WORLD CITY REVIEW RECOVERY OF PHYSICAL RETAIL MEETING HOTEL DEMAND The real value of international property And the new offshore challenge Converting office buildings AUSTRALIA AND NEW ZEALAND

PROPERTY JOURNAL March 2014 Vol 5 / No. 1 $12.95 (incl GST)

CHINA’S GHOST CITIES FORWARD THINKING, OR FAILURE?

Print Post Approved PP246764/00006 A.R.B.N. 007 505 866 ABN 49007 505 866 ISSN 1836-6635 PINZ ISN 100 1330

THE OFFICIAL JOURNAL OF THE AUSTRALIAN PROPERTY INSTITUTE AND THE PROPERTY INSTITUTE OF NEW ZEALAND

OFC.indd 1 3/12/2014 9:58:57 AM Untitled-1 2 6/5/2013 10:05:18 AM Untitled-1 3 6/5/2013 10:04:36 AM CONTENTS MARCH 2014

083 CHINA’S GHOST CITIES – ‘PHANTOM MENACE’ Forward thinking, or failure?

REGULARS LIFESTYLE

008 API NATIONAL 046 FUTURE PROPERTY 086 GADGET REVIEWS DIRECTOR’S REPORT PROFESSIONALS Testimonials 088 NEW ROLLS-ROYCE 011 LEADERS IN THOUGHT Paul Bloxham: “Know your economy” 054 QUARTERLY HOUSING MARKET DATA 090 CLOUD COMPUTING FOR COMMERCIAL REAL ESTATE 014 API LIFE FELLOW James Pledge 072 LEGAL NOTEBOOK Recent cases, headline issues and new legislation 016 OPINION Rita Avdiev: Your future employee

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FEATURES

WORLD CITY REVIEW 039 The real value of international property

‘OF DROUGHTS HOTELS FRACTIONAL 033 AND FLOODING 029 FROM OFFICE 064 INVESTMENT PLAINS’ CONVERSIONS A new kind The case for climate Meeting growing of part-ownership change adaptation investor demand

OPINION & RECOVERY OF COST BENEFIT 017 ANALYSIS 049 PHYSICAL RETAIL 068 ANALYSIS Tim Lawless: The 2014 And the new Its role in property outlook offshore challenge development appraisal

GDP AND CITY COMMERCIAL RIGHT OF WAY 021 POPULATION 056 PROPERTY 078 How high does this go? Measuring development INVESTMENT performance of Styles, performance and city structures funding (Part 2) RECENT EVENTS 094 Market news from NSW, Queensland and Victoria

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002-004_TableOfContents.indd 004 3/12/2014 10:00:40 AM Discover a unique way to manage your real estate life-cycle to help drive value from your portfolios

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Real Estate Investment, Asset and Property Management Software Use a smarter approach to managing your entire property lifecycle. Yardi’s solutions allow employees to focus on delivering first class service to investors, clients and tenants by working more efficiently with mobile access to information that is critical to maintaining the successful operation of your retail, office and industrial portfolios. For more information call +61 (2) 8227 2200 www.yardi.com.au PUBLISHER PANEL NATIONAL OFFICE Australian Property Institute National Director Clyde Eastaugh Financial Accountant Venus Barredo 6 Campion St, Deakin, ACT 2600 CFO Andrew Tregenza Senior Journalist Kelli Wells Property Institute of New Zealand CIO Joel Leslie Systems Administrator Zoe Wolfendale Level 5, 181 Willis Street, Wellington, New Zealand Executive Assistant!Jill Lewis Professional Standards Manager Tony McNamara Editor: Bonnie Gardiner Technology Manager Iain Smith Professional Indemnity & Compliance Manager Production Manager: Education Standards Manager Tracy Kriesel Rohan Pearce Betty Lehman Financial Accountant Zainab Mwamtenda Sub Editor: Rebecca Merrett National Compliance & Audit Offi cer Creative: Fletcher Guinness Carlos de Vos Senior Designer: Kate Dougan API PINZ

Account Director: Kerry Frances API National President Tony Gorman PINZ National President Phil Hinton President and Publisher: Barbara Simon API Senior Vice-President Robert Hecek PINZ Immediate Past President Ian Campbell API Vice-President Milton Cations PINZ National Board I Campbell, G Barton, G Munroe, API Immediate Past President EDITORIAL COMMITTEE B Hancock, P Hinton, I Mitchell, M Dow, Phil Western Managing Editor: Kelli Wells P Merfi eld (Independent) API National Council General Manager Chief Executive Offi cer David Clark Joel Leslie C Harris (QLD), A Cubbins (TAS), • Michelle Glastris M Kay (SA), R Smyth (ACT), R Dupont (NSW), C Shaw (Legal Advisor) • Professor Chris Eves • Sean Ventris PRODUCED BY • Ian Flynn IDG Communications for the Editorial Australian Property Institute. [email protected] • Amy Guy Advertising • Tracy Kriesel [email protected] Ph: + 61 2 9902 2706

MARKETING AND Level 10, 15 Blue Street, Subscriptions COMMUNICATIONS North Sydney, NSW 2060 [email protected] Joel Leslie, API National Offi ce Ph: +61 2 9902 2700 Ph: +61 2 6282 2411

The Australia and New Zealand Property Journal is published by the trademark infringement, breaches of copyright, licences and royalty, slander, Australian Property Institute (API) and the Property Institute of New unfair competition, trade practices and any violation of the rights of privacy. CONTRIBUTORS Zealand (PINZ) for the members. Authors, contributors and advertisers warrant that the material The Publishers invite authors to submit articles of interest supplied complies with all laws and regulations and that publication of that further professional practice in the property industry. Articles the supplied material will not give right to claims of liability or are being Rita Avdiev, Yolande Barnes, Adam of 500 to 5000 words will be considered. Guidelines for authors are capable of being misleading or deceptive or in breach of respective laws Bender, Paul Bloxham, Jessica available from the publishers. in all States and Territories of Australia and New Zealand. The Publishers reserve the right to alter or omit any article or At times, the Australia and New Zealand Property Journal Darnbrough, Clyde Eastaugh, Bonnie advertisement submitted. Authors and advertisers indemnify the publishes technical material to assist professional practice as supplied Gardiner, Michelle Glastris, Adrian Publishers and publishers’ agents against damages and liabilities that by authors and 3rd party sources. The Editor accepts no responsibility may arise from the published material. for the expressions, opinions, outcomes or effectiveness of formulas Hack, David Higgins, Lindsay Advertisers, advertiser agents and representatives lodging material or calculations contained in those articles. Readers should seek Joyce, Benjamin Lai, Tim Lawless, with the Publishers indemnify the Publishers, its servants, staff and agents independent, specialist advice on matters concerning business against all claims of liability or proceedings in relation to defamation, practice, fi nancial outcomes and legal implications. Tim Lohman, Gus Moors, James

Morse, Elias Plastiras, Rohan Pearce, IDG Communications Pty Ltd (IDG) is the publisher of this magazine on behalf of the Australian Property Institute. Chris Shaw, Oren Rosen, Kelli Wells If you choose to accept offers, enter competitions or complete surveys contained within the Journal you may be required to provide information about yourself to the Australian Property Institute who will use this information to provide you with products or services you have requested, and may supply your information to contractors that help IDG and the Australian Property Institute to do this. Unless you tell us not to, IDG and the Australian Property Institute may also use your information to inform you of other products, services and events, or give your information to organisations that are providing special prizes or offers and that are clearly associated with the offer. For information on how the Australian Property Institute respects and protects your personal information, and how to change your privacy preferences please visit http://www.api.org.au/ folder/footer-links/privacy-policy or please contact the API Privacy Offi cer by emailing [email protected]

006_Publishers_Information.indd 6 3/12/2014 9:04:08 AM EDITORIAL COMMITTEE THE AUSTRALIA & NEW ZEALAND PROPERTY JOURNAL EDITORIAL COMMITTEE Submissions for the Australia & New Zealand Property Journal are reviewed and approved by the Editorial Committee. The Committee is made up of experienced professionals, academics, educators and journalists who regularly contribute their expertise in the various facets of the property industry to ensure content is valuable to members of the Australian Property Institute, the Property Institute of New Zealand (PINZ) and the broader property profession.

COMMITTEE MEMBERS

SEAN VENTRIS CHRIS EVES

Sean Ventris is a corporate lawyer with CSR Professor Chris Eves is the Academic Program Limited and heads up the in-house legal Director for Urban Development and a Professor team in Sydney. He has specialist expertise in mergers and in Property Economics at the Queensland University of acquisitions, commercial property, corporate and commercial Technology. During his academic career, he has worked as negotiation, dispute resolution, corporate strategy, and a Senior Lecturer at the University of Western Sydney for 12 major projects. Mr Ventris was previously a senior lawyer years, followed by a position as Professor of Property Studies at Corrs Chambers Westgarth Lawyers where he worked in at Lincoln University from 2006-2009. In the past, Professor the property, environment and major projects fi elds. He has Eves has also been employed with the State Bank of NSW contributed articles to the Property Journal on a variety of for 13 years as a valuer, and a further three years in rural topical issues. lending and credit administration.

MICHELLE GLASTRIS TRACY KRIESEL

Michelle Glastris recently completed her PhD Tracy Kriesel commenced her work with the API at the University of Technology, Sydney. She in 2011 as the Online Education Offi cer, running has served as Senior Economic Strategy Advisor at the City the Future Property Professionals (FPP) and e-learning of Sydney Council and in senior management roles with programs. She took over as Education and Training Manager UBS Global Asset Management - Real Estate Securities and in 2012 after her collaborative work with partner universities, Funds, CBRE and the Property Council of Australia. Michelle plus her role in accreditations and membership qualifi cation has expertise in property investment, funds management, enquiries. She was promoted to Education Standards research and advisory with a strong interest in urban Manager mid-2013. Ms Kriesel contributes her valuable development and geography, strategic planning and the educational perspective and contacts to the Committee. development performance of cities. KELLI WELLS IAN FLYNN Kelli Wells is Managing Editor of the Australia Ian Flynn is a property valuer with over & New Zealand Property Journal. She takes 32 years’ experience, specialising in rural on this role in addition to her work with the API national properties. He is a keen researcher of property utilisation, offi ce in media liaison and communications — a post that realty law and real estate history, and an experienced liaison she has held since 2012. Ms Wells brings 20 years of solid offi cer with government departments such as Centrelink, experience in the media and communications industry to the Department of Defence, and Telstra. He was promoted to Editorial Committee, including extensive work in journalism, Senior Property Valuer with the Australian Valuation Offi ce sub-editing and editing for print media all over Australia. Her in 1999. Mr Flynn has been an API member since 1977, and list of internal and external communication roles spans both has authored several papers for the Property Journal. the public and private sector.

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he start of 2014 has been a particularly busy and difficult time for National Council and national office. TThe question of a second EGM and numerous ancillary matters have tested resources and taken, in part, the focus away from the API’s core business of providing services to its members. All staff have been under significant pressure and should be applauded for their tenacity and commitment. National Council has announced that the 2014 AGM will be held in Canberra on 29 May. There was a desire to bring the meeting forward to accommodate a request from The Concerned Member Group; however, several divisional meetings precluded this option. During early February, a strategic review meeting was held by national councillors and presidential representatives from five divisions. The forum was facilitated by John Peacock from the Associations Forum. The outcome was an agreed mission and plan statement that covered, in particular, a seven- point ‘goals and activities’ list. Those who participated were of the opinion that it was a worthwhile event for providing clarity and purpose around changes that will reposition the API and further cement its reputation for “leading property professionals”. Mr Peacock said it was a productive day where common ground was sought and found. He said there was unanimity that the API’s mission was “to lead and

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API NATIONAL DIRECTOR’S REPORT

set the highest standards in property for the tables below (figures as at 31 to be serviced by state divisions. its professional members, and to inform December 2013), API Inc is in They play an integral part, and will the community”. One of the seven goals good shape and unfortunately the continue to do so, moving forward. that would achieve this mission was negative comments have clouded “However, there’s a need to ensure to ensure the API was a best practice the actual financial position. that we are efficient in terms of the association that aligned with the goal Demand for capital works for processes, that we remove duplication, of “one API”. All participants requested 2014 is on the wane, as current IT and that we have an environment in a further meeting to discuss, in detail, development comes online. This, which everyone is working together. the various aspects of the plan. together with national office efficiency Fundamental to this is that the gains, should assist in rebuilding the entire organisation is underpinned API FINANCIAL YEAR financial resources of the Institute. by a modern constitution.” The API financial year ended on 31 December 2013. There has been LOOKING AHEAD WHAT YOU CAN DO much public comment regarding the The API AGM is scheduled for 29 The API is your organisation. financial affairs of your Institute. May in Canberra. All members are Members have a voice and a vote. API auditors have undertaken an encouraged to be proactive and take Both need to be heard and seen at early audit close in October and the ownership of the API’s future. the upcoming AGM on 29 May, end of year close in December. Former API national president 2014. Use your vote to help steer the Their report contains no major Philip Western said it was important course for your future in property. „ concerns and can be sighted in the to emphasise that the states had a vital annual report. National Council role to play in a restructured API. CLYDE EASTAUGH, LFAPI has recommended that the national “The divisions are at the coal office accounts be published online. front; they interact with members. NATIONAL DIRECTOR As can be observed from There’s still a need for the members AUSTRALIAN PROPERTY INSTITUTE

BALANCES AS AT 31 DEC 2013 Annual Variance Variance Account Description Budget Actual YTD YTD $ YTD % Cash & Cash Equivalents $2,513,160 Total Income $8,596,949 $8,561,607 -$35,342 -0.4% Trade & Other Payables -$154,062 Total Operating Expenses Less: $8,879,365 $8,729,099 $150,267 1.7% GST Payable -$55,134 (COGS + Op Exp) Total Operating Surplus/ Employee Liabilities & Provisions -$514,354 -$282,416 -$167,491 $114,925 -40.7% Deficit (Accrual) Total Operating Surplus/ Trade & Other Receivables $212,548 $107,381 $219,171 $111,791 104.1% Add: Deficit (Cash) 2014 Prepayments $149,321 Total Project Expenses $481,875 $334,507 $147,368 30.6%

Unencumbered Cash Reserves 31/12/2013 $2,151,479 Net Surplus/Deficit (Accrual) -$764,291 -$501,998 $276,693 -35.5% Total Net Surplus/Deficit (Cash) -$374,494 -$115,336 $259,159 -69.2%

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Untitled-2 1 3/11/2014 3:26:21 PM THOUGHT LEADERSHIP LEADERS IN THOUGHT KNOW YOUR ECONOMY

PAUL BLOXHAM he housing market within the housing market, with discusses the state of is booming. affordability constraints becoming House prices were an issue. There has only been a the Australian housing up 10% over 2013, and limited amount of supply coming market and why it will most likely continue onto the market, and yet there has Tto rise at a similar rate this year. been continued strong demand for pays for property We see prices lift across the nation’s housing, which is limiting the extent professionals to have a capitals, with the strongest growth in to which first home buyers have access Sydney, while Perth and Melbourne to the market as prices remain high. broad understanding of are also rising quite quickly. This Indeed, one of the big challenges the national and global has been stimulated by very low Australia currently faces is how to interest rates, with mortgage rates deal with this issue of affordability macro-economy. at 40-year lows, which we expect for first home buyers. It’s reflected in to persist for most of this year. the latest figures, where we’ve seen a Despite affordability issues, I pick-up in the housing market and don’t think Australia is in immediate borrowing activity, but it’s being led danger of a housing bubble. There’s by investors and repeat buyers while a non-zero risk that a bubble could first home buyer loan approvals have form at some point, particularly if been at record low levels. In some ways interest rates stay low or if the RBA this may reflect both a structural and was to cut interest rates further. This generational change, as larger parts of could potentially pump-prime the the population are renting — it’s partly housing market too much, but I don’t to do with the higher prices, yes, but see that happening in the near term. it also could reflect a preference shift. There are some very big shifts going One of the clearest things that on in terms of ownership structure policymakers need to focus on is

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A BROADER UNDERSTANDING OF HOW THE NATIONAL AND GLOBAL MACRO-ECONOMY WORKS IS ALWAYS HELPFUL. YOU’RE BETTER ABLE TO FORESEE WHERE THE OPPORTUNITIES COME FROM, BUT ALSO TO DETERMINE THE KEY RISKS.

loosening up the supply side of the of broader economic conditions around housing market, making it easier them, because it’s so critical to that line to build more properties, involving of business. That involves making sure more land release on the fringe, you find good sources of information and making it easier to see new and views on the economy — locally, construction on brown-field sites. nationally and even globally. In other The regulatory environment is also words, don’t just keep an eye on how a key constraint on new housing supply things are within a particular segment coming into market, as a lot of front- of the housing market; I can imagine loading of expenses associated with some people would get very focussed new development has also reduced on their own market, suburb, or region. the accessibility for first home buyers A broader understanding of in particular. This presents a social how the national and global macro- prerogative for policymakers that might economy works is always helpful. need to be dealt with in the near future. You’re better able to foresee where Another challenge for Australia is the opportunities come from, but that most of our population is living also to determine the key risks. The in major cities, yet we have fairly poor biggest lesson from the global financial infrastructure in areas like transport, so crisis (GFC) was that the financial a lot of people want to live quite close to system can move in a way that can the centre of those cities. But of course, eventually be quite harmful for the the issue of supply and urban structure economy when asset prices finally are not things that change overnight. correct. The GFC delivered things The pick-up we are expecting we hadn’t seen in the economy for 75 in residential construction is going years, since the great depression. It to be very helpful at a time when reminded everyone that economies mining investment will be falling. and financial relationships are fragile, It’s not going to be enough in and and if not managed appropriately, of itself to fully offset the decline can be quite a destructive force. Paul Bloxham is Chief Economist in mining investment; but given Australia was very fortunate to for HSBC for the Australian and that house prices are rising, and the have held strong ties with countries New Zealand economies, and a housing construction cycle looks to like China which survived the GFC critical member of the HSBC Global be in an upswing, those two factors in reasonably good shape, and our Research team. Prior to joining should start to support an increase experience from the financial cycles HSBC, Bloxham was an economist in household consumption. The and challenges in the late 1980s within the Reserve Bank of Australia’s combination of those things will largely and early 2000s meant Australia Economic Analysis Department where offset the weakness in the mining was able to come into the GFC on he worked on overseas economies and sector and see Australia’s economy the front foot. This should teach us financial conditions sections, domestic continue to grow at fairly solid rates. that while luck plays an important forecasting and prices, while publishing It pays for people in the property role, you can never discount good a number of papers on housing and industry to have a good understanding information and risk management. „ household finance.

