number of active housing estate listings halved last quarter. The demand for listings and the lack of supply has led to price growth in both cities, a trend expected to continue over the short term. (New housing supply falling ‘like a skydiver without a parachute’, Larry Schlesinger 01/03/2022)
 
Even with the growth in investor activity, CoreLogic records the first week on week decrease in auction activity this year. Across the combined capital cities, auction activity is down 9.1%. Read more…

Rental market 
Sydney’s rental market, dubbed a “chronic failure” due to a staggering lack of vacancies, reflects a further strained rental market as vacancy rates drop from 1.9% in January to 1.7% in February. Domain chief of research & economics Dr. Nicola Powell observed that Australia is on the edge of a rental crisis. (‘Chronic failure’: Sydney’s rental market approaching crisis level, Tawar Razaghi 03/03/22)
 
Similarly, the Sydney Morning Herald reported that Melbourne rental vacancy rates have plummeted, having halved in 12 months and dropped from 2.4% in January to 2.1% in February. Contributing factors include properties being sold to owner-occupiers or being converted to short-term leasing opportunities. (Melbourne’s rental market tightens, with some areas in ‘crisis’, Melissa Heagney 03/03/22)
 
In sharp contrast to the rental hike, national housing values are shown to be losing steam as Sydney records its first decline in 17 months…
 
OTHER KEY HEADLINES

Commercial sector

Offices
A surge of investment activity led by Dexus in Sydney will lead to the NSW Government's new inner-city development “Tech Central”, spanning across six neighborhoods & providing offices to 25,000 workers. The Australian reported that financial service providers are eager to move closer to a well-paid & modernised workforce. CBRE national chief of retail leasing Lief Olsen, commented that this would also provide welcome retail opportunities to a run-down area. There are plans to implement late night trading hours, due to flexibility within the tech workforce compared to other sectors, leading to a competitive retail climate. (Tech Central destined to pose threat to CBD, Joseph Lam 02/03/22)
 
Over the past two years, COVID’s effect on the changing office landscape has left nearly 500,000 sqm more vacant space in major city markets than expected. The AFR reported that five out of six capital cities recorded higher office vacancies than expected, Canberra appearing as an anomaly. The past six months have shown office supply outstrips demand in both Brisbane & Melbourne CBDs, and national vacancy rates have increased by 3.3% over the last two years. It appears unlikely that office workers will return to a five-day office commute. (COVID-19, fresh supply add to vacant office space, Nick Lenaghan 02/03/22)
 
Despite the current vacancy issues, the AFR reported that as extra space is required to accommodate evolving workplace strategies, office vacancies will be resolved by 2026. A report by Cushman & Wakefield found that more than 85% of Australians would like to work from home at least once a week. Based on this model, 80% occupancy would be retained with a 24% workforce increase required to absolve occupancy issues. Emerging trends such as shared workspaces and ‘hot desking’, in addition to collaborative spaces & shared amenities will be increasingly used to attract & retain staff.  (Work from home not the end but start of something new at the office, Martin Kelly 02/02/22)
 
Though office occupancy rates are projected to be a challenge post-pandemic, Knight Frank expects WA’s border reopening to bring commercial benefits to the state’s property market…
 
Beyond the commercial benefits of an open border, Perth announces the state’s first six-star carbon-neutral office building. Knight Frank has more…

OTHER KEY HEADLINES
1. Green Square takes off as new development site hits market – AFR 28/02/22
2. Commercial Deal Activity Hits Record Highs – The Urban Developer 25/02/22
3. Impact of WFH on office tenant demand expected to ‘wash through’ by 2026 – COMMO 03/03/22
4. Holiday park operators confident of Easter bookings surge – AFR 02/03/22
5. Stockland chases fresh capital partners in retail play – Real Commercial 04/03/22

Construction & development

The recent collapse of Probuild has shone a light on the deep-seated issues within the construction industry. The Australian named the friction between unexpected high costs and razor-thin margins, inefficient cash-flows, union concerns & pandemic shortages at the forefront; now there is concern that these issues, which appear to be pervasive throughout the industry, will threaten the security of future projects. This is significant as construction makes up a quarter of insolvencies across Australia. Despite Deloitte’s confidence in a sell-off, the firm’s history of underquoting which marked its demise could present a major barrier. (Probuild problems echo a building industry in crisis, Ben Wilmont 02/03/22)
 
As the Probuild collapse put over 1000 workers’ livelihoods at risk, government intervention is called upon toward creating a more sustainable & risk averse construction industry...
 