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JAMES PLEDGE AWARDED LIFE FELLOW James Pledge, managing director of Knight Frank Valuation (SA) has been inaugurated as a Life Fellow of the Australian Property Institute.

pon becoming and played an important role of his contribution to the a Life Fellow in in the mentoring of younger advancement of the Institute February, the API property professionals. and the property profession. state president Mr Pledge was gracious in Mr Pledge joined the Australian Tracy Gornall his acceptance of the award, Institute of Valuers and Land saidU Mr Pledge had made an saying that he had received Economists as an Associate in 1996 outstanding contribution far more from his time with and was elevated to Fellow in 2007. to the advancement of the the API than he had given. He Institute and the property talked of the strong friendships Education and work history profession as a whole. he had formed and of the great Mr Pledge studied for the Bachelor “He was elected national satisfaction gained in seeing the of Business in Property at the president of the API in May Institute develop and grow. University of South Australia, 2008 and is one of only 11 He went on to say that the completing his degree in 1996. South Australians to hold the opportunity to influence the At the time of joining the Institute position since the Institute was profession in just a small way he was manager of the Valuation founded in 1926. He fulfilled has been extremely rewarding. Division for Brock Partners Real many demanding national roles, “I’m honoured that the SA Estate and he joined Knight Frank serving on National Executive, Division and National Council in August 1996. In March 1999, he the National Finance Board, have recognised my contribution was appointed managing director the International Valuation in this way. To be able to meet of Knight Frank, a position he Standards Committee and members from a diverse range holds today. various sub-committees,” of professions, learn about He has a wide range Ms Gornall said. their day-to-day business lives of experience in valuation Mr Pledge held the position and, in some cases, build great consultancy, including major CBD of vice president of the South friendships has been a highlight.” offices, industrial investments, Australian Division between residential subdivisions and 2006 and 2010 and was apartment developments. He South Australian divisional CITATION FOR LIFE FELLOW specialises in hotel and leisure representative to the National MEMBERSHIP — JAMES assets of varying types and sizes, Professional Board in 2006, and ROBERT PLEDGE particularly gaming hotels. to National Council between The South Australian Division 2007 and 2011. recommended that Mr James Divisional activities Ms Gornall said that during Robert Pledge be awarded In March 2004, Mr Pledge was this time Mr Pledge worked Life Fellow Membership of invited to fill a casual vacancy on tirelessly for the profession the Institute in recognition the South Australian Divisional

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Council. He was subsequently elected to the position of divisional complaints officer in March 2005. In March 2006, he was elected as junior vice president and Divisional Professional Board representative. In 2007, Mr Pledge was elected “TO BE ABLE senior vice president of the South TO MEET Australian Division a position he MEMBERS FROM held until March 2010. A DIVERSE Mr Pledge is a member of the RANGE OF API Examination Panel and has PROFESSIONS, played an important role in the LEARN ABOUT mentoring of younger members THEIR DAY-TO- within the property profession. DAY BUSINESS LIVES AND, IN National activities SOME CASES, Mr Pledge was elected as the BUILD GREAT South Australian National FRIENDSHIPS, Council representative in May HAS BEEN A 2006 and became national vice HIGHLIGHT.” president in 2007. In May 2008, Mr Pledge was also elected as national president. During this time he worked tirelessly for the profession and fulfilled many demanding national roles including chair of the Finance Board, national executive, CMS Taskforce, International Valuation Standards Committee and the Pan Pacific Congress Committee. „

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YOUR FUTURE EMPLOYEE

The property industry will need to serve up some tough love if future property professionals are to rise to the challenge of the new economy, writes Rita Avdiev.

f one accepts the premise that A fast moving world of multi- the long decline of literacy skills has the real estate process is “a layered deals and complex derivatives now been overtaken by a reported series of crises tied together by a offered the opportunity to create growing lack of numeracy. critical path”, and that property hybrid structures with new asset The students are experts at has become global, fickle and classes and reap the stellar rewards the tech stuff — each new device a liquid,I one must also expect the future the results offered. welcome distraction from intense property professional to rise to the Having been dragged, kicking and and focussed learning. But can challenge of the new economy. screaming, into a new competitive Facebook, Twitter and YouTube be a Property education has come a environment, it was adapt or die teaching aid? Does this bode well for long way from catering to mid-20th for property academics. So adapt your future employee? The attitude century needs for valuation, property they did, and some of their brighter of “teach me, I don’t want to learn” management and basic investment skills. students have achieved careers of from some, coupled with demands for diversity, status, leadership and power infotainment as the teaching medium, built on their numerical ability, may not turn out to be a foundation imagination and conceptual skills. for a brilliant performance in EXPERIENCING However, not all will be as fortunate the workforce. FAILURE, LEARNING and driven as they. They’re in for a rude shock. Get HOW TO DEAL WITH IT There is universal acceptance that ready to dispense some tough love. „ TO AVOID REPEATING education for a career in adult life MISTAKES, IS CRUCIAL begins in primary school. A supportive PREPARATION FOR home environment is an essential FUTURE LIFE. ingredient for learning, in addition to good teachers with the ability and As global developments in asset passion to explain increasingly complex classes have moved property into concepts in simple language to pupils capital markets territory towards with falling attention spans. the end of the 20th century, the US Failure must be an option. and UK were securitising property, Experiencing failure, learning how to devising derivatives and creating new deal with it to avoid repeating mistakes, structures of increasing complexity. is crucial preparation for future life. Australian property education Failure is an ever present threat in rapidly fell short of the new skill level working life, so why not face it early? needed to manage the transition of In the second decade of the 21st property from a stodgy, long-term century, Australian primary and asset class into a racy securitised secondary education standards environment. Property educators have fallen well behind our Asian had to respond to a challenge from neighbours. We have seen a flight financial markets associations, which from complexity, as the basics of the had become the de-facto educators three Rs have been traded for socially- Rita Avdiev is managing director of property’s growing body of oriented learning. of property industry management post-graduate students who wanted a Property academics in consultancy The Avdiev Group and ticket to ride the new wave of change. undergraduate courses lament that fellow of the API (FAPI).

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016_AvdievOpinion.indd 016 3/10/2014 6:28:00 PM OPINION A 2014 PROPERTY OUTLOOK

By exploring last year’s property market values, RP Data’s TIM LAWLESS presents his forecast for 2014 as a breakdown of capital city trends.

to cool over the coming year. In fact we may already be seeing early signs that peak capital gains have passed in Sydney and Melbourne. Our expectation of a slowdown in capital gains in these markets can t face value, 2013 has Additionally, capital gains have be attributed to a few factors. been a strong year for been mixed across the capital cities, housing. Dwelling with Sydney and Melbourne standing values are likely to end out as the strongest markets. Dwelling RENTAL YIELDS 2013 around 9% higher values have increased by less than Firstly, rental yields in acrossA our combined capital cities 4% over the past 12 months (to end both Melbourne and Sydney have index; a dramatic turnaround from of October) in Canberra, Brisbane plummeted over the past two 18 months ago when the housing and Adelaide, while dwelling values growth cycles as dwelling values market was transitioning out of a 7.7% have declined over the year in Darwin rose substantially faster than rental peak to a trough slump in values. and Hobart. In contrast, Sydney rates. The typical gross rental yield While the headline capital gain values were up 11.6% over the 12- for a Melbourne and Sydney house is has been relatively strong, the rate month period and Melbourne values now just 3.4% and 3.9% respectively. of growth in dwelling values over recorded a 7.8% gain. The capital Yields this low are likely to act as a the current cycle has been subdued gains during this growth phase disincentive for investors, particularly compared with previous growth really started in Perth and Darwin. considering the previous high rate cycles. Over the past 18 months However, over the past six months or of capital gain and the prospect that dwelling values have increased by so the capital growth performance future capital gains may be lower over 10.2% compared with 20% over the in both of these cities has slowed. the medium term. This is exactly the same time frame in the previous cycle It is logical to expect those markets message that the Reserve Bank has (2009/10), 14.1% during the 2007 that have been very ‘hot’, in terms of been delivering over recent months to cycle and almost 30% over 2001/02. capital growth, will naturally start warn of the risk around speculative

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investing in the housing market; capital gains are likely to be lower over the coming decade than what has been seen over previous decades.

AFFORDABILITY Another factor that is likely to contribute to a slowdown in THE KEY CHALLENGE FOR THOSE INVESTING IN market exuberance across Sydney THE HOUSING MARKET OVER THE COMING YEAR and Melbourne will be affordability WILL BE TO BALANCE RENTAL INCOME WITH constraints. The median house EXPECTATIONS FOR CAPITAL GAIN. price in Sydney is around the $700,000 mark and in Melbourne it is around $600,000. With banks introduced by the Reserve Bank of the housing market and economy. under pressure to maintain prudent New Zealand, no more than 10% of lending standards, affordability new mortgages can have LVRs over and serviceability constraints are 80%) there is likely to be a heightened MORTGAGE RATES likely to enter the market. For key level of attention from APRA on high Mortgage rates are set to market segments, such as first home LVR lending activity levels in early remain low over 2014. The rate buyers and average to low income 2014. Recently released data from cutting cycle may be over or close families, finding the funds for a APRA showed that 34.7% of new to over, but most economists aren’t deposit has become increasingly Australian home loans had an LVR of expecting official interest rates to challenging in view of the strong 80% or higher, up from 33% over the rise during 2014. Currently, the ASX capital growth being exhibited June quarter. One of the key drivers cash rate futures index implies that in Sydney and Melbourne. of this high LVR lending activity is interest rates won’t rise until early The fact that unemployment is the strong level of investor activity in to mid-2015. While mortgage rates drifting higher is also likely to act the market, particularly in markets remain low, we can expect investment as a natural dampener on housing such as Sydney and Melbourne. This in housing to remain strong. market conditions. The national rate is also highlighted by the proportion of unemployment remains below of loans that are ‘interest only’, 6%. However, unemployment has which was recorded at 34.6% in CAPITAL CITY BREAKDOWN been trending higher and Treasury September, up from 34.3% in June. Cities that are earlier forecasts suggest the jobless rate will In balance, there are also going in the cycle and where capital peak around mid-next year at 6.25%. to be drivers of growth across gains haven’t been as high are Softening labour market conditions Australia’s housing markets. probably the ones to watch for are likely to be accompanied by higher capital gains over 2014. continued consumer caution to Brisbane is arguably the best make high commitment decisions POPULATION GROWTH example of a city showing strong such as purchasing a property. Population growth remains fundamentals. Gross rental yields strong, largely fuelled by net overseas are among the highest of any capital migration. While demographic (4.6% for houses and 5.6% for units), LENDING– statistics are unfortunately very slow while housing prices are much lower THE BANKING SECTOR to be published by the ABS (current than Sydney and Melbourne (median Another factor that may act to slow population estimates are to March house price in Brisbane is 36% lower housing markets is a tightening 2013), the trend in long term and than Sydney’s and 24% lower than of lending requirements from the permanent overseas arrivals remains Melbourne’s). Population growth banking sector. There is mounting relatively strong, indicating that is strong and there hasn’t been a focus on high loan-to-valuation overseas migration and, subsequently, substantial uplift in new dwelling supply, ratios (LVR) and while the Australian population growth, will remain high indicating a persistent undersupply of Prudential Regulation Authority over the foreseeable future. Population housing. Rental vacancies are around the (APRA) hasn’t been as overt as New growth implies demand for housing, 2% mark, according to the Real Estate Zealand’s Reserve Bank in imposing so the ongoing increase in the number Institute of Australia (REIA), which LVR restrictions (under recent rules of Australian residents is a positive for is likely to drive rents higher as well.

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Perth’s housing market has likely Although we may see housing opportunities that offer both rental passed peak growth conditions. We market conditions start to cool, at least income and prospects for capital are seeing rental rates now tapering at a macro level, over the coming year, gain are becoming more difficult. as Perth vacancy rates rise, and it doesn’t mean the housing market Outside of the capital cities transaction numbers, while trailing off is set for another correction. Our properties are likely to see a and yields are slightly below average. view is that growth in dwelling values continuation of the emerging trends We are also seeing the rate of overseas will slow to more sustainable levels, that have become evident during 2013. and interstate migration into Western broadly in line with income growth. Lifestyle markets are turning Australia slowing down, which is likely That said, income growth over the around after generally suffering larger to be in response to a wind down in the coming years is likely to be lower than than average declines in dwelling major infrastructure project pipeline what it has been over the past decade. values. Iconic coastal markets like that is evident across many of the The key challenge for those the Gold Coast, Sunshine Coast, far resource intensive regions of the state. investing in the housing market over north Queensland and northern New Overall, if we do see the rate of the coming year will be to balance South Wales have all shown some dwelling value appreciation start to rental income with expectations for improvement in buyer activity and slow in Sydney and Melbourne—as capital gain. In our view, investors dwelling values over recent months. we expect will be the case—the overall should be approaching the housing Unit markets in these locations effect on the headline combined market with a balanced strategy — tend to be softer than detached capital city index figure will be more seeking out homes that will provide housing markets. Transaction substantial due to the large stock opportunities for long term capital numbers are rising from a low weighting associated with these cities. gains, whilst also returning a healthy base, but we would expect ongoing Sydney and Melbourne comprise about rental yield. With typical yields across improvements in these markets as 60% of the capital city dwelling stock, Sydney and Melbourne now below sea change migrants reconstruct so they have a much larger bearing on 4% for houses and slightly higher for their retirement savings and lifestyle the direction of the capital city index. units, finding balanced investment buyers become more confident.

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Regional commodity driven areas have shown a marked slowdown in buyer and rental demand over the past year as commodity prices have weakened and the major infrastructure pipeline tapers away. The significant A large part of the market First home buyers are currently at run-up in values that most of these performance will be determined historically low levels, and we don’t markets recorded prior to late 2011 by labour market conditions and see a material improvement in first (when commodity prices peaked) interest rate movements. A material home buyer penetration in the housing have now been substantially eroded downwards movement in home market over 2014, unless there are with a correction in values. The values has generally been driven by changes to grant eligibility or state level slowdown in these markets is moving higher unemployment, potentially concessions for purchase costs such as from an exceptionally high base, causing mortgage arrears and a lower stamp duty. Affordability is a key barrier and we would expect these markets propensity for people to purchase for first time buyers and it is difficult to remain comparatively soft until homes. Whilst we can see evidence of to see an improvement in housing confidence returns to this sector. In unemployment and underemployment affordability unless interest rates fall saying that, for those investors or owner trending higher in 2014, it is still further (a scenario which is looking occupiers seeking to buy into these very hard to envisage a material less likely) or dwelling values show mining centric locations, prices are increase in unemployment without a marked correction (also unlikely). now much more realistic and rental some external economic shock, What is more probable is that first home yields generally remain well above and hence any subsequent material buyer preferences, particularly in the what you would find in a capital city. downwards correction in home values. most expensive areas of the country, Overall, our expectations for Labour markets are softening with will continue to move towards more next year are somewhat different higher unemployment and less full affordable housing options such as to what was recorded over the past time job growth. That said, overall medium and high density dwellings, 18 months. Growth rates across unemployment remains low and the which offer more affordable price Sydney and Melbourne are currently forecast peak at 6.25% remains very points but are also close to established unsustainable and it is reasonable low by international standards. Interest infrastructure and amenity. „ to expect the capital gains to slow rates are set to remain low for at least from the highs recorded over the the foreseeable future. With some second half of 2013. Brisbane is downward pressure on the Australian showing the best fundamentals and dollar, there may be a change in views our view is that capital gains will about when interest rates are going to start to outperform the broader rise; currently financial markets are capital city average over the coming suggesting it won’t be until 2015. year. Perth, Canberra and Darwin Investors are likely to remain have likely passed their peak growth a large component of the housing cycles and can be expected to show market over 2014. As long as interest a much flatter rate of growth in rates remain low, direct property 2014. Adelaide and Hobart show an investment is expected to be a popular absolute affordability advantage over choice. There is likely to be a shift the other capital cities. However there in investor demand away from the are numerous economic challenges low yielding markets like Melbourne for both of these regions to overcome and Sydney, towards higher yielding TIM LAWLESS IS RP DATA’S NATIONAL RESEARCH before buyer demand substantially markets such as Brisbane, which are DIRECTOR, AND HEADS UP THE COMPANIES improves to drive capital gains. also much earlier in the growth cycle. RESEARCH AND ANALYTICS TEAM.

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GDP AND CITY POPULATION IN THE DEVELOPMENT Shanghai, Bangalore, Detroit and New York) in a range of calculations PERFORMANCE OF using Gross Domestic Product (GDP) and Population (POP). These CITY STRUCTURES calculations and analyses included: • Velocities to examine the change MICHELLE LEONG GLASTRIS presents the in GDP and POP over time; • Economic resilience, which methodology and major findings of her research measures the responsiveness of into GDP and city population as key drivers in economic prosperity relative to city structure population and is city structure development. calculated by dividing the GDP velocity by the population velocity; his research focuses on the where GDP and city population • City structure development stages: The evolution and development synergise and potentiate effects. historical annual average population performance of city This research aims to provide insights velocity was calculated for both structures. Cities undergo into the development performance of city Oxford Economics and United Nations various transitional structure phenomena and suggests how it datasets, and compared to evaluate phasesT of development at different rates can be used to better inform stakeholders’ if aspects of city development stages of growth, impacted by events and decisions and direct structural change could be quantified. Similarly, the structural changes. Ideally, a city aspires on the development of cities. historical annual average economic to remain functionally viable, resilient resilience was then calculated for and dynamic as part of its evolution. the period 1980-2012 for the Oxford A city structure is defined as an RESEARCH METHODOLOGY Economics dataset and compared to evolutionary process determined by The methodological approach evaluate if aspects of city development its network of functional activities, develops an evaluative framework and stages could be quantified; and relationships, capital and knowledge tools for city structure development • Points of Confluence: An analysis flows, which influence its growth performance. The process involves: of historical annual averages and density as it transitions through 1. Data collection and for population velocity and a series of development stages. treatment input: Driver data was economic resilience was plotted In this paper, the major findings collected, compiled, converted, to provide a comparison to of GDP and city population are transposed, screened, and checked further evaluate and quantify city presented as key drivers in city prior to the analysis stages. structure development stages. structure development and provide 2. City structure development 3. Compositional aspects of city an evaluative framework and tools, performance trajectory analysis: structure population: For the which are then used to examine city Oxford Economics data was used for six key cities, compositional aspects structure development performance the six key cities (Sydney, Guangzhou, of city structure population were

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assessed in order to evaluate how these collectively shape the development TABLE 1: KEY CITIES performance of city structures. City Country Indicative Development Stage Where pertinent, this was compared Bangalore India Early Emerging against some cross reference cities. Guangzhou China Emerging 4. Compositional indicators: Trends Sydney Australia Maturing in population density, net migration, total dependency ratio and completed New York United States of America Mature tertiary educational attainment Detroit United States of America Obsolescence - Decline were briefly examined in terms of Shanghai China Obsolescence - Regrowth how they impact city population. Research Developed By: Leong Glastris 5. Population magnitude, density and development performance FIGURE 1: CITY STRUCTURE GDP VELOCITY trajectory benchmarking:

A comparison of population 60,000 magnitude, density, velocity and economic resilience was undertaken 40,000 and Shanghai was cited as an 20,000 example of how future development performance could be benchmarked against historical performance. -20,000

City selection -40,000

Data was collected for the following -60,000 six cities and their four respective City Structure GDP (US$M Velocity pa 2005) 2011 2010 2012 1991 1981 1997 1987 1992 1993 1994 1995 1996 1998 1999 2001 1982 1983 1984 1985 1986 1988 1989 1980 1990 2007 2000 2002 2003 2004 2005 2008 2006 2009 F2013 countries listed in Table 1. Time (Years) The six cities selected provide DETROIT City Structure GDP VELOCITY NEW YORK City Structure GDP VELOCITY a reasonable cross-section of city SYDNEY City Structure GDP VELOCITY structure development performance GUANGZHOU City Structure GDP VELOCITY SHANGHAI City Structure GDP VELOCITY at different development stages. BANGALORE-KARNATAKA State Structure GDP VELOCITY Source: Oxford Economics The cities were classified into Research, Methodology and Analysis Developed By: Leong Glastris indicative development stages to facilitate analysis and to examine if there are common development FIGURE 2: CITY STRUCTURE POPULATION VELOCITY performance characteristics. These 1,400,000

key cities form part of a broad 1,200,000 geographic representation. 1,000,000

Data sources and limitations 800,000 Institutional data was sourced from 600,000 both primary and secondary database sources, including the United Nations, 400,000 World Bank and Demographia. Where 200,000 there was insufficient economic data - at a city level, customised data for City Total Population and GDP was -200,000 City Structure Population Velocity (No. of People pa) (No. of People Velocity City Structure Population 2011 1981 1991 2010 2012 1987 1997 1982 1983 1984 1985 1986 1988 1989 1992 1993 1994 1995 1996 1998 1999 2001 1980 1990 2007 2000 2002 2003 2004 2005 2008 2006 obtained from Oxford Economics. 2009 F2013 Data limitations included Time (Years) DETROIT City Structure GDP VELOCITY difficulties in: NEW YORK City Structure GDP VELOCITY • Obtaining accurate data; SYDNEY City Structure GDP VELOCITY GUANGZHOU City Structure GDP VELOCITY • Obtaining consistent and reliable SHANGHAI City Structure GDP VELOCITY data over a significant time BANGALORE-KARNATAKA State Structure GDP VELOCITY Source: Oxford Economics series (ideally 20-60 years); Research, Methodology and Analysis Developed By: Leong Glastris

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• Obtaining data at a country Structural changes GFC hit, with the tumble of major and city level for a wide Another consideration is the global investment banks where GDP range of cities; and impact of underlying structural velocity was severely impacted. Over • Different data assumptions changes on the economy over a a longer timeframe, New York’s GDP and their methodologies from long period of time (e.g. waves of velocity has historically averaged a range of data sources. technological innovation, impact of US$16,000m per annum. Detroit, globalisation). Evaluating structural with its dwindling car manufacturing Data was updated for each change is important, particularly for base and economic woes, has of the indicators in the 31 government and policy strategists struggled along with the lowest cities between 1950-2013 for wanting to improve a city’s output average velocity of US$900m per cross-referencing purposes. and productive capacity. However, annum. Sydney, with its diversified The institutional data was the downside of poor development financial base and its well regulated reasonably reliable given the use of performance has long-term banking system, has been relatively four key data source providers with consequences. Ghost cities in China’s stable with an average velocity of strong reputations for developing Kangbashi New District and Ordos US$4000m per annum. In Bangalore, robust research methodologies and were constructed in order to drive velocities averaged US$3600m per providing reasonably accurate, economic and property development annum, while not surprisingly, reliable, timely and consistent data. but currently do not have the Chinese high economic growth underlying demand to support cities such as Guangzhou recorded development sustainably in the an average velocity of US$7400m RESULTS short-medium term (Miller 2012). per annum and Shanghai an average It is noted the timeframe for velocity of US$8800m per annum. Key city overview the analyses is up to 33 years and From the analysis of these key In evaluating development covers events, structural changes, as and cross reference cities over a performance trends, there are two well as several business/economic 33-year timeframe, ‘Emerging’, key types of events and structural cycles. Subsequently, development ‘Early Emerging’ and ‘Obsolescence changes that impact cities. performance determinants such as – Regrowth’ cities tended to have Events velocity and economic resilience relatively higher GDP velocities, which The first are macro/global/ can more accurately gauge a city’s reflect their early growth/regrowth trans-regional events (e.g. 1930s response to macro/global events or stages. In comparison, the more Great Depression, World War I city/country specific events and assess developed ‘Maturing’ and ‘Mature’ and II and the 2007-2009 Global longer development trajectories. cities had lower economic growth rates Financial Crisis), which have led to In assessing longer development and relatively lower GDP velocities, systemic ramifications globally. trajectories, future performance while Obsolescence – Decline cities The second type refers to can be benchmarked against had low economic growth and tended country/city specific events such historical performance and provide to have the lowest GDP velocities. as government political regimes a better understanding of the The largest fluctuations in (e.g. the Communist Cultural impact of future macro/global population velocities (Figure 2) Revolution) or where location events on a city structure’s future occurred in Bangalore (Early specific/localised events (e.g. development performance. Emerging stage), Guangzhou Olympic Games) may impact on a Using a common, integrated (Emerging stage) and Shanghai city structure’s population and GDP. evaluative framework enables a (Obsolescence – Regrowth stage). In the following analyses, quick like-for-like comparison The overall city population velocities some of the macro/global/trans- across cities in different development have trended upwards for Guangzhou regional events can be identified stages and geographic regions. and Shanghai as urbanisation levels across the six cities examined rise and more people flock to the through signature characteristics City structure development cities for better employment and such as a large amplitude, performance trajectory analysis standard of living prospects. aftershocks and/or lag responses. GDP and population velocity Bangalore-Karnataka state has Identifying country/city GDP Velocities varied markedly (see shown an overall downward trend (unique/idiosyncratic) events Figure 1). Key cities were all adversely as Bangalore’s dominant IT sector for each city falls outside the affected by the GFC (2007-2009). A comes into maturity and strong immediate scope of this research. notable example: New York is a global growth and employment prospects financial centre and took the hardest ease for residents and workers.

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New York (Mature stage) has seen periods of negative economic resilience velocities. In contrast, least Maturing a prolonged dip in its population when impacted by a macro event such (Adelaide) and Obsolescence – Decline velocity (2000-2013) attributed to as the GFC. These cities demonstrated (Detroit) cities had average velocities existing residents and workers and a low negative resilience historical below 14,000 people per annum. More new migrants locating to other cities averages. In contrast, cities regarded established Maturing cities (Sydney for better employment opportunities. as Maturing (Sydney, Berlin and and Melbourne) averaged 43,400 and This was further exacerbated by the Toronto) and Mature (New York, 38,200 people per annum. Mature employment fallout from the GFC. London, Paris and Tokyo) tended to cities (New York) still recorded high Sydney has exhibited a relatively have higher/high resilience and were population velocities of around stable city population trend given the able to more rapidly bounce back from 120,700 people per annum. If the city relatively less adverse GFC impacts the GFC; here amplitudes tended to be structure was considered a mega-city sustained. For cities in Obsolescence relatively large and periods of negative (city population of more than 20 – Decline, Detroit’s population resilience tended to be shorter/short. million [UN-HABITAT 2008]), these velocity has been in the death knell velocities were more pronounced zone, recording negative velocities, in light of the significantly higher while Manchester and Budapest City structure development stages population figures. When compared exhibited a similar trend. The city of and points of confl uence across a wider sample of cities, Detroit recently filed for bankruptcy To provide an indicative gauge of these trends remained applicable. and with diminishing employment city structure population velocities, In examining city structure opportunities and city service a historical annual average was economic resilience, an historical provisions, many people are leaving to calculated for each of the key cities annual average was calculated for each pursue better opportunities elsewhere. in 1980-2010 for the UN dataset and of the key cities between 1981-2012 Similar to the GDP velocity trends, was cross checked against the Oxford using the Oxford Economics dataset. Early Emerging and Obsolescence – Economic dataset. This provided a This also provided a cross-sectional Regrowth cities recorded relatively high cross-sectional snapshot to determine snapshot of discernible city structure population velocities in light of their if there were discernible city structure development stages and trajectories early growth/regrowth phases. The development stages and trajectories (Figure 5). The least economic more developed Maturing and Mature (Figure 4). Cities regarded as Early resilient city structure was Detroit, cities had lower population velocities Emerging (Bangalore), Emerging with a historical average of -14%, but with the exception of mega-cities such (Guangzhou) and that underwent an when compared to other Obsolescence as New York and Tokyo, with their Obsolescence – Regrowth (Shanghai) – Decline cities, was not as extreme significantly large population size. recorded the highest population as Manchester (-190%). Early Obsolescence – Decline cities tended to record the lowest population velocities. Again, this FIGURE 3: CITY STRUCTURE ECONOMIC RESILIENCE trend generally held true when tested 60% 700% across a wide range of cross reference 40% cities and the population velocities 600% 20% tended to be more pronounced 500% 0% when comparing mega-cities (e.g. 400% -20% New York and Shanghai) with more than 20 million people. -40% 300% -60% 200% -80% Economic resilience 100% -100% (US$M %) 2005 per No. of People, City structure economic resilience City Structure Economic Resilience -120% 0%

(Figure 3) measures the responsiveness (US$M %) 2005 per No. of People, -140% -100%

of city structure’s economic prosperity City Structure Economic Resilience York New 2011 2010 2012 1991 1981 1997 1987 1992 1993 1994 1995 1996 1998 1999 2001 1982 1983 1984 1985 1986 1988 1989 1980 1990 2007 2000 2002 2003 2004 2005 2008 2006 2009 relative to population (i.e. GDP F2013 Time (Years) velocity/POP velocity). Between DETROIT City Structure GDP VELOCITY 1980-2010, the analysis showed NEW YORK City Structure GDP VELOCITY SYDNEY City Structure GDP VELOCITY Obsolescence – Decline cities, e.g. GUANGZHOU City Structure GDP VELOCITY Detroit, Manchester and Athens, SHANGHAI City Structure GDP VELOCITY BANGALORE-KARNATAKA State Structure GDP VELOCITY tended to exhibit greater fluctuations, a Source: Oxford Economics slower response/lag time and prolonged Research, Methodology and Analysis Developed By: Leong Glastris

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Emerging (Bangalore), Emerging (Guangzhou) and Obsolescence – Regrowth city structures tended to average positive small economic resilience numbers of around 1-4%. Maturing (Sydney) and Mature (New York) city structures exhibited greater resilience and responsiveness at 10% and 86% respectively. The ‘Points of Confluence’ graph FIGURE 4: CITY STRUCTURE POPULATION VELOCITIES (Figure 6) was used to plot economic 1980-2010 resilience against population velocity

750,000 to better evaluate and quantify city 700,000 UNITED NATIONS OXFORD ECONOMICS structure development stages and 650,000 600,000 common characteristics. Data for 31 550,000 cities was plotted to more accurately 500,000 450,000 define the city structure development 400,000 stage parameters. Obsolescence – 350,000 300,000 Decline city structures (Detroit) 250,000 by virtue of their lower population 200,000 150,000 velocities and negative economic 100,000 50,000 resilience levels were contained within the lower left of the chart, -50,000

City Structure Population Velocity (No. People pa) (No. People Velocity City Structure Population formatted as an orange box.

PERTH Maturing (Sydney) and Mature SYDNEY DETROIT ADELAIDE BRISBANE SHANGHAI NEW YORK MELBOURNE GUANGZHOU (New York) city structures were BANGALORE* positioned further along to the right EARLY EMERGING EMERGING MATURING MATURE DECLINE RE-GROWTH because of their higher population Cities (Sorted by Development Stage and then by increasing UN Pop Velocity) velocities and wider amplitude (i.e. greater responsiveness) on the Source: United Nations & Oxford Economics Research, Methodology and Analysis Developed By: Leong Glastris Note *Oxford Economics uses State of Karnataka for Bangalore Economic Resilience axis —formatted as blue and turquoise boxes respectively. Whilst Early Emerging (Bangalore), Emerging (Guangzhou) and FIGURE 5: CITY STRUCTURE ECONOMIC RESILIENCE Obsolescence – Regrowth (Shanghai) 1980-2012 HISTORICAL ANNUAL AVERAGE city structures had higher population velocities, they were less able to 100 respond/adapt and were confined to a relatively narrow economic resilience 80 band — respectively formatted as

60 green, pink and purple boxes. Based on the sample 40 cities analysed, the following

20 can be inferred: • Obsolescence – Decline 0 city structures tend to have historical average economic -20 resilience figures that are PERTH SYDNEY Economic reilience (US$M %) 2005 per No. of People,

DETROIT predominantly negative; ADELAIDE BRISBANE SHANGHAI NEW YORK MELBOURNE GUANGZHOU

BANGALORE* • Maturing and Mature cities

EARLY EMERGING EMERGING MATURING MATURE DECLINE RE-GROWTH do exhibit negative economic

Cities (Sorted by Development Stage and then by increasing Economic Resilience) resilience, but show an adaptive capacity to bounce back relatively Source: Oxford Economics Research, Methodology and Analysis Developed By: Leong Glastris quickly from the adverse impact

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FIGURE 6: CITY STRUCTURE POINTS OF CONFLUENCE of a macro/global event. Cities City Structure: POP Velocity vs Economic Resilience such as New York recorded a 100 New York 80 larger amplitude but recovered ) % (

60 quickly over a shorter period of e SydneySydney c

n 40

e PerthPerth

i time compared to Obsolescence

l Sao Paulo i 20 s Adelaidee Bangalore Mumbai Shanghai e – Decline city structures such as R 0

c BrisbaneBrisbane i Guangzhou Beijing m -2 0 MelbourneMelbob urne Detroit, Athens and Manchester, o Detroitoit Los Angeles n

o -4 0 which take a longer time and c E -6 0 e

r more fluctuations to recover u

t -8 0 c u

r from the aftershocks of the GFC.

t -1 0 0 S

Singapore Berlin Toronto Hong Kong Moscow Auckland Boston y

t -1 2 0 i Jakarta

C Johannesburg -1 4 0 Paris Tokyo London Compositional aspects of -1 6 0 Budapest Athens Manchester city structure: Building a -1 8 0

-2 0 0 comprehensive profi le -50,000 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 550,000 600,000 650,000 700,000 City Structure Population Velocity (No. of People pa) Further analysis was undertaken Early Emerging Maturing Obsolescence -Decline on the compositional aspects of Emerging Mature Obsolescence - Re -Growth city structure to build a more Note: Historical Annual Average Comparisons for 1980-2012. UN City POP Velocities for Bangalore & Mumbai Substituted for OE State Pop Velocities. comprehensive profile of the Source: Oxford Economics & United Nations Research, Methodology and Analysis Developed By: Leong Glastris individual city structures — these comprised compositional indicators, population magnitude, population FIGURE 7: POPULATION DENSITIES density and benchmarking Compositional Aspects: City Structure Population Densities population velocity and economic

14,000 resilience performance.

12,000 Net migration 10,000 With regards to compositional 8,000 indicators, city structure and 6,000 country level indicators were used to 4,000 build a better understanding of the 2,000 population demographics. For the 0 purposes of this paper, whilst three of the four indicators selected are at PERTH SYDNEY DETROIT ADELAIDE BRISBANE SHANGHAI NEW YORK a country level (due to an absence BANGALORE MELBOURNE GUANGZHOU

City Structure Popoulaiton Density / km2) (No.City Structure Popoulaiton of People in city level data), larger issues EARLY EMERGING EMERGING MATURING MATURE DECLINE RE-GROWTH affecting migration, health, ageing Cities (Sorted by Development Stage and then by increasing Population Density) and education are often formulated at Source: Demographia a national government policy level. In this instance, city structure FIGURE 8: NET MIGRATION densities (Figure 7) Bangalore, 10,000,000 Shanghai and Guangzhou had the

8,000,000 highest densities as at 2012. In terms of net migration (Figure 8) up until 6,000,000 2012, migration levels have been on

4,000,000 the rise in the USA, relatively stable in Australia and generally on the decline 2,000,000 in China and India — these trends have 0 clear impacts on city population levels. The Total Dependency Ratio -2,000,000

Net Migration (Number of People pa) MigrationNet (Number of People (TDR Figure 9) not only reflects the -4,000,000 age composition of the population, 2010 1970 1975 1965 1985 1995 1980 1960 1990 2000 2005 but also the potential economic and Time (Years) social burden placed on those in the USA Net Migration AUSTRALIA Net Migration CHINA Net Migration INDIA Net Migration workforce supporting the young and Source: World Bank

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APPLICATION: CITY STRUCTURE DEVELOPMENT PERFORMANCE In developing an integrated framework and tools to evaluate city structure development performance, the following has been advocated using the two key drivers, GDP and city population: • Assessment of development performance ideally 20-60 years provides a reasonable period to capture city/country events, several business/economic business cycles, and gauges how well a city responds to a macro/ global/trans-regional event as well as structural changes. • A better understanding of historical and future development performance elderly demographic segments. As to note the population magnitude to trends by undertaking the two the ageing demographic becomes assess if growth levels are coming off a key analyses: Development the dominant segment in USA, low base, or whether the city structure performance trajectory Australia and China, the TDR has has mega-city status. In this instance, analysis and compositional turned around and started to rise, both New York and Shanghai qualify aspects of city structures. while only India has a larger segment as mega-cities. Population density • Key stakeholders (e.g. of younger workers to support provides insights into how tightly government departments and the young and elderly segments. packed people are inhabiting their agencies, lobby and community An increasing TDR also adversely city; the reliance on mass transit or groups, transnational affects future economic capacity and public transport system to transport corporations, investors, prosperity unless the fertility rate residents, workers and visitors; planners, developers) can use the rises and skilled migrants are used to and the capacity to absorb higher proposed research to rationalise supplement the existing workforce. population levels in conjunction and identify challenges and Completed tertiary educational with evaluating existing and future growth opportunities. attainment (Figure 10) is an land, housing, infrastructure • Use of the proposed research important indicator for future and amenity capacity levels. enables key stakeholders to economic productivity and prosperity Both population velocity and have a common platform for as countries/cities move towards economic resilience can also be use in discussions, further knowledge-based industries, which used to provide useful benchmark investigations and contributions. require higher level problem solving information about historical and and lateral thinking skills from highly future city structure development educated workers. According to the performance, such as development CONCLUSION World Bank, whilst the levels are trajectories. For example, Shanghai The development of city structures rising, the USA and Australia have has a historical average population is a dynamic, complex process and a significantly higher attainment velocity of around 397,900 people an adaptive system responding to a level compared to China and India. per annum (1980-2010) but between wide range of influences and events. Further improvements in tertiary 2015-2025, this forecasted average In the evaluative framework and tools education completions will be is expected to trend significantly for investigating the development required to transition the majority higher at 590,000 people per annum, performance of city structures, GDP of China and India’s workforce from and as its workforce and residential and city population have proven to manufacturing and low-level service population learns to adapt and be strong key drivers. Together they jobs to knowledge-based jobs. become more responsive, its economic form part of a retinue of governance, Whilst growth rates have been resilience is expected to significantly economic, social and environmental evaluated (Table 2), it is also important improve from 1.5% to 24.1%. drivers as a multi-disciplinary approach

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FIGURE 9: TOTAL DEPENDENCY RATIO to evaluating city structure development performance in the doctoral research. 140 Development performance 120 trajectory analysis for velocity and resilience can provide useful insights 100 into historical and future development

80 performance of city structures, and the development stages of city 60 structures. Points of confluence

40 (economic resilience versus population

Total Dependency Ratio Total velocity) can be used to evaluate and 20 quantify city structure development stages and common characteristics. 0 The analysis of compositional 2010 1970 1975 1985 1995 1965 1980 1990 1960 2000 2005 F2015 Time (Years) aspects of city structure population USA Total Dependency Ratio AUSTRALIA Total Dependency Ratio builds a more comprehensive profile of

CHINA Total Dependency Ratio INDIA Total Dependency Ratio a city structure, where compositional Source: United Nations indicators and development performance benchmarking give insights into the future productivity, FIGURE 10: COMPLETED TERTIARY EDUCATIONAL ATTAINMENT capacity and resilience of city structures. The proposed evaluation 30 framework and tools can be used by stakeholders to better understand 25 city structure phenomena and to improve the future development 20 performance of city structures. „

15

10 THIS ARTICLE IS AN EDITED VERSION OF

15+ years (% Total Population) years (% Total 15+ 0 A CONFERENCE PAPER PRESENTED AT THE STATE OF AUSTRALIAN CITIES CONFERENCE Completed Tertiary Educational Attainment, Completed Tertiary 0 2013, SYDNEY AUSTRALIA, 26-29 NOVEMBER 2010 1970 1975 1985 1995 1980 1990 2000 2005 2013. THE FULL PAPER COMPLETE WITH F2015 Time (Years) LITERATURE REVIEW AND REFERENCES CAN USA Total Dependency Ratio AUSTRALIA Total Dependency Ratio BE ACCESSED AT http://idg.to/jCy Source: World Bank CHINA Total Dependency Ratio INDIA Total Dependency Ratio

TABLE 2: COMPOSITIONAL ASPECTS OF CITY STRUCTURES Compositional Aspects of City Structures: Population Magnitude1 Population Velocity3,4 Economic Resilience3,4 Population Density2 City Structure as at 2012 as at 2013 as at 2013 (No. of People / km2) (M, No. of People) (No. of People pa) (%) Detroit 4. 6 1100 33,500 7.2 New York 20.8 (mega city) 1800 163,900 16.3 Sydney 4.7 1900 33,400 7.7 Guangzhou 11.6 5600 218,300 5.6 Shanghai 21.6 (mega city) 6200 548,700 2.9 Bangalore 9.3 12,300 549,000 0.9

Sources: United Nations1, Demographia2, and Oxford Economics3, Research, Methodology & Analysis Developed By: Leong Glastris4

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HOTEL MARKET PEFORMANCE DRIVING OFFICE CONVERSIONS

In response to growing demand for hotel investment in capital cities, GUS MOORS details how under-utilised commercial office space can be converted to fill this market gap.

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HOTEL MARKET OVERVIEW both offshore and domestic investors. capital expenditure requirements for The Australian hotel market has Figure 2 highlights the total hotel many of these landlords. Furthermore, proven to be surprisingly resilient sales on assets greater than $10 many capital cities are experiencing these past few years, weathering million over the past 15 years — 2013 substantial new commercial office the economic downturn, record was a record year, with over $1.86 supply, which will place further high currency levels and rising billion in sales. The two largest pressure on the B and C grade outbound tourism, among other transactions came from Middle assets. According to figures from the factors. As Figure 1 shows, capital city Eastern and Korean investors entering Property Council of Australia, supply occupancies have been consistently the Australian hotel market for the of CBD office space across the country strong, and rank among some first time — further evidence of the is expected to be approximately of the highest levels globally. international appeal of our sector. 908,353 sqm over the next two years, Total returns for the hotel sector Despite this positive picture, with an additional 271,183 sqm have also outperformed most other new-build hotel developments expected in 2016 and beyond, with asset classes these past three years, continue to be a challenge, with a further 1 million sqm of space and while they may have come back little access to affordable land in mooted. Large-scale projects such marginally in 2013, the overall return appropriate locations, while sourcing as Barangaroo in Sydney are behind has piqued the interests of non-hotel debt at viable loan-to-value ratios is this significant increase in supply. investors. The most recent figures a further hurdle. With an increasing Given the divergent outlook for available from IPD report total returns weight of capital chasing limited these two sectors, it is not surprising from the hotel sector averaged 11.8% existing hotel stock, and minimal many commercial building owners over the past three years, compared new-build stock entering the market, and developers are now seriously with 9.2% for retail, 9.8% for office investors and developers are now exploring the option of converting and 9.9% for the industrial sector. searching for new ways to bring office buildings, particularly The supply outlook across most hotel product to the market. lower grade assets, into hotels. capital cities continues to look relatively benign, and while there COMMERCIAL MARKET OVERVIEW FACTORS FOR A are a number of projects in the In contrast to the hotel sector, the SUCCESSFUL CONVERSION pipeline, most of this new supply commercial market is experiencing While there is no ‘cookie cutter’ is scheduled for 2016-2018. This more challenging times. Figure 3 approach to hotel conversion, suggests a period of continued growth summarises the vacancy rates across there are a number of key issues and, given the strong occupancies the capital city office markets by to review when considering a noted above, this is likely to come grade A, B and C as at January 2014. conversion. These include: through in room rates, which in turn Leasing incentives are as high as • Location — it goes without drive enhanced operating profits. 30% for C grade commercial office, saying that location is key and Given the healthy outlook for as landlords strive to attract and proximity to demand drivers the sector, this has translated into retain tenants. Obsolete design and for the hotel is essential. This strong investment appetite for increasing requirements for energy means there should be corporate Australian capital city hotels from efficiency are also looming as material offices within a two-block radius to provide midweek demand, FIGURE 1: AUSTRALIAN CAPITAL CITY HOTEL as well as leisure-based drivers OCCUPANCY RATES 2010-2013 such as theatres, entertainment, restaurant and retail precincts Occupancy 2010 2011 2012 2013 close by for weekend demand. Sydney 86.5% 85.7% 84.3% 86.1% • Vehicle access — access to the hotel is critical on a number Melbourne 79.1% 80.1% 80.7% 83.7% of fronts. Guest drop off/set Brisbane 80.1% 80.6% 79.7% 77.5% down zones are important, so Perth 81.1% 84.3% 84.2% 83.3% allowance needs to be made for this in the street frontage. Car Canberra 80.8% 74.1% 74.4% 71.1% parking should ideally be on-site Darwin 74.9% 74.9% 79.8% 80.3% to offer easy access for guests and reduce pressure on the hotel’s Adelaide 75.3% 75.2% 76.3% 76.1% staffing costs. Delivery dock Source: STR Global/Colliers International access is also key, particularly

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FIGURE 2: MAJOR HOTEL SALES IN AUSTRALIA existing floor heights should be a minimum 2.7 metres to $2,000 allow the various services to be fitted. Low ceiling heights in hotel rooms are particularly difficult to operate, giving guests $1,500 a feeling of claustrophobia. • Lift location — Mr Black’s other tip is to consider the current $1,000 lift location when reviewing a conversion. While central core liftwells are becoming increasingly unpopular for $500 Value of Transactions ($ millions) Value office buildings, they can work effectively for hotels. The core to window depth generally requires