The Australian reported that scepticism regarding Deloitte’s ability to find a purchaser for Probuild comes in part from its detractor's claims of maltreatment of subcontractors. Subbies Unite spokesman John Goddard, claimed that he knew of subcontractors being owed up to a quarter of a million dollars on Probuild projects. Signs of insolvency risk had been raised before the construction giant’s collapse, in October 2021 Probuild had already been flagged as having a much higher risk of insolvency compared to other Australian companies. It is clear that the construction industry requires more attention to risk to prevent insolvency. (Probuild a ‘lemon’ that subbies fear will hit them hard, Glen Norris and Chris Herde 01/03/22)
 
The recent flooding in Queensland & New South Wales has rendered abandoned Probuild sites waterlogged, adding further friction. Deloitte is seeking 21 extra days from federal courts to deal with over 2300 creditors & nearly 800 employees owed more than $14mn…
 
As New Zealand experiences similar construction challenges, both sectors require better planning & risk assessment to prevent insolvency. The Conversation has more…

OTHER KEY HEADLINES
1. Green Square takes off as new development site hits market – AFR 28/02/22
2. Commercial Deal Activity Hits Record Highs – The Urban Developer 25/02/22
3. Impact of WFH on office tenant demand expected to ‘wash through’ by 2026 – COMMO 03/03/22
4. Holiday park operators confident of Easter bookings surge – AFR 02/03/22
5. Stockland chases fresh capital partners in retail play – Real Commercial 04/03/22

Finance sector

ABS data has revealed that Australia’s economy is bouncing back from the Delta Covid outbreak, posting the best quarter of growth in 46 years. The nation’s GDP grew 3.4%, roughly equaling the bounce back from the 2020 Covid lockdowns. Read more from the ABC: Economy bounces back from Delta lockdowns with strong growth at the end of 2021.
 
Lending
The RBA held off increasing the official cash rate for another month, with the historic low of 0.1% now lasting 17 months. The Reserve Bank is focused on inflation and labour market conditions, rather than house price growth, to guide their policy decisions. Read more from CoreLogic…
 
The RBA stated that the cash rate will be increased when inflation is sustainably within its 2-3% target band. Economists believe the rate hike could hit as early as late 2022 or early 2023. Read more: RBA rate hike a question of when, with housing prices tipped to fall.
 
The AFR reported that demand for investor loans drove lending commitments to 2.6% in January, as rising home values pushed up the average size of loans. New home loans to investors also rose 6.1% in December to a monthly record of $11bn. Economists are monitoring the growth of investor loans and are weary of further macroprudential lending controls from APRA. (Record investor loans push mortgage growth above expectations, Michael Bleby 01/03/22)
 
According to The Australian, growth in investor loans are six times that of owner-occupiers, attributing it mostly to resumed immigration and nation-wide rent rises. Tapas Strickland of NAB commented that increased loan approvals could be indicative of potential momentum left in the housing market. Comm Bank has now adjusted its 2023 forecasts from its previous prediction of a 10% fall in house prices to only 8%. (Investors dive deeper into housing market, James Kirby 01/03/22)

OTHER KEY HEADLINES
1. Record investor loans push mortgage growth above expectations – AFR 01/03/22
2. Loan repayments to jump 25pc – The Australian 22/02/22
3. Less Australians struggling with mortgage repayments: ME Bank – Mortgage Business 03/03/22
4. CBA backs ‘live now, buy later’ start-up that will ditch home deposits – AFR 03/02/22
5. The future of house prices is in the RBA’s hands – AFR 04/03/22