$0 around nine metres — any 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 greater than this may disrupt the Source: Colliers International efficiency of the room design. • Heritage Buildings — these if the hotel is to have large food particularly sensitive to both buildings have long held appeal and beverage components that external and internal noise. for hotel conversions, as their require frequent delivery and Consider the surrounding grandeur provides a “sense of storage handling areas. Ideally, the environment to determine if there arrival” and “wow factor” for guest access should be separate are above normal noise generators, guests. This is particularly topical, from the goods delivery access. particularly during the night (e.g. with the NSW state government • Light — it is essential that all large outdoor bars, nightclubs), offering the Department of Lands guest rooms have access to and if so, noise mitigation and Department of Education natural light, and ideally have techniques such as double glazing buildings to the market with the some vista (that is not the wall need to be factored into the potential for hotel conversion. In of an adjacent building). Hotels construction process. Internal Perth, the Old Treasury Building are able to extract higher rates on noise minimisation is almost is currently being upgraded as a rooms with attractive views, and a must, so retrofitted internal mixed-use development, which therefore the ability to provide this walls must have high levels of will include a boutique hotel. will help to sure up the feasibility noise insulation to minimise Existing examples include the numbers. Ideally, any conference transference between rooms. Hotel InterContinental Sydney, rooms should also have access • Back of house — sufficient The Westin Sydney, Radisson to natural light to increase the back of house areas need to be Blu Sydney, Sir Stamford at appeal. Given these requirements, it is important to review the surrounding environs to ensure that it can maximise the need IF HOTEL OPERATIONS ARE NOT FEASIBLE, for natural light throughout the THEN THE CONVERSION SHOULD NOT OCCUR front-of-house guest spaces. Peter — HOTELS ARE NOT A DEFAULT ALTERNATIVE Black, the national design director FOR UNDERPERFORMING OFFICE SPACE. for Colliers International’s project services team also recommends factored into the design in order Circular Quay, InterContinental giving consideration to the existing to operate the asset as a hotel. Melbourne, Adina Adelaide façade to ensure the mullions and Office space, storage for linen, Treasury, Adina Central Sydney configuration work with the room goods, trolleys, staff change and more recently 1888 by 8 module, otherwise there may be rooms and luggage rooms need Hotels in Pyrmont Sydney. The a need to replace the façade. to be appropriately sized to complexity of retrofitting a • Noise — while noise is part of cater to the needs of the hotel. heritage building for hotel use city living, hotel guests can be • Floor height — Mr Black advises should not be underestimated

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Cititel hotels from Malaysia in 2011 for $36 million, with plans to redevelop it to a 282-room property. Brisbane 80 Albert Street This ideally located CBD office block was purchased by Frasers Hospitality Group from Singapore in 2013 for $37.2 million. The plan is to convert this 19-story building into an apartment hotel. FIGURE 3: AUSTRALIAN CAPITAL CITY OFFICE VACANCY RATES Perth Corner St Georges Terrace Offi ce Market Vacancy A Grade B Grade C Grade and Barrack Street — Old Treasury Building Sydney CBD 9.8% 8.3% 7.8% The wonderful heritage building Melbourne CBD 6.3% 13.6% 11.6% owned by the state government is currently under redevelopment Brisbane CBD 10.6% 18.7% 12.6% for a mixed-use facility that will Perth CBD 10.2% 11.3% 12.3% include a 48-room boutique hotel. Canberra CBD 12.9% 12.7% 11.9% Completion of the project by FJM Property is expected in early 2015. Darwin CBD 8.9% 11.1% 21.3%

Adelaide CBD 11.0% 14.0% 11.5% Adelaide 45 King William Street Source: PCA/Colliers International This is a redevelopment of the 15-storey heritage office block known as the Colonial Mutual Life and additional contingency have picked up on this trend, or building. This redevelopment by the should be allowed for, to address state governments releasing sites Adabco Group will be known as the the great unknown. It is critical to help address the shortage of Mayfair Hotel and house 170 rooms. to use experienced designers accommodation supply in their capital and builders to ensure a quality cities. Outlined below are some of Canberra product that comes in on budget, the current projects being planned. Juliana House Hotel Conversion otherwise any feasibility can be This 1970s commercial office block, quickly blown out of the water. Sydney located in the suburb of Woden, 23-33 and 35-39 Bridge Street was previously home to numerous Most importantly, the The Department of Lands and government departments. Purchased underlying fundamentals should Education buildings — these two in July 2012 for $7.5 million, the support a hotel in its own right. magnificent heritage buildings have developer undertook a $32 million Hotels are complex, going-concern been offered to the market, with conversion, which now sees the businesses that are exposed to a a state government condition that site housing 153 rooms as part variety of different factors. If hotel any redevelopment includes a hotel of the Abode hotel chain. „ operations are not feasible, then component. The prime location the conversion should not occur — of the buildings is expected to hotels are not a default alternative attract upper-scale hotel operators for underperforming office space. seeking an iconic destination GUS MOORS IS NATIONAL to enter the Sydney market. DIRECTOR, TRANSACTION CURRENT EXAMPLES SERVICES, HOTELS AT COLLIERS A number of projects are already 34 Hunter Street INTERNATIONAL, AND HAS in the development pipeline driven This 12-story, B grade commercial WORKED IN THE HOTEL by either owner/developers who office building was purchased by INDUSTRY FOR 20 YEARS.

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The built environment must become n 10 January 2011, the Lockyer Valley in south-east Queensland more resilient to looming natural hazards experienced what was later in our increasingly sunburnt country. described as an ‘inland tsunami’. BONNIE GARDINER The devastation of the explores the localO community was significant. Research importance of climate change adaptation by Macquarie University found that some of the worst effects of the flash floods to the Australian property industry. were due to poor land-use planning. In order to mitigate the risk that the Grantham region might once again be left in tatters, the whole town was relocated to higher ground — an example of a community adapting to climate risk. But with such a wide array of natural disasters, set to occur more frequently and in new locations, property professionals have their work cut out for them.

CLIMATE ADAPTATION Australia and New Zealand are already experiencing impacts from climate change. In its whitepaper on natural disasters in Australia, the Council of Australian Governments (COAG) said analysis of disasters dating from 1967 shows Australia typically encounters approximately eight disasters each year, with the total cost per event greater than $10 million, and this has been steadily increasing since 1980. The CSIRO predicts that in the course of the century, hazard zones will change significantly, with shifting movement of the cyclone belt further south and flooding of rivers and coastal zones previously immune. Traditional strategies for dealing

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with severe events are not expected to cope with new patterns of impact. BUSHFIRES The Fourth Assessment Report released The latest heatwave in January destruction in their wake, by the Intergovernmental Panel on Climate saw a number of severe more frequent bushfires could Change (IPCC) states that since 1950 there bushfires in south-eastern cause total or partial fire, has been warming of 0.4-0.7°C, with more Tasmania and Victoria. This smoke, and water damage to heatwaves, fewer frosts, more rain in north- followed an early start to the building property and contents, west Australia and south-west New Zealand, fire season with October’s while reducing natural cooling less rain in southern and eastern Australia major bushfires in the Blue methods as surrounding and north-eastern New Zealand, an increase Mountains, the most destructive vegetation is incinerated. in the intensity of Australian droughts, in the region since 1968. A number of organisations and a rise in sea level of about 70 mm. The 2009 Black Saturday are working in this space “The amount that these trends increase bushfires in Victoria caused to learn how communities will depend on what the world does about the loss of 173 lives and and buildings can become climate change,” says Olivia Kember, were estimated to have cost more resilient to future national policy and research manager with $4.4 billion, while the Blue risks, including work by the Climate Institute. “But there’s still Mountains bushfires cost the CSIRO, Green Cross, and the climate change that’s baked into the system tourism industry $71 million. Bushfire and Natural Hazards from carbon we’ve already burnt, and As well as leaving major Co-operative Research Centre. that’s coming whether we like it or not.” The Australian Sustainable Built Environment Council (ASBEC) has argued implementation costs, enhancing that if the effects of climate change are efficiency and minimising damage. already being felt, risk management principles “It’s actually a lot cheaper to invest would suggest that our focus needs to change in something like reducing greenhouse from “how are we going to stop it?” to “how gas emissions than it is to not, in the are we going to become resilient to it?” long term,” says Ms Kember. “And it’s always cheaper to take some preparatory action rather than waiting to respond to CATCHING UP a major event, after it’s happened.” For the property sector, climate change There’s also a need to remove the adaptation includes decisions about land use, mindset that, following an event, we must infrastructure design, property management, simply promise to rebuild what was lost. and collaboration with other sectors. What “We’ve learned that the initial snap is planned, built or retrofitted today must responses that you hear on the news — ‘we’re be able to withstand climatic pressures going to rebuild everything, brick by and extremes 50 to 100 years from now. brick’ — that would probably not be a good “While local government have understood response,” says Kirsty Kelly, CEO of the climate risk and opportunity for some time, Planning Institute of Australia (PIA). the property sector is lagging behind,” says Ms Kelly says that it’s important to Neil Salisbury, director of Net Balance, understand what caused the event, whether there a sustainability consultancy firm. were built or natural causes that we can mitigate, “We know of property developers who and the likelihood of it happening again. have purchased land and then applied for “It’s really a risk management approach. planning permits only to be confronted by a Where we’ve got properties that are repeatedly range of climate change issues that they had being damaged by extreme weather events, we not factored in to the purchase cost, resulting should perhaps be looking at not rebuilding in significant financial burden,” he says. at all… it’s not about replacing like for Despite the lingering uncertainty like, but building back so that it’s more around climate change, ASBEC says today resilient to extreme weather impacts.” there are many “no regrets” measures While there is still plenty of uncertainty that can benefit all stakeholders — even around the precise impacts of climate change, in the absence of immediate measurable scientists feel some changes to Australian impacts — by reducing risk, decreasing climate are fairly certain: It will get hotter;

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sea levels will rise; and extremes such as dynamics and the erosion potential of the heatwaves, droughts and storm surge will particular landforms and the geology, so become more frequent and intense. you can’t necessarily just draw a line in the sand, it’s not that simple,” says Ms Kember. “On the other hand, if you go beach by SMARTER SOLUTIONS beach, that’s extremely complicated and Half of the nation’s infrastructure for you’re probably losing some opportunities and 2050 has yet to be built, so there’s a lot of resources… there’s got to a middle ground.” opportunity for property professionals to A number of councils have begun to contribute to a more resilient Australia. But incorporate future climate risks into regulation, one of the largest problems the industry but this is often met with strong community faces is how to improve existing properties. opposition, particularly where policies threaten “You have all the costs of existing properties existing use rights and property values. and people whose lives are tied up with Victoria’s Coastal Climate Change these places, so the earlier you start thinking Advisory Committee has warned that about these things, the better… the later you current strategic planning is unlikely to leave it the more pre-existing conditions deliver effective climate change adaptation you have to deal with, the more opposition due to a “lack of sense of priority across you are going to face,” says Ms Kember. state and within local government areas”. “I was shocked… in the wake of the recent New South Wales also recently overhauled bushfires by the number of houses that are its planning rules, with councils left under-insured or vulnerable… There’s a lot you “between a rock and a hard place”, according can do to make sure buildings are more fire to Ms Kelly, as they must now separate resistant and that people are more prepared.” immediate and measurable hazards such Dr Mark Stafford-Smith, science director as storms from longer-term threats. of CSIRO’s Climate Adaptation Flagship Dr Stafford-Smith says the fact that in Australia, says smarter design and there is exposure to climate risk doesn’t construction methods must be considered. necessarily mean it’s worth doing “Where people are asking for significant something about it immediately, once extensions on houses, or changed functions the costs and benefits are weighed. on managed commercial buildings, doing “That shouldn’t be an excuse for no things wisely creates a lot of opportunity action, it just says you shouldn’t overreact to construct resilient buildings that are and you shouldn’t underreact, and you more robust to a variety of conditions in the should make a very conscious decision future and, in fact, today as well,” he says. not to upgrade something rather than not “It continues to astonish me how often we don’t do it just because it’s difficult,” he says. make good decisions at a time when it doesn’t The Urban Development Institute of cost anything. Like turning a house around on Australia (UDIA) has suggested that more the block, at the planning stage, where all you’ve immediate action for sea-level rise could take got to do is turn the bloody drawing around.” the form of soft engineering strategies, such Dr Stafford-Smith says he hopes building as beach nourishment, beach reshaping and standards, higher-level regulation or incentives beach stabilisation; and hard engineering will help spur this way of thinking. solutions including groynes, seawalls, revetments, rock armour and gabions. THE CHALLENGE FOR LOCAL GOVERNMENT For impending sea level rise, local councils THE CROSS-SECTOR CHALLENGE are required to do far more engineering Other sectors also have to be innovative and environmental planning on a beach- in their dealings with the property by-beach basis rather than relying on sector, in particular utilities, which blanket UN predictions of a one metre are looking to protect their networks rise in global sea levels by 2100. while improving capacity. “Sea level rise does different things on “Through better planning and building different beaches, depending on the wave design we can reduce the demand for

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electricity, so I think we need to work on both WHAT’S ALREADY BEING DONE sides of the equation,” says PIA’s Ms Kelly. Various industry associations are already The insurance sector too will play a huge role beginning to facilitate climate adaptive activity. in the build-up and the aftermath of extreme The Australian Green Infrastructure weather events. Increasingly, underwriters are Council has produced Climate Change playing a more active role in insurance, with many Adaptation Guidelines for Infrastructure, areas being deemed uninsurable from the outset. while the Insurance Council of Australia has One scenario in regional Queensland developed the Building Resilience Rating saw Suncorp Personal Insurance CEO Mark Tool (BRRT) with Edge Environment, Milliner claim it will not be offering home and for residential property owners to assess contents insurance in Roma and Emerald unless the risk profile of their property, as well more flood mitigation measures were built. as operating the Building Resilience COAG has called on the insurance Knowledge Database (BRKD). sector to take active steps in improving The Green Building Council of Australia the availability of insurance as it extends has incorporated climate adaptation and to natural disasters, particularly with the resilience into its Green Star program, while exclusion of riverine flooding (and increasingly ASBEC has developed a framework for cyclones) from household and small business greater industry-government coordination. insurance policies, and the lack of a single The Green Building Council also helped to national definition of natural hazards. launch Green Cross Australia, an organisation “You have to look into the insurers’ policy that seeks to improve sustainability and on natural disasters; it’s uncertain anywhere community resilience to climate change in the literature whether climate change through the use of digital projects in is a natural disaster or an act of God, and partnership with respected business, research, nobody’s really looked into that — so certainly community and government groups. that’s an area that needs some attention,” The group is running several projects says Richard Reed, Professor of Property to facilitate adaptation, including ‘Harden and Real Estate at Deakin University. Up’, which focusses on building community “I think the challenge is they actually engagement and resilience, while ‘Build don’t know…because what is climate change? It Back Green’ is a project that ensures It’s such a broad, slow moving beast, and post-disaster reconstruction is sustainable. insurance companies usually work in the “It’s a bushfire recovery platform with a short term, so how do they factor that in?” green building guide that looks at built form

CYCLONES cyclones under climate change, with building components, leading to a all probability they will become more higher potential for total building Heavy rain, flooding and caustic intense,” says Dr Mark Stafford-Smith, collapse and destruction; and winds are all present with any major CSIRO. “But research shows that it’s - Cause damage to other cyclones. Cyclone Rusty was the almost certainly worth upgrading properties from flying debris. most intense tropical cyclone to make buildings now, because we’re not landfall in 2013, causing flooding in sufficiently protected against today’s The cyclone testing station operating out the Pilbara and Western Kimberley in risks, never mind the future ones.” of James Cook University in Townsville late February, while Cyclone Alessia found that, following the hit of Cyclone was the earliest tropical cyclone to The Garnaut Climate Change Yasi, the buildings built to cyclone make landfall in the Northern Territory Review found more intense tropical standards had some damage but in 40 years, in late November. Cyclone cyclones and storms could: remained whole. But more interestingly Yasi in 2011 was estimated to have - Increase moisture penetration they found that those properties built caused over $3.5 billion in damage of buildings, leading to prior to the 1970s incurred massive and lost business in Queensland. internal damage; damage, causing the flying debris - Lead to structural failures and responsible for a lot of damage to the “There is still uncertainty around the loss of roofing materials; cyclone-prepared buildings, as opposed what exactly will happen with - Cause the structural failure of to other direct cyclone impacts.

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materials, practices, products and services, and especially design, as a way to come back PROPERTIES BUILT PRIOR TO THE 1970S from these disasters that is actually going to INCURRED MASSIVE CYCLONE DAMAGE, cultivate our capacity to be even more resilient, CAUSING THE FLYING DEBRIS RESPONSIBLE more capable, more engaged locally,” says FOR A LOT OF DAMAGE TO THE CYCLONE- Mara Bun, CEO of Green Cross Australia. PREPARED BUILDINGS, AS OPPOSED TO Green Cross also works with businesses OTHER, DIRECT CYCLONE IMPACTS. with a focus on adaptation, sharing good practice, cultivating resilience within strategy, and developing commercial business models. “I think there’s a lot of money to be made by companies that understand climate risk,” says Ms Bun. “Once people work out that these whacko heat waves are not actually a once-off and we’re not even in an El Niño yet — there will be economic value for homes that can be marketed to use different practice and technologies.”

INDUSTRY LEADERS Developers have a strong social responsibility to ensure projects do not compromise HEATWAVES the long-term safety of those that will suffering the ‘urban heat island’ live and work in their developments. According to the Bureau effect, with the potential for a UDIA has committed to improving the of Meteorology, Australian number of flow-on issues that awareness of a full range of sustainability temperatures have warmed damage infrastructure, economy issues and introduced EnviroDevelopment approximately 1°C since 1950, and community wellbeing. Certification to educate both the industry and 2012-2013 included Record temperatures and the community about managing the hottest summer, hottest were set during the utilities, responsible building materials month and hottest day on heatwave in south-eastern and protecting our ecosystems. record. In 2008, The Garnaut Australia in early 2009, “It is essential that property professionals Climate Change Review during which the Basslink understand what they are required to do found that higher average Interconnector shut down when they consider a new development. We temperatures could: when temperatures exceeded recommend talking to the relevant approval - Place strain on energy design limits, reducing power authorities early in the development process supply networks and supplies to Melbourne. to make sure there are no ‘show-stoppers’ raise utilities costs; In addition, rail lines that prevent your innovation from being - Have an effect on the buckled causing delays in delivered to the market,” says Debra Goostrey, structural integrity of transport and decreased CEO of UDIA Western Australia. buildings, increasing the productivity, and there were Ms Goostrey says a very important factor risk of cracking or failure of 374 more deaths than would is the local climate zone for the property. building envelopes (roofing, normally be expected. For example, in Queensland rainwater tanks cladding, window systems); Kirsty Kelly, PIA, believes can be a very efficient way of capturing - Cause soil to dry out and the property sector plays rain and redistributing it, whereas in Perth, move, thereby undermining a critical role in tackling rainwater tanks are far less efficient as rain foundations; and heatwave effects through falls over a very short period of time. - Increase solar radiation, which better ventilation, designing “Do your homework; don’t just could also lead to the green space, considering copy innovation introduced in another degradation of plastics, wood materials and building form, location,” says Ms Goostrey. and surface coatings. the detailed design and The building and construction Australian cities have been orientation of buildings. industry obviously has a role in promoting

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natural hazard awareness and a culture of TAKE THE LEAD compliance with building standards, while According to Net Balance, while current policy architects and engineers must educate settings provide little impetus for developers their members in natural hazard impacts to consider climate risk, the issue is too great on structures, according to COAG. a threat not to start the discussion now. Meanwhile, land-use planning that takes “We understand there is confusion and a lack into account climate risks has been identified by of discussion in this area but it is vital that we start COAG as the single most important mitigation the conversation, turn talk in action and help shape measure in preventing future disaster losses. the regulatory framework,” says Mr Salisbury. Climate change is already one of seven units “I’ve seen studies about the various ways different OECD countries are grappling with rising sea levels, and by far Australia stands THERE IS CONFUSION AND A LACK OF out as the most laissez-fare. There’s the attitude DISCUSSION IN THIS AREA, BUT IT IS VITAL of ‘let the market sort it out’ … government THAT WE START THE CONVERSATION, is stepping back, so companies really need TURN TALK INTO ACTION, AND HELP to step up,” adds Green Cross’s Ms Bun. SHAPE THE REGULATORY FRAMEWORK. Currently, the consideration of climate NEIL SALISBURY, DIRECTOR OF NET BALANCE. change risks in legislation and planning policy varies considerably between Australian comprising the PIA’s Planning Practice Course, states and territories, which the Climate while the institute also works closely with the Institute think jeopardises adaptation, as Australian Institute of Emergency Management does an inconsistent and potentially outdated through the Attorney-General’s department. Building Code of Australia (BCA) and a “As an institute, we are looking at how lack of true community engagement. we equip the planning profession with the “What we need in Australia is some skills and knowledge to be able to adapt to adequate standards as to how to go about that changing future, as well as looking at integrating climate risk into your portfolio, how we can mitigate and reduce the risks and educating home buyers,” says Mr of that changing climate,” says Ms Kelly. Salisbury. “A lot of the consumers aren’t going to understand when they buy a place or live somewhere that it is prone to climate risk.” SEA LEVEL RISE - Cause contamination The availability of resources like maps of Rising sea levels are one from sewage, soil, and flood-prone and other vulnerable areas are also of the largest concerns in mud, rendering some important means of helping property professionals Australia as the land “girt by buildings uninhabitable; remain aware of the risks in certain locations. sea” and the broad preference - Intensify coastal erosion, “It’s amazing how the information commons of people to live on the which might lead to the loss haven’t caught up with flood maps… The sense coast. The IPPC notes that or damage of property; I get from the property sector is it’s mostly about ongoing coastal development - Ultimately undermine making sure this is uniform, so there aren’t millions and population growth in or destroy foundations, of different maps popping up all over the place areas such as Cairns and potentially leading to and nobody knows who to trust,” says Ms Bun. south-east Queensland, and structural collapse; and “If there’s logic in how we address things then Northland to Bay of Plenty in - Increase salt spray, I don’t think there’d be reluctance from the sector.” New Zealand, are projected affecting the durability of Major companies such as Lend Lease, Mirvac, to exacerbate risks from sea construction materials. Stockland, GPT and DEXUS have all examined level rise and increases in The government has estimated their exposure to climate risk and developed the severity and frequency that $159 billion worth of strategies to minimise their vulnerability. of storms by 2050. buildings are vulnerable to Meanwhile, businesses can join the Green Cross Along with obvious risk of sea level rise and storm surge, Business Adaptation Network, joining the flooding during storms and King including more than 8000 adaptation dialogue with the likes of AECOM, Tides, The Garnaut Climate commercial, 6000 industrial Lend Lease, Sydney Water, and Westpac. Change Review found sea level and 274,000 residential Most importantly, participate. As Professor rise and storm surges could: buildings around the country. Reed points out: “The most obvious way we are contributing to climate change is ignoring it.” „

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SAVILLS WORLD CITIES REVIEW

YOLANDE BARNES, director of Savills World Research, explores the true appeal of property as an asset class in major world cities.

RESIDENTIAL ASSETS NOW TOP BUYS FOR INVESTORS It is of little surprise that residential property investments, which yield gross income returns in excess of 5% (with expectations of longer term rental and/or capital growth), have become an increasingly interesting proposition — not only to individual buy-to-let investors, but also to funds and institutions seeking inflation-related income. In fact, residential rental growth in the world’s leading cities outperformed office rents in the first half of 2013, making residential real estate look like a viable investment asset class.

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This begs the question — is there a government bonds. Income returns bubble? Have these cities overheated? below those available on a 10-year Are they due a correction? Is this type gilt look extremely poor value, unless of growth sustainable? considerable rental growth is expected. To understand the true appeal of Savills believes that the ‘net of residential as an asset class in major gilts’ yields measure sheds light not world cities, Savills compared the only on where income investors might fundamental demand for housing, put their money, but also on how out as revealed by rental growth, against of sync with underlying occupier the rate of growth in capital values. demand a city’s residential capital This revealed that some capital value values might be. Some of the lowest markets have risen substantially yielding cities have seen little or no ahead of rental values — indicating rental growth, while capital values the possibility of investor bubbles have surged. If there is insignificant Figure 1 below shows how where demand for assets has driven rental growth in future, these capital residential property has become values ahead of the income that values may look overheated and a desirable global asset since might be produced by a property. this could trigger an adjustment. markets began to recover in 2009. Further analysis to investigate By the same token, if capital The absolute gains in residential this looked at the annual income values have not moved as fast as capital values in some world city yield from housing in different rental values, this may indicate housing markets have been very cities, and assessed whether these some room for future capital value large in the past five years. This is are high or low in relation to uplift — and the prospect for high particularly the case in the ‘new alternative forms of investment. combined returns in the near future. world’ category of Savills World Savills ‘net of gilts’ measure takes Class cities* where residential capital residential yields across the world growth has averaged 58% since 2008. cities, less the return on 10-year There are some examples, for instance government bond yields in that mainstream residential in Hong country. This indicates the extent to Kong, where growth has been even which real estate income is performing higher (103%) and in Shanghai (70%). against the local risk environment of

FIGURE 1: COSTING THE WORLD — WORLD OFFICE RENTS Vs RESIDENTIAL RENTS

OfficeOffice Rents ((PRIME)PRIME) OfficeOffice Rents (SECONDARY)(SECONDARY) Residential Rents ((MAINSTREAM)MAINSTREAM) Residential Rents ((PRIME)PRIME)

130130

120120

111100

100

9900 INDEX: (100 - Dec 2008) INDEX: (100 8800

7700 DecDec JunJun DecDec JunJun DecDec JunJun DecDec JunJun DecDec JunJun 0808 0909 0909 1010 10 11 11 1212 12 1313

Sources:Sources: Savills World Research

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In Tokyo, New York, Paris and the Big Apple’s residential capital THE BIGGEST London, income returns for real estate values during the next three years. SURPRISE IS TOKYO stand out as looking fairly valued. The biggest surprise is Tokyo, WHERE ‘NET OF Gross residential rental yields are still where ‘net of gilts’ yields are the highest GILTS’ YIELDS ARE at least two percentage points above of our cities and look particularly THE HIGHEST OF bond yields. In these cities, both attractive to income investors. The OUR CITIES AND, rental growth and capital growth have combination of moderately rising LOOK PARTICULARLY more closely resembled each other. rents, more positive capital growth, ATTRACTIVE TO New York, which Savills has been and high yields in relation to bonds, INCOME INVESTORS tipping as a ‘buy’ for a couple of years are likely to encourage more domestic now, still looks like good value on this investors into Tokyo’s real estate basis and offers the strongest gross markets. For overseas investors, residential yields, at 6.2%, against Tokyo remains challenging but the US government bonds at 2.6%. Also, cheaper Yen, recovering economy and rents are rising — up 2% in the first stable real estate markets may start to half of 2013. Furthermore, New York encourage those looking for ‘old world’ would have the potential for more exposure and stable long-term income than 60% capital growth if average streams. It is possible that there will yields were to reduce to the same level be substantial, double-digit growth as London ‘net of gilts’ yields have over the next three years in Tokyo. THE AVENUE DE LA GRANDE ARMEE (this assumes that rents stay stable and Falling capital values in Paris DIRECTION TO BUSINESS DISTRICT interest rates don’t rise). Realistically, may make this city look more like a LA DEFENSE IN PARIS, FRANCE. you could look at a 30% growth in good buy for those seeking income. National tax policies have discouraged many competing investors in this city of late. Meanwhile, London and Singapore are showing signs of an ageing market despite continued capital growth and level rents. Some ‘new world’ cities — Mumbai, Shanghai, Moscow and Hong Kong — can be viewed as relatively expensive in relation to the rental markets. Gross yields are well below the rates available from government bonds, according to Savills analysis. Investors in these cities are clearly not investing for income; in fact, most could get a better return by investing in much lower-risk government bonds. Investors in Mumbai, Shanghai and Moscow are getting less, even before all their property costs are taken into account by this measure. Rents will have to play catch-up in these capital cities before growth can be resumed. Figure 2 shows the current direction of travel in capital values, rents and yields. The combination of these measures suggests how desirable or undesirable different markets might be to residential investors. Figure 3 shows how gross residential property yields differ

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from bond yields in each country and ÎTOTAL THANTHA THEY the direction which rental growth is COSTS IN 19% WEREWWEE AT currently moving. It illustrates how a NEW YORK THETHE END combination of relatively high yields ARE NOW HIGHERH R OFOF 2008. and moderately upward rental growth makes the Tokyo and New York residential markets appear ripe for investment, while moderately negative rental growth in Mumbai, combined FIGURE 2: TRENDS IN CAPITAL VALUES, RENTS AND YIELDS with very low net yields, means that this market will be unlikely to see substantial investor activity and capital growth in the near future. TOKYOTOKYO NEWNEW YORKYORK PARISPARIS LONDONLONDON SSINGAPOREINGAPORE SYDNEYSYDNEY H HONGONG KKONGONG S SHANGHAIHANGHAI M MOSCOWOSCOW MUMBAIMUMBAI

L CapitalCapital ValueValue ↗↑↘↗↗↗→→→→ THE COST OF REAL ESTATE TO GLOBAL ORGANISATIONS RentsRents ↗↗→→→↗→→→↘ The annual cost of locating in a world city can be very different to the capital HS HFHR HF MF MSMS LSLS LS LSLS LFLF value of real estate in that city. As an

DIRECTION OF TRAVEL TRAVE OF DIRECTION SSEUEU ReRealal Gross Yield employer relocating across the globe, ((BondBond →↘↗↘↘→→→→↘ AdjustedAdjusted)) the cost of rent and annual outgoing

H=HIGHH=HIGH YEILD M=MEDIM=MEDIUMUM YIELD L=LL=LOWOW YIELD R=RIR=RISINGSING YIELD SS=STABLE=STABLE YIELD F=FALLINF=FALLINGG YIELD is a more important and telling Source: Savills World Research measure than the more commonly quoted headline rent or capital cost. Our total cost measure is more likely to reflect the total outgoings that companies will actually need to FIGURE 3: YIELDS — GROSS RESIDENTIAL accommodate all staff in the workplace. AND NET OF 10-YEAR BOND RATES In order to compare the cost of CurrentCurrent DirectionDirection ofof Rent SavillsSavills SEU RESI Yield (Gross)(Gross) residential and commercial real estate Savills SEU RESI Yield (Gross)(Gross) Net of 10-Year Government Bond YieldYield across different global cities, we use the Savills Executive Unit* (SEU). 7.0% By this measure, Hong Kong, where 6.2%6.2% total accommodation costs are almost 5.8%5.8% 4.9%4.9% four times those of Mumbai, actually 55.0%.0% 4.7%47% 4.7%47% 4.8%48% looks three times cheaper, where 3.8%3.8% 33.4%.4% locating an international business 3.3.0%0% 2.8% 2.4%2.4% might be viewed with regard to market volume and labour availability rather ↗ ↗ → → → → → → → ↘ than premium revenues. This makes 1.0%1.0% real estate in the Indian city look

D 3.9%3.9% 3.6%3.6% 2.7%2.7% 2.2%2.2% 1.4%1.4% 1.1%1.1% 0.5%0.5% 00.0%.0% IEL -1.2%-1.2% -1.6%-1.6% -4.2%-4.2% very fully valued, particularly as the YIELD Y -1.0% BRIC economies are slowing at the present time and rival economies are emerging as sources of low-cost labour. -3.0%-3.0% How expensive a city’s costs are to bear, in relation to the revenue likely to be driven out of that city, is harder -5.0%-5.0% to measure, but relating city costs

TOKYOTOKYO N NEWEW YORKYORK PPARISARIS LOLONDONNDON SINSINGAPOREGAPORE SYDNEYSYDNEY H HONGONG KKONGONG SHANGHAISHANGHAI MOSCOWMOSCOW MUMBAI to average annual GDP per capita goes some way to illustrating how Source: Savills World Research, TradingTrading Economics sustainable those costs might be.

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NEW YORK CITY MANHATTAN SKYLINE AERIAL VIEW

Singapore, where unadjusted total accommodation costs are high in a ‘new world’ context, proves to be the cheapest city in relation to its GDP per head. Ranked in this way, Singapore is less than half the cost of Hong Kong and approaching five times cheaper than Mumbai. New York, having risen from being the fifth most expensive city at the beginning of 2009 to second by June 2013, has displaced London as the world’s second most expensive city to rent business and residential space for employees, behind Hong Kong. The total annual real estate costs fell by 12% in 2009, then rose by 36% on the back of high rent rises. Total costs in New York are now 19% higher than they were at the end of 2008.

*SAVILLS WORLD CITIES *SAVILLS EXECUTIVE UNIT (SEU):

Many cities on this planet occupants. They are cities thatat BByy comparing a group of real of household, some with claim a global status. often feature as relocation andd ppeople,eo our cost comparison of children, some with partners Some rank top in terms expansion targets on the list rereala estate has a ‘real world’ and some without, and each of lifestyle, quality of life, of international companies. rerelocationl story at its heart. We member of the group chooses places to do business, tax The biggest difference ttakeak a typical ‘executive unit’, a different types of locations havens, and cities of culture. in the performance of the grgroupo of people that might start and property in which to live. Of the world’s cities, 26 are Savills World Class cities up or expand a global business To measure office costs, megacities with populations can be seen between in any country, and then we place the same seven of over 10 million. Although what might be called the cocomparem the residential and people in a financial services some of Savills World Class old economies — Tokyo, cocommercialm accommodation firm in the best part of the cities are megacities and most London, Paris, Sydney and ttheyhe would be likely to inhabit city, and again in a creative rank highly on the plethora New York — whose residentialal in each of our world cities. start-up in a secondary of global measures, their key real estate values grew on The people who make location in the same city. qualification is an active and average by 32% since 2005 uupp our SEU include one It is by comparing the growing worldwide market and the new, or emerging mmiddle-agedi expat CEO, commercial and residential in real estate. Our cities all economies of Shanghai, onone senior expat director, accommodation costs for these have sizeable non-domestic Singapore, Hong Kong, a llocally employed director same people around the world sales and lettings markets Moscow and Mumbai which aandn four locally employed that we can truly compare the and growing interest in them grew on average by 123% aadministrativedm staff. They cost of real estate across some from overseas investors and over the same period. eaeachc live in different types very different global cities.

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Total costs Value for Total cost Total costs divided by money ranking Price growth US$m/ city GDP (1 = best June 13 H1 2013 per year per capita value) Hong Kong 1 -1.0% 1.625 33.4 9 New York 2 1.5% 1.553 24.6 4 London 3 0.5% 1.533 29.5 7 Paris 4 0.6% 1.400 26.0 5 Tokyo 5 0.6% 1.089 26.3 6 Singapore 6 -0.4% 1.005 16.1 1 Moscow 7 0.2% 0.947 21.1 3 Sydney 8 -0.1% 0.878 19.4 2 Shanghai 9 0.8% 0.613 28.7 8 Mumbai 10 -7.3% 0.444 74.7 10

Source: Savills World Cities Index

Savills has created a ‘value measures, values are re-aligned SHANGHAI — VIEW FROM THE for money’ ranking, measuring with cost; there is a fall-off in ORIENTAL PEARL accommodation costs against city market activity, and values soften. TV TOWER GDP per head, which is taken as an But having adjusted, markets then indicator of the income potential resume their former trajectories. for businesses located there. The future for real estate values Headline per square foot office in many of our ‘new world’ cities rents are a misleading indication will therefore depend not so much of the total real estate costs faced on cooling measures but on the by relocating companies. The value fortune of the country’s economy. of real estate is higher where more This not only governs how much corporate revenue can be generated. wealth is created, and thereby gives In other words, it is worth paying rise to investor demand, but also more to accommodate an executive how much is produced, and how team in Singapore with its high GDP much demand is created for both than in the low GDP Mumbai. new living space and work places. We therefore predict that the WHAT ARE THE PROSPECTS more subdued growth currently FOR FUTURE GROWTH? seen in many of the emerging, and The various so-called ‘cooling recently emerged, world economies measures’ that have been imposed is going to have a more profound to subdue markets perceived as impact on real estate values being overheated, such as Hong than legislation and taxation. Kong and Singapore, do seem to The impact is more likely to be have had an effect on transaction felt in the low-yield cities. Capital levels, and may have contributed value growth (both residential to some of the slowing residential and commercial) will continue to price growth seen in these cities be more volatile where prices are during the first part of 2013. not underpinned by income. However, studies of previous This means the trends we have cooling measures suggest that the started to see in 2013 are portentous. one-off imposition of these various The stability and underlying strength taxes and limitations tends to have in the fundamentals of real estate in a short-term effect rather than many of our ‘old world’ cities, namely a lasting one. The signs are that rental growth, will continue to be an while the market adjusts to the attractive feature for investors. „

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039-044_March14_Savilles.indd 044 3/7/2014 4:56:20 PM EDUCATION API contribution to the API’s PRESENTS activities in the areas of property education, property research and TWO property industry engagement. Prof MacFarlane has INAUGURAL been a member of the API’s National Education AWARDS Committee for many years, during which he was involved AT PRRES in numerous accreditations DRDR CCHYIHYI LLININ LLEEEE ffor Australian universities offering property programs.. API Award for Excellence — “He has also been the driving force Early Stage Academic in the development and delivery of Dr Lee is an associate member of the API’s Property Sentiment Survey. the API and has worked in creating This API survey has been produced awareness across the student body half yearly for over 10 years and has of the importance of professional been a key ingredient in the future bodies such as the API. property market directions and Dr Lee’s citation described a level of dedication, diversity of activities, and achievements secured that were well above what might have been anticipated for an academic at his career stage. “He enjoys an excellent reputation for his teaching and student involvement, having been awarded the 2011 Outstanding Contribution to Student Leaning, in the College of Business and Two University Law at UWS,” the citation stated. “Over the past seven years, of Western Sydney he has published one scholarly academics received book and 26 referred journal papers, property cycles understanding of the and was ranked as one of the top dynamics of the various Australian inaugural Australian 25 researchers at the University in property markets,” the citation stated Property Institute 2009 — again, a high achievement, Prof MacFarlane was also particularly given the diverse co-researcher in the API-funded awards recognising workloads demanded of property research project on ‘Building Better excellence in professionals/academics.” Returns’ which highlighted the significant added-value benefits academia at the provided by green office buildings recent Pacific Rim ASSOCIATE PROFESSOR in Australia. This was the first JOHN MACFARLANE rigorous empirical study in this area Real Estate Society in Australia and received significant (PRRES) annual API Award for Excellence recognition by the property industry — Senior Academic in furthering the case for green conference in As well as his significant and office buildings in Australia. New Zealand. long-standing role in the property The awards were presented by programs at UWS, Prof MacFarlane’s API National Education Standards citation described his outstanding Manager, Tracy Kriesel. „

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FUTURE PROPERTY PROFESSIONALS The Future Property Professionals (FPP) program is TESTIMONIALS the flagship of the Australian Property Institute’s online training program for property graduates.

SIMON TOYER OPTEON PROPERTY interesting that I studied all the necessary valuation topics required Tell us about your current employment? for API designation; however none I’m currently employed with Opteon, of these were practical. My current based in Tamworth, NSW. I am one of role here at Opteon, and with any five mortgage valuers within the office valuation practice across Australia, and my main areas are centres such as carries out physical inspections. So Narrabri, Gunnedah, Tamworth and with the Inspection, Recording and Moree and surrounds in residential Measurement Module, I felt I was and rural-residential properties. right at home. On the other hand, the Spatial Analysis and Corporate When are you due to sit your Real Estate module was a good Professional Interview? insight into areas I had never come I should be ready to sit for it in March. across, and helped reaffirm why I like my current role so much. Where do you see yourself in the future? How has the FPP program assisted Definitely in regional NSW. I have with your professional development? been in Tamworth now for two years, It has helped for the Professional and the hustle and bustle of the Interview, allowing me to know all metropolitan life scares me! Hopefully the areas to be prepared for on the in the next few years of employment, day. It has opened my eyes to other I will develop more skills attributed areas of property I was unaware to the rural sector. I’d also like to get of and not particularly interested into plant and machinery valuations. in at first. That’s why I ended up studying property. It is a broad Has the FPP program refreshed area offering a variety of careers. your knowledge/brought new information to light? I would like to see more of this content pushed into the degree. I found it

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RHYS BAWDEN OPTEON PROPERTY THE MODULE I MOST ENJOYED WAS Tell us a bit about your INSPECTION, RECORDING AND MEASUREMENT, current employment? AS IT HAD A LOT OF HELPFUL PRACTICAL I am currently employed by ADVICE I CAN USE EACH DAY. Opteon Victoria as a Graduate Valuer, based in Ballarat. When are you due to sit your PRISCILLA TRAN JAMIE GRIECHEN Professional Interview? HERRON TODD WHITE HERRON TODD WHITE I’m due to sit my interview on 12 March. Tell us a bit about your Tell us a bit about your current employment? current employment? Where do you see yourself I am currently a residential I am an assistant valuer at in the future? property valuer at Herron Todd Herron Todd White and have I plan on staying in the valuation field White (Brisbane residential), been so for 13 months. for the foreseeable future, possibly working full-time. doing some small-scale property When are you due to sit your development too, if possible. When are you due to sit your Professional Interview? Professional Interview? I am hoping to sit for my Professional Has the FPP program refreshed I am aiming to apply for AAPI with Interview next month (March). your knowledge/brought new CPV in mid-2014 once I have my information to light? two years of valuation experience. Where do you see yourself Yes, the FPP program clarified a lot in the future? of valuation processes and expanded Where do you see yourself Working as a residential valuer on my knowledge in various areas. in the future? a full time basis in Melbourne. The module I most enjoyed In the short term I would like was Inspection, Recording and to become a CPV and still be Has the FPP program refreshed Measurement, as it had a lot of working as a valuer at HTW. your knowledge/brought new helpful practical advice I can use information to light? each day. I also found Preparation Has the FPP program refreshed The FPP program mainly taught for a Professional Interview helpful your knowledge/brought new me new things and expanded my in preparing me for my application. information to light? understanding of other aspects It brought new information to of valuation. The communication How has the FPP program assisted light regarding some aspects of modules refreshed my knowledge with your professional development? GST, leases and risk and further rather than enhanced it, but The program has helped me identify developed my skills in recording/ I still found it useful. certain risks that can occur during measurement/inspections. I enjoyed the Inspection, the valuation process and how to I did think the GST and Recording and Measurement overcome or deal with these issues. Leases modules were more Module the most as I found it helpful than Professional to be the most interesting. Communications, which seemed to be common sense in writing. How has the FPP program assisted THE SPATIAL ANALYSIS with your professional development? AND CORPORATE REAL How has the FPP program assisted The program has assisted me in ESTATE MODULE WAS with your professional development? preparing for my interview and A GOOD INSIGHT INTO It has helped solidify knowledge development as a valuer. A lot of AREAS I HAD NEVER from experience and university, the information is basic but it’s COME ACROSS, AND and I do feel more prepared and important if you’re new to valuations. HELPED REAFFIRM WHY comfortable to sit the Professional Valuers may only pass on the more I LIKE MY CURRENT Interview. The modules will be a good important information to their ROLE SO MUCH. reference as well. I’ve printed them assistant valuer. The modules out and will keep them on my desk. help to fill in learning gaps.

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The Australian Property Institute has developed The API utilises two different e-learning platforms a suite of online training modules designed for created by the API — the Future Property Professionals graduates and existing members of the Institute (FPP) program site and the e-learning site. The FPP alike. The API has developed online modules site provides a one-stop shop for graduates completing to provide greater flexibility in the delivery of their studies on their pathway to API membership. training. Training can be offered cost-effectively The e-learning site hosts modules for all members, to all members irrespective of location. irrespective of their time in the industry.

ANZPJ_OnlineTraining_FullPageAd_Dec13.indd 1 12/10/2013 6:45:01 PM RETAIL

oday the creation of floor space and retail property investments are far more robust than five years ago. TDuring this period, there has been a correction in the pricing and values of sub-sectors within retail property; the development pipelines of property owners have been switched back on, and we are starting to see improvement in retail property supply. However, industry representatives say that the main challenge is on the demand side, as retailers experienced a large downturn in 2012 once the Labor Party’s fiscal stimulus dried up and consumers began to tighten their purse strings. “There is absolutely no doubt that the retail sector is undergoing a huge structural change at the moment, involving a lot of upheaval, and it really is redefining a lot of the fundamentals of what retail has been about for many decades,” says Trevor Evans, chief executive officer THE of the National Retail Association. Today it may be starting to come full circle as the Australian RECOVERY OF dollar corrects, inbound tourism is improving, the cost of exports is getting more competitive and PHYSICAL RETAIL people have a greater propensity to spend more locally. But in an increasingly globalised industry, Australia’s bricks-and-mortar retail sector domestic retailers are still erring has proven resilient over the past five years, on the side of caution, and need to work on their online presence. despite online shopping striking a blow “Definitely the middle market against the already bruised industry following retailers in Australia are in transition,” says Steven Sewell, CEO of the GFC, BONNIE GARDINER reports. Federation Centres (formerly Centro).

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“You’re seeing price competition digits, whereas bricks-and-mortar negotiation with retail operators from domestic and a handful of stores are probably reporting like-for- to help make up for stagnant offshore players... a structural shift like growth in the range of 2-3% in the growth in their home markets. in how people shop for fashion, current marketplace,” says Mr Evans. Following the high profile opening comparative of price and product. In response, many Australian of Gap at Chadstone in Melbourne, A lot of it is occurring online. That and New Zealand retailers have a new wave of international retailers is putting an enormous amount of been launching online strategies, began, including Spain-based fashion pressure on businesses and retail with stores like JB Hi-Fi proving to retailer Zara, which opened its first chains that don’t have sophisticated be leaders in omnichannel service. Australian store in Sydney’s Pitt Street price and product offerings.” But according to Mr Evans, many Mall in April 2011, followed closely brands still lag behind their overseas by an opening in Bourke Street, GROWTH OF ONLINE peers in volume of online sales. Melbourne, and just recently it opened In 2008, retail boss Gerry Harvey of He believes retailers face a tough a ninth store in Westfield Chatswood. Harvey Norman told Smart Company choice: Either focus on competing “The Zara brand is continuously that online retailing was a dead end – on price in order to provide quick, growing around the world, so yet last year he told Ten Late News that cheap and painless transactions; opening in Australia was inevitable. Harvey Norman may become “the or focus on customer service, We were able to find two perfect biggest online retailer in Australia”. information and knowledge. locations for our flagship store Online shopping has grown “A lot of traditional retailers feel that when we arrived in the country in significantly in recent years, with it’s going to be very difficult to try and 2011,” says a Zara spokesperson. a greater variety of goods on be the cheapest in a global marketplace “We are looking into offer from an increasing number so the point of differentiation for expanding further within the of online retailers, aided by the them will be product range, customer year, all across Australia.” widespread usage of mobile devices. service, the ability to interact with UK retailer Topshop opened Research by Frost & Sullivan their customers,” says Mr Evans. December 2011 at the Jam Factory released in 2012 indicated that 75% “That particular need of shoppers in Melbourne, followed by a of Australians and 58% of New can only be answered by good staff store in Sydney in October 2012. Zealanders who shopped online and good customer service — and that Sweden’s H&M is also expected to made purchases from overseas sites. plays to the strength of Australian open flagship stores in Sydney and US department stores bricks-and-mortar retailers.” Melbourne in the near future. like Nordstrom, Macy’s and Meanwhile, others feel more According to research by Colliers Bloomingdale’s offer shipping to needs to be done to educate International, Japanese retailer Australia as we slowly become retailers on how best to plan and Uniqlo is initially targeting around one of their biggest customers, manage their online strategies. 25 stores in Australia, and once while Internet-only retailers such “There are a lot of independent flagship locations are secured, will as ASOS and Net-a-Porter also retailers that are still moving into look further afield to regional and do a very high portion of sales that online space, still trying to sub-regional centre locations. to Australia, which has alerted understand it,” explains Russell On top of fashion and apparel, the international retailers to the growing Zimmerman, executive director of homewares sector is seeing a large demand from within our shores. the Australian Retailers Association. influx of global players, with Bondi Another Frost & Sullivan report, “I think if you go back three to Junction now hosting the first owner- Australian and New Zealand Online four years ago, there was a need to operated store outside North America Shopping Market 2013, identified educate retailers that they need to for US furniture brand, Williams- that online shopping currently be online. Now they understand Sonoma. German retailer POCO has accounts for about 7% of total that, and the bigger education opened its first 6000 sqm store at the retail expenditure per annum in program should start to be around Blacktown Mega Centre in Sydney, Australia, and is expected to reach what they have to do, how they while the likes of IKEA, ALDI and double digits by around 2017. should actually set it up, how they Costco are already well established. “So 7% is an absolutely huge can target people, and so on.” International retailers have a number, but the flipside of that is number of potential advantages over that obviously 93% of spending is INTERNATIONAL ARRIVALS local retailers, and will compete still carried out in bricks-and-mortar Large international retailers have aggressively on price, experience, stores. But online is growing at double targeted Australia and are in range and quality, and that’s on top of

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global reputation. Operating globally next step is to build a bricks-and- also provides them economies of scale mortar presence in Australia. which can be used to bring products “Rather counterintuitively, the to Australia at reduced prices. online market share gain has actually fuelled the increase in supply of CHALLENGES FOR GLOBAL BRANDS new entrants into the physical retail History shows us that not all environment,” Mr Schroder says. newcomers to Australian retail are Mr Zimmerman believes that capable of adjusting to suit market despite enhanced preparation from conditions and preferences. monitoring Australian spending “Some retailers don’t understand activity online, new retailers will local needs and what will sell in a still face “a huge culture shock” due local environment, even with some to issues with penalty rates, high IN 2008, RETAIL BOSS of the bigger chains — I remember transport cost and strict custom GERRY HARVEY OF years ago one of the major retailers regulations. Australia is renowned HARVEY NORMAN in Australia had fur coats in their as an expensive place to do business, TOLD SMART store in Cairns… with due respect, with retail rents in Sydney and COMPANY THAT you should never have fur coats in Melbourne regularly ranked among ONLINE RETAILING Cairns because it really doesn’t get the most expensive in the world. WAS A DEAD END that cold,” says Mr Zimmerman. “Although we’re seeing these — YET LAST YEAR That said, international retailers [international] retailers come here, HE TOLD TEN LATE are getting smarter about operating and I’m convinced we’ll continue NEWS THAT HARVEY in different geographies, and can to see them, I think that they’re NORMAN MAY BECOME now overcome many of the logistical probably finding things aren’t quite “THE BIGGEST and seasonal challenges of bringing the same here as they are overseas. ONLINE RETAILER products to different markets through I think over time we have to change IN AUSTRALIA”. the benefit of data analytics. some of those areas to make us “Most of the international retailers as competitive as the rest of the who came here a long time ago went world,” says Mr Zimmerman. broke. Twenty years ago, Warner Bros. Studios came here and didn’t NEW DEVELOPMENTS work, Taco Bell didn’t work; there are On the development side, the entrance many examples. The few that didn’t of international retailers has meant go broke, like McDonald’s, are the there is increased opportunity for ones that absolutely adjusted to the property owners to improve the Australian conditions and prospered sophistication of their centres, with as a result,” says John Schroder, CEO additional tenant and brand options, of Commercial Property at Stockland. and a desire from big global players to “Why, in the last three to five take up more space than local ones. years, are the international guys now “There are always big refurbishment succeeding? It’s because they’ve had programs by major landlords like quite a few years now of micro-metrics Westfields, Centro [Federation connected with their omnichannel Centres], Lend Lease and so on. And retailing. So many of them have had they will always continue to do that, very strong data around Australia if they want to attract the Zaras and before getting here, which they Topshops and H&Ms in this world, didn’t have 20 years ago,” he says. because that’s what those retailers are The Colliers whitepaper, looking for,” says Mr Zimmerman. International Retailers Australia According to Colliers research, is Hot Property, points out that premier corridors in Australian CBDs for those international stores that still lack sufficient freestanding space have tested demand for product to accommodate the larger footprints and brands online, the logical and quality streetscape sought by many

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international brands. Zara’s solution was development plan for Stockland “Essentially, local retailers have to open in the space at Westfield Bondi Harvey Bay is due for completion to collect a 10% GST on all their Junction where Borders once operated. at the end of 2014, doubling the sales, whereas some of the guys “Choosing where our stores will centre in size, and expected to create they’re competing with online and be located is a tedious and important more than 600 new retail jobs. offshore are exempt in practice process. Hence, we believe that the This followed Stockland’s investment and that opens up an immediate centres where we open are of top of $900 million to redevelop its pricing difference, probably quality,” says Zara’s spokesperson. shopping centres in Merrylands, sometimes up to 20-25% once you Colliers says the average store Townsville and Shellharbour. Meanwhile add in duties and custom charges size requirement is approximately $222 million of redevelopment for that apply to many products.” Mr Sewell says his main concern at Federation Centres is the high cost of labour in Australia, coupled with state government initiatives around relaxing current planning laws. “We think, as it stands, the hierarchy of activity-centred planning is very solid and quite logical, particularly as it relates to MR EVANS SAYS infrastructure spend and provision, IT’S “ABSOLUTELY so any changes to make those laws CRAZY” TO HAVE more lax are obviously a risk to the AN ÖUTDATED TAX sector going forward,” he explains. REGIME” THAT “Secondly, penalty rates in DISCRIMINATES Australia are high, and when AGAINST LOCAL you see retailers closing simply RETAILERS because they couldn’t afford to pay penalty rates, that rings 800 sqm, with many international Stockland Wetherill Park began in alarm bells with me; something’s retailers aiming to open a minimum October last year, expand the centre not right with the system.” of five stores and the majority looking by 15,000 sqm, while also hoping to for 10 stores in the medium term. achieve five star Green Star ratings RETAIL IN GREAT SHAPE The retail property sector for design and built environment. Despite the challenges posed by is seeing substantial growth Federation Centres is also online shopping, high costs and from a number of operators and embarking on a redevelopment international brands, most feel locations. Westfield Miranda, one program to enhance and refurbish confident that the Australian retail of the larger shopping malls in the its current assets, including a $110 sector will continue to improve, as it country, has almost completed a million dollar expansion of the has done so over the past five years. $435 million redevelopment with Brandon Park shopping centre in “The Australian shopping centre the hopes of attracting additional Melbourne, along with the recent industry on the whole is functioning speciality international retailers. purchase of Carlingford Court at, or above, levels seen in almost The $300 million expansion shopping centre in Sydney. every other market in the world. We of Highpoint Shopping Centre in have a very well planned hierarchy of Melbourne, completed in March 2013, CHALLENGES/CHANGES shopping centre locations around the made it one of the largest shopping As the sector hopes for continued country; two of the most profitable centres in the country, and the only growth, industry leaders are calling national grocery chains in the world, place where Topshop and Zara were on policymakers to ease the burdens and some of the best operators, available under the one roof. of local retailers, with particular focus owners, managers and developers On a more suburban scale, on the GST low-value threshold. in the world,” says Mr Sewell. Stockland has been redeveloping Mr Evans says it’s “absolutely “Of all the metrics, the occupancy, its retail centres over the past crazy” to have “an outdated tax sales productivity, or the quality of seven years, with a strategy to regime” that discriminates against the offering and facilities provided, become a market leader in each local retailers and gives overseas I think the Australian retail region it sits in. A $115 million competitors an advantage. industry is in great shape.” „

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PROPERTY MARKET GOES FROM STRENGTH TO STRENGTH

JESSICA DARNBROUGH, national spokesperson t the Reserve Bank of Australia’s February for Mortgage Choice, gives her analysis Board meeting, it of the latest housing market data. was noted that the Australian economy continuesA to perform relatively well — especially the housing market. According to the minutes of the monetary policy meeting, the property market is starting to show real strength, proving that the eight TABLE 1: HOME LOAN CHOICES DATA National Jan 2014 Dec 2013 12-Month Average 10-Year Average Variable 72.57% 66.94% 72.19% 81.92% Basic Variable 10.76% 8.69% 12.42% 25.98% Standard Variable 15.20% 14.29% 14.80% 30.62% Ongoing Discount 40.77% 39.21% 39.35% 35.61% Line of Credit 2.91% 2.68% 2.65% 6.69% Introductory Rate 2.93% 2.06% 2.97% 1.10% Fixed 27.43% 33.06% 27.81% 18.08% Source: Mortgage Choice 054 ANZPJ MARCH 2014

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QUARTERLY HOUSING FINANCE DATA

OCTOBER 2013 NOVEMBER 2013 DECEMBER 2013

Investment Investment Investment Housing Housing Housing

Owner Occupied Owner Occupied Owner Occupied Housing Housing Housing

Value of Value of Value of Dwelling Dwelling Dwelling Commitments $million %change Commitments $million %change Commitments $million %change Total Total Total 26,486 4.1 26,934 1.7 27,050 0.2 Dwellings Dwellings Dwellings Owner Owner Owner Occupied 16,185 1.7 Occupied 16,551 1.9 Occupied 16,284 -1.5 Housing Housing Housing Investment Investment Investment 10,300 8.2 10,383 1.5 10,766 2.9 Housing Housing Housing

Source: Australian Bureau of Statistics

rate cuts between November 2011 and rates further and offering borrower While an increasing number of August 2013 are starting to take effect. incentives throughout January and home buyers are treading cautiously Prices have increased quite February 2014. Most notably, in when it comes to choosing a home loan considerably over the last 12 months. January, National Australia Bank product, it seems they are still keen to According to research by RP Data, cut the interest on its four-year jump onto the property ladder, with property values climbed 9.8% across fixed rate to a 20-year low. data from the Australian Bureau of the combined capital cities over the With this kind of aggressive Statistics (ABS) showing the number 2013 calendar year — the fastest pricing happening in the fixed of home approvals is on the rise. annual rate of value growth since rate home loan market, it is not Investors were largely responsible August 2010, and the largest calendar surprising to see an unprecedented for the increase in home loan year increase in values since 2009, number of borrowers looking to approvals, with approvals for investors when home values were up by 13%. fix part, or all, of their mortgage. climbing 2.9% over December 2013. Property turnover was also The latest data from Mortgage If the Reserve Bank’s latest very high throughout 2013 as home Choice shows fixed rates currently monetary policy meeting is anything buyers looked to take advantage of account for almost 30% of all home to go by, the official cash rate the low interest rate environment loans written — more than 10% could be on hold for a considerable and heightened level of competition above the 10-year average of 17%. amount of time, with the Board amongst Australia’s lenders. In January, fixed rate demand hit commenting that it is “prudent This increased competition an unprecedented six-year high, with to keep policy unchanged while between lenders shows no signs of this product type accounting for more assessing the continuing impact abating, with many cutting their than 33% of all home loans written. of the previous stimulus”. „

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AUSTRALIAN COMMERCIAL PROPERTY INVESTMENT MARKET: STYLES, PERFORMANCE AND FUNDING [ PART 2 ]

In part two of a series based on research commissioned by the Australian Centre for Financial Studies, RMIT University’s DR DAVID HIGGINS compares the investment performance of commercial property with competing asset classes, and studies the impact of debt financing on fund performance.

or investors, Australian The role of commercial property performance with competing asset commercial property in the capital market is not always classes, after adjusting for the reported is a physical asset class appreciated or understood. Compared low volatility from commercial that forms an important to the competing asset classes, most property valuation based performance part of the capital market commercial properties are traded in indices, and studies the impact universe.F Property assets offer private and require limited disclosure. of debt financing on commercial diversification potential with returns These and other differences call property fund performance. based on regular income from long for specific oriented research lease contracts and prospects for to better integrate commercial PROPERTY INVESTMENT capital growth. Typically, commercial property into the capital markets. MARKET PERFORMANCE property prices are highly inelastic, The first article in this series A pillar of the Australian investment with the supply of new assets subject defined the size of the Australian market is Australian managed funds, to long development periods and commercial investment property which include superannuation planning regulations (Baum 2009). market. Part two compares investment accounts. At December 2012,

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auto-correlation for cash and direct FIGURE 9 AVERAGE ASSET ALLOCATION FOR BALANCED property. This is understandable INDUSTRY SUPERANNUATION FUNDS: DECEMBER 2012 for cash, as the interbank rate is closely linked to the decisions made at the monthly Reserve Bank Board Alternatives 16% Australian meetings regarding the RBA cash Equities 28% rate target. Depending on market conditions, the RBA cash rate target changes, although more often it Direct Property 6% remains the same (unchanged). The auto-correlation for direct property lowers the reported Listed Property 4% volatility and requires the data to be desmoothed to better reflect

International risk over any particular holding Fixed 4% period. There is extensive literature detailing approaches to desmoothing property data, see: Bond and International Hwang (2005), Geltner et al (2007), Australian Equities 21% Fixed 10% Marcato and Key (2007). Generally, desmoothing takes the form of: A Cash 11% first or second order auto-regressive model; a time-varying approach, or Australian managed funds had $2 valuation-based indices that have a an applied unsmoothing parameter trillion under management, diversified reduced volatility when compared weighting (0.4-0.6) range. To verify across a broad asset base including to transaction-based indices. The the model, the literature often refers commercial property. For investment smoothing primarily occurs with to research by Giliberto (1992), which strategies, the assets are typically the frequency of the property reported on a US investor survey grouped into defined categories valuations, with individual property that suggests the true volatility of for asset allocation and benchmark valuations anchored to prior property property to be half that of equities. performance measurements. transaction data in the absence For this research, various statistical Figure 9 illustrates the benchmark of conclusive current property models were tested and a suitable asset allocation for one of the leading market evidence of significant adjustment was made to desmooth superannuation options: balanced change (Marcato and Key 2007). the annual direct property data. (A industry superannuation fund. To illustrate the level of smoothing parameter weighting of 0.4 provided For the eight asset classes, on the annual PCA/IPD Composite a suitable adjustment to desmooth there are industry-recognised Property Total Return data (1985- the annual direct property data.) benchmark indices. The ‘Direct’ 2012), each period was lagged one Figure 11 details the proposed property classification represents year (AR1) and two years (AR2). adjustment to the valuation-based direct and unlisted property, and Evidence of smoothing is a high commercial property data. The actual ‘Listed’ property covers Real Estate auto-correlation, close to one. and desmoothed average returns Investment Trusts (REITs). For this Figure 10 shows low are similar, whilst the desmoothed research, the ‘Alternative’ sector auto-correlation (degrees of similarity property data volatility (standard comprises equal weighted benchmark between a given time series and a deviation) increases by 31% to data for private equity, hedge funds, lagged version) apart from the high 11.5%. Likewise, the desmoothed resources and infrastructure assets. Typically, the asset classes are represented by transaction-based indices, which provide accurate FIGURE 10 INVESTMENT ASSET CLASS RETURNS: current information on the asset AUTO-CORRELATION ANALYSIS class performance. However, due to Aust Int Aust Listed Direct Cash fixed fixed eq Int eq Property Property Altern’ves no central trading place and limited AR 0.90 -0.05 -0.06 -0.31 -0.12 -0.01 0.67 0.38 transactions, the performance of 1 AR 0.75 0.21 0.27 0.03 -0.20 -0.03 0.12 0.10 direct property is sourced from 2

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FIGURE 11 EQUITY AND PROPERTY DATA – SMOOTHED AND DESMOOTHED PERFORMANCE: 1985-2012 Mean Standard Deviation Median Kurtosis Skewness Range Max Min

Aust Equities 13.1% 20.3% 15.4% 0.65 -0.40 92.6% 52.2% -40.4%

Direct Property - Actual 10.4% 8.8% 10.6% 0.67 -0.04 38.6% 29.7% -8.9% - Desmoothed 10.3% 11.5% 10.7% 0.58 -0.26 50,6% 36.0% -14.6%

property data range is amplified Ratios were due to the selected risk investment asset classes. by a similar 31% amount. free rate: 90-day bank bills, which There are strong links (positive Figure 12 plots the rolling after inflation provided an average correlations) between the respective annual performance of the leading annual 3.7% return. (Note: A Australian and international fixed- local investment asset classes — common risk-return measure is the interest (0.7) and equity markets equities, bonds and the desmoothed Sharpe Ratio, being the rate of return (0.8). Similarly, Listed property commercial property returns. above a risk-free rate, divided by the appears to have a positive relationship On the graph, inflation data is standard deviation of the returns.) with Australian equity (0.7) and shown to demonstrate over time The Kurtosis and Skewness International equity (0.5). For the impact of consumer price readings reflected the shape desmoothed Direct property there movement on the asset classes. of the distribution return data appears to be limited relationships Figure 12 illustrates major relative to the standard bell curve. with the other investment asset annual performance changes in According to Brown and Matysiak classes. Most noticeably, desmoothed leading Australian asset classes, and (2000), the preferred reading is an Direct property has a negative (-0.4) most evident is the movement in excess Kurtosis (above zero) with correlation with Australian and the Australian equity market data. slightly positive skewness, which international fixed-interest and Similar volatility is evident (although demonstrates limited past downside a positive (0.5) correlation with not shown) in International equities risk (no major negative shocks). the Alternative asset class. This and Listed property (AREITs). Apart from Listed Property, all asset can relate to similar underlying The annual movement of these classes demonstrated a standard bell asset class characteristics — for asset classes can range from +80% curve (Kurtosis close to zero) with example, alternative (infrastructure) to more than -40% returns. predominantly positive skewness. and property assets feature When looking at long series Figure 14 illustrates the long lease structures. data, inflation is an important correlation matrix of the rolling As the investment asset classes consideration, especially as annual annual performance for the perform differently over time, inflation was often above 9% in the 1980s. This contrasts to the Reserve Bank of Australia (RBA) FIGURE 12 LEADING AUSTRALIAN INVESTMENT ASSET CLASSES: current low inflation mandate. By ROLLING ANNUAL PERFORMANCE: 1985-2012 removing inflation, real rates of return provide better comparison 100% between the performances of the 80% asset classes, when comparing 60% different time periods. Figure 13 details the rolling annual 40%

performance and descriptive statistics 20% for returns on the leading investment asset classes with inflation removed. 0% Australian Equities provided -20% the best mean real return (8.3%), -40% however the standard deviation was a high 18.1%. Desmoothed direct -60% property provided an annual mean Dec -85 Dec -88 Dec -91 Dec-94 Dec -97 Dec -00 Dec -03 Dec -06 Dec -09 Dec -12

return (6.3%) and relatively low Aust fixed Aust eq Direct Prop (D) Inf lation volatility (10.4%). The low Sharpe Source: ASXSource: 2013, ASX 2013,IPD 2013 IPD 2013

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FIGURE 13 INVESTMENT ASSET CLASSES REAL ANNUAL PERFORMANCE: 1985-2012 DESCRIPTIVE STATISTICS Sharpe Excess Mean Standard Deviation Ratio Median Kurtosis Skewness Range Max Min Cash 3.8% 2.4% 0.03 2.9% -0.54 0.64 9.7% 9.3% -0.4% Aust fixed 5.9% 6.4% 0.33 5.4% -0.24 0.32 31.7% 22.6% -9.1% Int fixed 3.2% 5.3% -0.10 2.2% -0.23 0.27 29.2% 17.1% -12.1% Aust eq 8.3% 18.1% 0.25 9.6% 0.98 0.01 113.8% 71.3% -42.5% Int eq 5.8% 21.6% 0.10 8.2% 0.34 -0.08 122.6% 71.1% -51.5% Listed Prop 6.4% 17.0% 0.16 8.2% 3.61 -1.45 100.3% 41.6% -58.6% Direct Prop (D) 6.3% 10.4% 0.25 7.8% 0.50 -0.66 49.8% 29.7% -20.1% Altern’ves 4.5% 10.5% 0.08 2.3% -0.72 0.28 46.1% 29.7% -16.5%

performance can be reviewed relevant different economic conditions. GFC impact period 5. According to to prevailing economic conditions. It is evident that those linked to PCA (2013a), Australian office stock Figure 15 divides the period from the equity markets (Australian and increased by an estimated 6.3% per 1985 onwards into a number of International equities, and Listed annum in period 2 and 2.7% in period sub-periods, based on annualised property), performed better in 5, compared to the long-term 2.3% economic growth relative to the long stable and growth economic phases. annual average. The increased office term GDP rolling annual average of Likewise, Australian fixed-interest supply is partly responsible for the 3.3% per annum. To capture major performed well in periods of economic poor Direct property performance peaks and troughs, the selected recession. Overall, the performance in period 2 (-12.8% per annum) and periods show defined growth and range of the asset classes narrowed to a lesser extent in period 5 (1.6% recession in the Australian economy. during periods of economic growth, per annum). This highlights how For literature business cycle theory with the exception of Direct property underlying property characteristics and measurement, see Pagan (1997). in period 1, which experienced (new supply), separate from Figure 15 details periods of time strong growth based on good economic conditions, can impact where the Australian economy had underlying property fundamentals. direct property performance. changing economic conditions. The different periods of economic During the cyclical phases Apart from period 4, the Australian activity can show the variations covering periods two, three and economy appeared to experience between desmoothed Direct and four, Listed property performance rapid growth to above +1 standard Listed property performance. It remained relatively stable (8.1%- deviation and sharp declines to appears viewing property market 10.7%) compared to the changing below -1 standard deviation. The fundamentals, particularly the economic environment. This may performance of the investment asset supply side, is an important Direct relate to the changing AREIT market classes in the different economic property performance determinant. structure. For example, during these environment is shown in Figure For example, Australian office supply periods, AREITs embraced offshore 16, as well as the performance of is slow to adjust during periods of property exposure, increased debt, the investment asset classes in economic recession; period 2 and the and pursued development and fund

FIGURE 14 INVESTMENT ASSET CLASSES: CORRELATION MATRIX Cash Aust fixed Int fixed Aust eq Int eq Listed Prop Direct Prop (D) Altern’ves Cash 1.0 Aust fixed 0.4 1.0 Int fixed 0.3 0.7 1.0 Aust eq 0.1 -0.1 0.0 1.0 Int eq 0.2 -0.1 0.0 0.8 1.0 Listed Prop 0.1 0.1 0.0 0.7 0.5 1.0 Direct Prop (D) -0.3 -0.4 -0.4 0.2 0.3 0.3 1.0 Altern’ves -0.4 0.0 0.0 0.2 0.1 0.4 0.5 1.0

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class outliers appear random, with FIGURE 15 AUSTRALIAN ECONOMIC (GDP) PERFORMANCE International equities performing poorly in 2001-02 as an aftermath Period 1 Period 2 Period 3 Period 4 Period 5 of the global technological bubble. 6% Desmoothed Direct property 5% and the Alternative asset class 4% demonstrated solid returns within 3% the +/-2 standard deviation

2% range. Property appears to have Mean a narrower range, with a high 1% Standard Deviation +/- 1 number of readings between the 0% mean and +1 standard deviation. -1% This compares to the Alternative -2% asset class data, which seems to be Dec-85 Dec-88 Dec-91 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 unevenly spread with higher negative returns to the universal mean. management opportunities. The low classes was how the data points returns in period 5 highlight the appeared slightly negatively skewed, DEBT AND PROPERTY move back to relatively low-geared, which is understandable as their INVESTMENT MARKETS Australian property focused AREITs. average returns are close to or below Investment grade property assets Standard return and risk the investment universe mean. are generally large in terms of performance measures can overlook In the equity and listed property capital price. This high value outlier risk. One approach to dealing investment asset class, there was threshold means that direct property with this is to measure individual evidence of outliers (above +/-2 investment requires considerably asset performance relative to that of standard deviations). Distinctly, higher levels of capital investment. the overall investment universe (all the downside outliers (-2 standard Using only equity finance can data) returns. Figure 17 details the deviations) were higher in limit investor opportunities for a standard deviation measure for the International equities than Australian diversified portfolio and lead to rolling annual investment returns, equities and Listed property. Also high specific property risk. Drawing where +/-2 standard deviations for International equities and Listed upon debt finance enables available can be considered an outlier. property, the downside outliers equity funds to be used across a Figure 17 shows the spread of were higher than the corresponding range of investments and achieve investment data to the 5.6% mean upside outliers (+2 standard diversification benefits. Such leverage for all the data returns. Cash and deviations). Comparing the timing can enhance expected returns as fixed interest were primarily within of the downside outliers apart from long as the return on investment +/-1 standard deviation range. Most the GFC in 2008, which affected exceeds cost of debt, although overall noticeable in these investment asset all asset classes, individual asset portfolio risk is amplified along

FIGURE 16 INVESTMENT ASSET CLASSES: REAL ANNUAL PERFORMANCE DURING DIFFERENT PERIODS OF ECONOMIC ACTIVITY Period 1 Period 2 Period 3 Period 4 Period 5 Strong Growth Major Recession Strong Growth Stable Growth GFC Impact Returns Rank Returns Rank Returns Rank Returns Rank Returns Rank Cash 6.2% 4 7.8% 3 3.6% 8 2.4% 6 1.8% 3 Aust fixed 4.9% 5 15.8% 1 6.6% 6 2.4% 7 5.5% 1 Int fixed -1.3% 7 6.6% 4 5.7% 7 1.2% 8 2.2% 2 Aust eq 7.7% 2 2.5 % 5 11.4 % 2 11.1% 2 -2.9 % 7 Int eq 7.6% 3 -3.8% 6 11.5% 1 3.6% 5 -1.0% 6 Listed Prop 3.9% 6 8.1% 2 9.5% 3 10.7% 4 -6.6% 8 Direct Prop (D) 14.1% 1 -12.8% 8 7.2% 5 11.4% 1 1.6% 5 Altern’ves -1.7% 8 -6.7% 7 8.2% 4 10.8% 3 1.7% 4

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FIGURE 17 INVESTMENT ASSET CLASSES: REAL ANNUAL PERFORMANCE — OUTLIERS More than + 2 SD +1 SD to +2 SD Mean to + 1 SD Mean to -1 SD -1 SD to -2 SD More than - 2 SD > 31.4% 31.4% to 18.5% 18.5% to 5.6% 5.6% to -7.4% -7.4% to -20.3% < -20.3% Cash 0027820 0 Aust fixed 0350551 0 Int fixed 0039691 0 Aust eq 9193824136 Int eq 12 15 32 25 12 13 Listed Prop 21747305 8 Direct Prop (D) 076622140 Altern’ves 0143151130

with the volatility of equity returns Generally, debt pricing for interest rate and fixed terms of on the specific property asset. Debt commercial property loans are set at a three, five and seven years with finance conditions placed on the margin above a published benchmark renewals on the same terms. property asset must be met to avoid interest rate. The most common Figure 19 illustrates the interest default and its consequences. referenced interest rate is the short rate movement and that of renewed Securitised property vehicles term bank bill rate and the six month fixed three, five and seven year typically take on debt to increase Bank Bill Swap (BBSW) rate. The terms. During the early 1990s, the expected returns. Figure 18 margin above is the compensation movements in interest rates were shows the gearing levels for major required by the lender for default risk. significant, and the variations property funds across the public This can vary considerably across between the fixed and floating option and private property equity markets loans and depends on capital market considerable. Since 2000, interest rate as in the PIR (2012) survey. conditions, debt level, mortgage volatility has reduced, with interest Figure 18 also details the gearing covenants, type of security, etc. rates moving between a 5.8-9.5% band. levels (debt/assets) for leading public In the competitive banking Figure 20 details past cost and private property equity funds. The environment, information on of the different finance options spread in the gearing levels highlights commercial property interest rates is covering the past 28 years. For the varied use of debt funding in sensitive data and difficult to source. comparison purposes, the analysis the performance of property funds. The RBA (2013) published a long assumes the same loan costs For property fund analysis, it is series for the indicative house lending with each finance option. therefore important to examine the rate which, for this research, can be This illustrates the interest costs underlying properties, management a proxy for movement over time in based on defined floating and fixed expertise and debt structures. the pricing of commercial property interest rate movement. Based on There are several debt funding debt, although it may understate the the December 1984 commencement features, which include debt expiry level. (Note: At any point of time, date, the renewed seven-year fixed profile, level of security (building or commercial property lending rate term had the lowest average cost fund level) and debt default process. can vary to the housing lending and risk profile. This compared to An important factor is the type and rate, this being most noticeable in five-year fixed term with costs 8% level of interest rate change. If any early 2000 with competition from above those of the seven year fixed interest rate is fixed over the term of securitised debt.) The cost of capital term. A critical element to this is the loan, future payments are known can be examined on the floating the timing of the fixed term renew compared to a variable ‘floating’ rate, which can move depending on capital market conditions. The choice between fixed and floating interest FIGURE 18 PROPERTY INVESTMENT VEHICLES: GEARING LEVELS rates is dependent on several factors, AREITs Unlisted Wholesale Funds Property Syndicates including the economic and financial (Gross Assets (Gross Assets > $1b) (Gross Assets > $1b) > $100m) environment, and the debt pricing mechanism adopted by the financier. Range 12%-55% 0%-53% 0%-86% Average 31% 22% 50%

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SUMMARY AND CONCLUSION FIGURE 19 INDICATIVE PROPERTY INTEREST RATES: Compared to competing asset FLOATING AND FIXED TERMS classes, commercial property has 20% distinct features which include illiquidity, high-value threshold, 15% no central trading place and limited transactions. In identifying 10% key capital market limitations,

5% investors have a unique opportunity with commercial property to 0% add value. In saying this, good market knowledge is an important

Dec-84 Dec-86 Dec-88 Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 part of the commercial property Floating 3 years 5 years 7 years decision making process.

There are major benefits Source: RBA 2013, and Author in calculating the extent and as both the three-year and five-year funds’ preference for low-geared composition of commercial fixed terms were renewed at close leading wholesale property funds. property within the Australian to the top of the interest rate cycle. Figure 22 shows the impact on investment market. Opportunities Figure 21 examines the effect of rolling annual desmoothed total for institutional investment can financial leverage on the commercial property returns from different be identified alongside market (direct) property desmoothed gearing levels and a selection of coverage. On an economic activity rolling annual total return data. The floating and fixed interest rates. formula, Pramerica (2012) reported floating interest rate is compared This illustrates that higher gearing that the Australian institutional with a 20% to 80% gearing range. levels lead to increased returns and grade commercial property universe Figure 21 shows the average changes the risk profile. As shown in is estimated at $681 billion. returns increased with higher gearing the Sharpe ratio data, lower risk return Separate building data calculations levels. An 80% gearing level can lead performance occurs with high gearing can show the core commercial to long term 30% improvement in the levels. The variations were similar across property investment market can be desmoothed property total returns, the floating and fixed interest rates. apportioned: Office $111 billion, retail although the risk has increased Changes are clearly evident in the 80% $112 billion and industrial $56 billion. five-fold. This is evident when gearing level, with improved returns As illiquidity and high entry costs examining the range of maximum and and much higher risk profile, most limit direct property investment minimum returns, an 80% gearing noticeably with the fixed seven-year opportunities, securitisation offers level has a range of 280%, compared to interest rate. This suggests that high-debt extensive diversification benefits. the desmoothed property total return funding with long fixed interest rate Securitised property vehicles can range of 57%. In the 80% gearing level, terms offers improved returns, as long be placed into four capital market the large annual negative return of as property income can cover interest categories, according to whether -139% would represent a substantial payments. This places a lot of emphasis they are traded on the public or drop in value, over 50%, and increases around renewal of the interest rate term, private markets, and if they are the chance that the commercial as to the stability of future property either equity or debt assets. As at property will be in loan default, with income and capital market conditions. December 2012, the estimated size of the possibility of the investor losing the property and their equity. Furthermore, the risk return profile is substantially changed, from FIGURE 20 PROPERTY LEVERAGE: FIXED AND FLOATING COSTS the property total return Sharpe Mean Standard Median Excess Skewness Range Max Min ratio of 0.24 to the lower Sharpe Deviation Kurtosis ratio of 0.1 for an 80% gearing Floating 9.5% 3.3% 8.1% -0.41 0.96 11.2% 17.0% 5.8% level. The increased risk can have Fixed a major impact on the inclusion of 3 years 9.3 % 3.0% 8.3% -0.86 0.87 8.5% 15.0% 6.6% geared property in a mixed asset 5 years 10.1% 3.7% 10.5% -0.58 0.83 10.4% 17.0% 6.7% portfolio. This is evident by risk 7 years 9.3% 2.5% 7.3% -1.96 -0.01 5.6% 12.0% 6.5% adverse industry superannuation

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FIGURE 21 INVESTMENT PERFORMANCE: TOTAL PROPERTY RETURNS AND THE IMPACT OF GEARING Sharpe Excess Mean Standard Deviation Ratio Median Kurtosis Skewness Range Max Min Actual 10.2% 11.4% 0.24 0.11 0.78 -0.34 56.8% 39.0% -17.8% Gearing Levels 20% 10.4% 14.2% 0.20 0.12 0.70 -0.45 70.4% 45.3% -25.0% 40% 10.7% 18.9% 0.17 0.13 0.63 -0.55 93.6% 56.0% -37.7% 60% 11.3% 28.4% 0.13 0.17 0.58 -0.65 140.2% 77.2% -63.0% 80% 13.3% 57.3% 0.10 0.26 0.54 -0.75 279.9% 140.9% -139.1%

the Australian investment market is A high-value threshold means REPORT & REFERENCES $6.9 trillion, of which the Australian that direct property investment The author would like to thank commercial property component requires significant levels of capital Professor Kevin Davis and Martin represents $354 billion (approximately investment. This can be achieved Jenkinson (ACFS) for helpful 5%). The property debt market is by increased equity leading to manuscript reviews. This is a dominated by private debt ($165 high specific property risk or debt published Australian Centre for billion), with the publicly equity financing part of the property Financial Studies (ACFS) report. market (REITs) share at $89 billion. investment. Whilst debt funding For the full report and references, Whilst the performance of can improve property investment visit the ACFS website: asset classes are generally based on returns, it substantially increases http://australiancentre.com.au transaction measured indices, direct the risk levels. Over the period property performance is sourced 1985-2012, an 80% gearing level from valuation-based indices, which can lead to a 30% improvement have an artificially reduced volatility in the property total returns; when compared to transaction- although the risk is increased based indices. Based on statistical five-fold and can lead to a wide analysis, the appraisal calculated 280% performance range. PCA/IPD composite property index In demonstrating the impact can be desmoothed, increasing of gearing levels on desmoothed volatility by 31%. Over a long 28 total property return performance, years of data series (1985-2012), with there needs to be recognition inflation removed, desmoothing that the management of debt is property is shown to be one of an important part of a property the best risk-adjusted performers strategy and considered as part of (joint second) of the eight leading a wider investment agenda. Debt investment asset classes, although financing changes the underlying this can vary depending on economic property performance profile and conditions and levels of new supply. increases the financial risks. „

FIGURE 22 INVESTMENT PERFORMANCE: TOTAL PROPERTY RETURNS AND THE LEVERAGE TYPES AND GEARING Floating Fixed 3 years Fixed 5 years Fixed 7 years Standard Sharpe Standard Sharpe Standard Sharpe Standard Sharpe Mean Deviation Ratio Mean Deviation Ratio Mean Deviation Ratio Mean Deviation Ratio Actual 10.2% 11.4% 0.24 Gearing Levels 20% 10.4% 14.2% 0.20 10.4% 14.4% 0.20 10.2% 14.5% 0.19 10.5% 14.2% 0.20 40% 10.7% 18.9% 0.17 10.8% 19.4% 0.17 10.3% 19.9% 0.14 10.9% 19.1% 0.17 60% 11.3% 28.4% 0.13 11.6% 29.6% 0.14 10.4% 30.7% 0.09 11.7% 28.8% 0.14 80% 13.3% 57.3% 0.10 13.9% 60.2% 0.11 10.7% 63.2% 0.05 14.1% 58.2% 0.11

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and PART-OWNERSHIP

064 ANZPJ MARCH 2014

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BONNIE GARDINER investigates an with the price, but I didn’t have to sell everything and at least I’ve got some online fractional investment platform, money, without trying to sell a whole primarily aimed at the SMSF market. property at the bottom of the market.” According to Richard Reed, Professor of Property and Real Estate at Deakin University, there is a need for he global financial “I looked back at my time at innovative property investment options. crisis had a significant Praemium with about 18,000 “This vehicle seeks to overcome impact on property segmented super fund portfolios some of the inherent challenges in investment. An upsurge on that platform, and I searched for property investment,” he says. in redemptions saw a a problem that needed a solution,” “The underlying premise is swiftT drain in cash and the subsequent explains Mr Naoumidis. based on the argument that good, freezing of several mortgage funds “The thing that really stood out well-located property will always and property trusts, creating a for me was that about 90% of the be in demand; however property is stranglehold on liquidity and burning portfolios have no weight into direct a very ‘lumpy indivisible’ asset.” holes in the pockets of investors. property, while 10% have nearly 100% DomaCom’s platform is intended With such a small window weight, and that’s really symptomatic to offer more affordability and for redemption, new investors of the problem with properties — ease than options like syndicates, have had to exercise extra very high transaction cost relative pooled unlisted trusts and Real caution, or be blocked from the to the medium portfolio balance.” Estate Investment Trusts (REITs). property market entirely — but DomaCom aims to increase “Any kind of joint venture this may be about to change. transparency and liquidity to the property or arrangement whereby you’re New business models are market, says Mr Naoumidis. Greater holding a proportional interest in a emerging to allow more efficient liquidity is provided via the online property outside of these REITs or and flexible property investments. facility by matching buyers, cutting out managed investment schemes — the ‘Fractional investment’ the need for the redemption process. limitations are adjoined to several eliminates the need to purchase “This way, if I buy 10% of that liabilities,” says Ben Kingsley, an entire property by introducing townhouse for $100,000 but suddenly I founding director of Empower Wealth concepts from the equities market, need $30,000, well I can try to sell 3%; and chair of Property Investment enabling investors to purchase put it on the market and say I want Professionals of Australia (PIPA). ‘fractional interests’ in specific $30,000 and if the market’s booming “A lot of people can get into trouble properties of their choosing. I’ll get it,” says Mr Naoumidis. when they decide to invest with a mate Using a managed fund legal “If it’s not, and I still desperately or a sibling and one of them decides structure combined with an online need it, I’ll drop the price and they want to get married and they need platform, like a hybrid of E*Trade eventually I will get a buyer, and that’s their money out. So those should always and Realestate.com.au, these exactly what happens in the equity be entered into with really solid lending vehicles give investors exposure markets. I may not be terribly happy and joint venture agreements in place.” to the income stream and capital value of the underlying property in direct proportion to the CROWD FUNDING VS fractional interest purchased. FRACTIONAL INVESTMENT

HOW IT STARTED The majority of the current crowd funding platforms rely on a “reward” DomaCom is an Internet-based model where consumers donate small amounts of money to support a fractional investment platform start-up, expectating to be rewarded with a product from the company if it launched by former Praemium chief succeeds. The DomaCom fund, on the other hand, is an example of the new executive, Arthur Naoumidis. breed of crowd funding platforms that enable investors to pool together The platform has been open to purchase a physical property, with each investor acquiring a fractional for business since 6 February, with ownership interest. DomaCom leverages the Australian Managed Investment more than 18,000 properties on Scheme regulatory framework to enable this pool of investors to acquire offer, including approximately properties whereas in the US, crowd funding investment platforms are 16,000 residential, more than 1000 awaiting special legislation in the JOBS Act to achieve the same result. commercial and 400 rural.

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Mr Naoumidis believes the platform are keen on the model because of firms, putting research functions in offers investors more diversification its level of diversification, place to recommend the best planners. across different property types and regulation, and its ability to “Real estate people don’t get us, geographic locations, reducing the help insulate their clients but we’re not talking about your risk of single asset exposure. However, from property marketers, current market, the people who buy Mr Kingsley warns that when aiming who can also use this model your houses from you now. We’re to sell off units of property, there as a distribution tool. talking about the 400,000 super is no guarantee that a buyer will “At the moment when you funds who can’t buy your property, actually come along when needed. get a property developer going so we aim to give them access to that to an investor, convincing them market as well,” says Mr Naoumidis. to buy that property on the Gold With the Cash Pool requiring FINANCIAL PLANNERS Coast, where do the assets for $20,000, and the minimum investment The target market for this new platform that purchase come from? The in a DomaCom sub-fund being $2000, is the independent adviser market and investment portfolio is being borrowing from banks and lenders is their clients; in particular, those with managed by the financial planner, not necessary, but Mr Naoumidis thinks self-managed super funds (SMSFs) and that planner’s fee then drops financial institutions may eventually use as they are a quantifiable market with by 30-40%,” says Mr Naoumidis. DomaCom units as collateral for loans, “a clear public need and interest for “The current structural bias of similar to margin lending in the share property investment solutions,” Mr this is the property developer and market except without the margin calls. Naoumidis says. Currently only 3.5% the financial planner are enemies. “If they’re trying to build this of the total SMSF pool is invested Whereas in our model, because marketplace, then ultimately if in Australian residential property. the property developer doesn’t sell banks see a commercial return DomaCom received a product one property to one superfund, for the risk and effort to get into authority from ASIC in late 2013 but rather 10 superfunds, then the that marketplace then we may see and an Australian financial services actual property allocation used some changes over the next five licence (AFSL) with permission to stays in the planner’s fee basket.” to six years,” adds Mr Kingsley. make a market. The concept should The main challenge, however, therefore enable most financial would be if financial planners planners and accountants to use it don’t express enough interest. FURTHER CHALLENGES without the need to change or amend “It’s going to be dependent on Aside from the usual risks associated their existing licence, so long as the view of the financial planners with property investment, the they are authorised to give advice on and accountants who advise their DomaCom Fund’s product Managed Investment Schemes (MIS). clients in that space... it’s up to disclosure statement also reminds “Financial planners normally [DomaCom] to promote their interested parties of the risks have a diversified investment commercial interest and try and get associated with a platform with portfolio, with about 20% toward it off the ground,” says Mr Kingsley. such limited operating history. direct property. For a $500,000 Professor Reed believes that “Property markets are cyclical super fund that’s $100,000 — creating a new marketplace will be and therefore an investor needs so how are you going to buy a difficult process with conservative to remember their investment $100,000 worth of property? You investors. “The main challenge is would conform to the typical can’t,” says Mr Naoumidis. the perception in the marketplace economic fundamentals of supply- “That was the problem from towards paying for a fractional demand,” says Professor Reed. an investment portfolio theory interest. A typical property investor Meanwhile a reliance on an perspective, but also from a business is seeking to purchase a tangible online technology solution brings perspective — because if planners ‘bricks-and-mortar’ investment its own share of risks when it can’t advise on direct property, rather than part of a brick,” he says. comes to access and reliability. nor can they charge on it.” “It’s a trailblazing area and a As well as being granted approval welcome addition. It’s a different way to be used by more than 2500 ESTATE AGENTS AND LENDERS of looking at the market and certainly advisers within the Association of Mr Naoumidis believes the model a more sophisticated way of doing Independently Owned Financial could create a more symbiotic things, so it’s just going to come down Professionals, Mr Naoumidis relationship between real estate to how many people they attract and claims to have spoken with a companies and financial planners, with what sort of cost it’s going to be for number of principal advisers who real estate acting like stock broking investors,” says Mr Kingsley. „

066 ANZPJ MARCH 2014

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ANZPJ_FP_Subs_Ad.indd 2 3/6/2013 4:58:48 PM ECONOMIC APPRAISAL

COST BENEFIT ANALYSIS

What is cost benefit evelopment is usually should it be refused? What if its characterised by benefits far outweigh its costs? All of analysis, and does developers putting us would agree that in some cases, it have a role in forward proposals for the best decisions are not always the development of made from this process. Therefore, development appraisal? property.D These proposals are assessed economics as a science might provide ADRIAN HACK of Hill by governments on their compliance an alternative method for valuing the with plans, policies and merit, as worth of a development proposal. PDA shares the details. dictated by planning legislation. The government bodies then determine ECONOMICS whether to permit development, permit Economics is the science dealing development under certain conditions, with the production, distribution or refuse it outright. Assessing proposals and consumption of wealth in usually involves checking compliance society. Generally there are two with a list of codes and other matters broad goals in economics: Optimality for consideration (impacts). (increase welfare using fewer What if a proposal undermines resources) and equity (relating to one or two matters on the checklist— the distribution of that wealth).

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HOW IS THIS RELATED? COST BENEFIT ANALYSIS modelling is done from the producer’s Property developers are ‘producers’ The Australian Government point of view. This is not the view of wealth for supply to ‘consumers,’ Handbook describes CBA as follows: of the consumer, third parties or and producers are motivated by “Cost-benefit analysis is a method government. In the current model, profit. Freedom of production and for organising information to aid the forecast cash-ins and cash-outs consumption is important in creating decisions about the allocation of are the developer’s financial cash wealth and moving towards optimality. resources. Its power as an analytical flow. There may be lots of other However, sometimes there are market tool rests in two main features: impacts that are not represented. failures where optimality and/or equity • Costs and benefits are expressed In CBA, we include all these are undermined. The role of government as far as possible in money other impacts that affect all sectors is to address these market failures, which terms and hence are directly of the economy. This includes includes regulating the market and the comparable with one another; and impacts on third parties, which production of public goods (amongst • Costs and benefits are valued in are referred to as ‘externalities’. other measures) to ensure the two broad terms of the claims they make The method of CBA is much the goals of optimality and equity are better on and the gains they provide same as financial appraisal. It involves addressed. A common area of market to the community as a whole, so setting up a discounted cash flow failure occurs when there are impacts the perspective is a ‘global’ one model to calculate the net present on the wealth of third parties — this is rather than that of any particular value of the project. However, in the reason for development assessment. individual or interest group.” CBA we add all the other costs and benefits, including the externalities ECONOMIC APPRAISAL HOW IS CBA DIFFERENT TO that have been quantified into the Economic appraisal refers to FINANCIAL APPRAISAL? model through the life of the project. valuing the wealth of a project. Can The value of property is based on we use this as a tool for planning its highest and best use, which COSTS AND BENEFITS and development assessment? I may be the ‘as is’ use of the land or The guidelines mentioned above go believe so. Will it improve decision its redevelopment potential. The into some detail about the techniques making? Yes, it could. But we redevelopment option is modelled for quantifying costs and benefits, must be careful of pitfalls. using a static or discounted cash describing them as either ‘quantifiable’ There are two main methods for flow model to derive a residual land or ‘unquantifiable’. Quantifiable is economic appraisals: Cost benefit value. Hurdle rates are selected to when there is direct market evidence, analysis (CBA) and cost effectiveness reflect the level of risk; however the whereas unquantifiable could refer to analysis (CEA). CBA quantifies both important consideration is that the such things as beauty, ecology, etc. costs and benefits and CEA quantifies We are all familiar with CBA only the costs. CEA is about finding being used to evaluate government the most cost effective method for projects such as hospitals, main achieving the project objectives. roads and train lines. Here I would There are various guidelines like to show some examples of where on economic appraisals including CBA can be a useful tool in planning the Australian Government assessment and in valuing the worth Handbook of Cost Benefit Analysis of a privately sponsored project. and the New Zealand Treasury One such project is the $150m Publication Cost Benefit Analysis Jack Nicklaus Golden Bear Golf Primer. There are also various state Resort, proposed in Pokolbin in the government guidelines, such as Hunter Valley. This is a proposal the NSW Government Guidelines for a resort that includes an 18-hole for Economic Appraisal. All these world championship golf course, documents are downloadable ADRIAN HACK, PRINCIPAL — PROPERTY golf academy, 250-room hotel, ECONOMICS, HILL PDA from government websites. reception/conference centre, wellness centre and 300 residential homes. The project would provide a third A COMMON AREA OF MARKET FAILURE championship golf course to the OCCURS WHEN THERE ARE IMPACTS ON THE local area and a world standard golf WEALTH OF THIRD PARTIES — THIS IS THE academy. The benefits of tourism REASON FOR DEVELOPMENT ASSESSMENT. and employment generation in the

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area would be significant and these resort, the results demonstrated benefits would flow through to the significant value adds to the other sectors of the Lower Hunter. economy resulting in a NPV of An important first step in $226m above the base case. This the CBA is to identify the base was well over the financial returns case. CBA is a tool for evaluating to the sponsors, largely because of options. Even if there is only one the strong beneficial externalities. development option, there is a base There are many other costs and case sometimes referred to as the ‘do benefits that can be quantified. nothing’ option, against which the Travel time and travel cost savings, preferred option is measured. In the accident cost savings, use benefit/ above case, the land was valued for opportunity cost of leisure time,

CBA IS A TOOL FOR EVALUATING OPTIONS. EVEN IF THERE IS ONLY ONE DEVELOPMENT OPTION, THERE IS A BASE CASE SOMETIMES REFERRED TO AS THE ‘DO NOTHING’ OPTION.

agricultural purposes, and this was amenity (shifts on property inputted into the cash flow model values), etc. These are some of the as an upfront opportunity cost of techniques that Hill PDA has used in the land. The other costs identified quantifying impacts in past projects. and quantified were capital costs, including design and construction. POTENTIAL PITFALLS The benefits of the project included There are potential pitfalls in CBA, market rent of the accommodation and there are rules to avoid them and industry value add (contribution relating to the treatment of all sorts to GDP) from the various employment of items including, for example: generating land uses, based on • competitive impacts transfer estimated revenue projections and/ payments (e.g. stamp duties) or employment numbers. We also • double counting put a terminal value at the end • taxes of the project life by capitalising • interest cost the annual net benefit at 15%. • multiplier impacts (or The real costs and benefits input output analysis) there is plenty of literature on this. (inflation ignored) were put into • with/without scenarios Apart from some of the above pitfalls, a 20-year cash flow model and versus before/after effect perhaps the two biggest arguments discounted at 7% per annum, in line • marginal versus average against CBA relate to the equity with NSW Treasury Guidelines, costs and benefits issue and the ‘monetising’ issue. where 7% is considered a reasonable • opportunity cost versus sunk costs cost of capital and real social time THE EQUITY ISSUE preference rate (reflecting the desire The rules relating to these items There are two broad goals in to consume now rather than later). can be found in the government economics — optimality and equity. Some guidelines don’t recommend a guidelines. In particular, when CBA is generally used to measure the constant rate, but rather a rate that assessing a CBA itself, it is necessary to former, but not the latter. Critics argue reflects the riskiness of the option. appreciate the inclusions of costs and that a decision that takes $100 from a Similar to financial appraisals, there benefits, methods of quantification, poor person and returns $200 to a very are methods of risk assessment and treatment of variables to rich person is not a good outcome. It’s including sensitivity testing, ensure that the analysis has been a move away from optimality because scenario and probability analysis. done as objectively as possible. the value of the $100 loss to the poor In the case of the Pokolbin CBA has some strong critics, and person far outweighs the value of the

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the ‘should not’ meaning that it is “the IO analysis and the BCA provide unethical. Typically CBA is used to only models, and that they are a put a monetary value on all sorts of guide to, but not a determinant things, such as the wilderness, ecology, of, an assessment of the impacts of art, archaeological items, health and the Project”. even human life. And all this becomes an ethical slippery slope. Even when a So as an evaluation tool, CBA CBA qualifies, rather than quantifies, can be used to assist in decision one or more costs, critics claim that making, as can other tools. the bottom line money value appears to overwhelm and disguise what may OTHER EVALUATION TOOLS be significant non-financial costs. Other evaluation tools that can be The counter-argument from CBA used in development assessment advocates is that society has to make include planning balance decisions about where to allocate sheet (PBS), triple bottom line limited resources, and the evaluation assessment (TBL) and the goals of those options involves weighing achievement matrix (GAM). costs and benefits (quantitatively or Personally, I’m an advocate qualitatively). Even when it comes to of CBA, though these alternative human lives, society has to make choices methods certainly have their about where to allocate resources. This benefits. PBS, for example, is an inescapable fact of life, and CBA addresses the distributional offers an objective method to do this. impacts of a proposal. In case you haven’t noticed, this Be aware, however, that there are is an old ideological battle between champions of alternative methods that Utilitarian and Kantian ethics. claim they overcome the problems Notwithstanding this debate, it’s of CBA. TBL advocates often claim important to remember that CBA that it is better than CBA because it does not make decisions, it is an doesn’t try to monetise the social and evaluation tool. A positive CBA does environmental impacts. However, in not automatically mean approval. In the end no method can escape the the recent case of Bulga Milbrodale need for these impacts to be weighed. Progress Association Inc v Minister And TBL’s subjective weighing of for Planning and Infrastructure and financial, environmental and social Warkworth Mining Limited [2013] impacts is less objective than CBA. NSWLEC 48 — the court refused the If there is a conclusion to all this $200 gain to the rich person, even expansion of an open cut coal mine, I would say that CBA, which has though it shows net positive $100 on notwithstanding its high positive been used extensively for publicly the bottom line. There is the counter- NPV. The Court ruled that: sponsored projects, is also a useful argument known as ‘Kaldor Hicks tool for appraising privately sponsored Compensation Principle.’ Evaluators projects. The decision to use CBA need to be mindful that a project may should be made on the size and show a strong net positive benefit, but its nature of the project, and the stage distributional impacts may be regressive. CBA ATTEMPTS at which a decision is sought. CBA TO MONETISE ALL should be part of any planning THE MONETISING ISSUE SORTS OF IMPACTS proposal or re-zoning application. The other main criticism is that CBA — INCLUDING It should also be submitted with attempts to monetise (convert into ENVIRONMENTAL development applications for major dollars) all sorts of impacts, including AND SOCIAL. CRITICS projects. Determining authorities can environmental and social impacts. SAY YOU CANNOT request applicants to submit CBAs Critics say you cannot and you should AND YOU SHOULD with their proposals, but they will not put a price on the priceless. The NOT PUT A PRICE ON also require some expertise when it ‘cannot’ meaning that it’s impossible, THE PRICELESS. comes to appraising the appraisal. „

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Recent cases, headline issues and new legislation

AUTHORS

LINDSAY JOYCE JAMES MORSE [email protected] [email protected]

Lindsay is a Partner at DLA Mr Morse is a Senior Associate Piper Australia who practises at DLA Piper Australia and an extensively in the area of Accredited Specialist in Commercial professional negligence as it Litigation. Mr Morse also practises in affects property professionals, the area of professional negligence, including valuers. Before including with respect to claims for commencing practice in 1979, and against valuers. James regularly Mr Joyce practised as a valuer advises on valuation liability issues, for 10 years, being admitted has guest lectured at the University as an Associate of what has of Western Sydney on legal issues become the Australian Property arising from property valuations, Institute in 1973. He advanced and has delivered various Risk to Fellow in 1989 and Life Management Modules for the API. Fellow in 2005.

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HOMEBASE MANAGEMENT PTY fair or just or reasonable, but lease that was the subject of LTD V CITY OF SUBIACO [2013] by reference to the language of these proceedings. WASC 419 the clause in its context.” The lease contained a rent review clause that provided a framework In light of the above, the Court for calculating rent during given SNAPSHOT was also careful to point out that periods of the lease. That clause The Western Australian Supreme this case focussed on the proper was as follows: Court’s recent decision in Homebase construction of the lease under Management Pty Ltd v City of Subiaco consideration. A different outcome 2.3 Rent: 1.1.2012 – 31.12.2020 and [2013] WASC 419 reinforced the may occur when a different lease during Further terms importance of contractual certainty is considered. Furthermore, the During the period from 1 in rent review clauses. In this case, adoption of specific or particular January 2012 to 31 December an unclear definition of “Fair Market valuation methodologies still remains 2020 (and, if an Option is Rent” in the subject lease agreement a matter for each individual valuer, exercised, during a Further allowed the lessee to deduct according to the task at hand. Term), the annual Rent shall on considerable capital costs from an each Review Date be reviewed initial rental value. and, on and from each Review However, when interpreting FACTS Date, shall be the highest of the the rent review clause, the Court Homebase Management Pty Ltd following amounts: emphasised that: (“Homebase”) leased land from the City of Subiaco (“City”). (a) an amount calculated by “… the nature and purpose of After entering into the lease multiplying the annual a rent review clause means that in 1987, Homebase undertook Rent payable immediately any consideration of whether significant works and constructed preceding the Review Date a particular construction new buildings so that the premises by a fraction obtained leads to a result that is unjust could be used for showrooms, by dividing the CPI as or unreasonable will often offices and subletting. determined at 30 June be of little assistance. The A previous action brought immediately preceding competing interests of the by Homebase in 2002 in relation the Review Date by the lessor and the lessee are to a rent review clause was CPI as determined three irreconcilable. … The parties’ settled, resulting in the execution years earlier; opposing contentions should of a new lease, which commenced (b) an amount equal to 25% not be resolved by what seems on 1 January 2004. It was this of the Sublease Payments

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in the year ended 30 June (i) goodwill created by the by Homebase will obviously immediately preceding the Lessee’s occupation of require the same or similar Review Date; the Leased Premises; improvements to the Leased (c) an amount equal to the Fair and Premises as have in fact been Market Rent; or (ii) any licence or permit made by Homebase. The (d) an amount equal to the in respect of the existence of the improvements, annual Rent payable business carried therefore add considerable immediately preceding the on by the Lessee or value to the Leased Premises Review Date. any sublessee on the (as without them, the leased Leased Premises. premises could not be used The primary issue in this case for the required purpose concerned the proper construction of without incurring substantial the phrase “Fair Market Rent”, as that THE DISPUTE AND THE capital expenditure).” phrase was used in clause 2.3(c). COMPETING SUBMISSIONS Helpfully, the phrase was defined The focus of the dispute was whether, Homebase’s valuer estimated in the lease as follows: when assessing market rent, account the cost of building the structures must be taken of the fact that the on the leased premises at $15 Fair Market Rent means the notional lessee must construct the million and commented that, if rent which the Leased Premises premises, at its cost, on the land that capital sum was notionally would reasonably command to enable it to be put to the use written off over the remaining at the Review Date in a free to which Homebase had put the 19 years of the lease, that would and open market, taking into leased premises. require an annual write off of account all relevant factors, The City’s valuer relied primarily $789,474, which should be deducted matters or variables used on an assessment of rent based upon a from the notional market rent of in proper land valuation percentage return of unimproved land $1.35 million. practice on the basis that the value. The City’s valuer also suggested The Court therefore Leased Premises were vacant that, although direct comparison identified that: and available to be let on the would normally be the most suitable same terms as are contained methodology, there was a lack of “… the essence of the dispute in this document (includes its suitable evidence for comparison between the parties is that Term) and as if this document purposes. That valuer then assessed Homebase says, and the City included a term that the Leased the capital unimproved value of the denies, that in assessing Fair Premises were to be put to the land, having regard to the existing Market Rent, it must be taken same use (and could only be put use of the land, and applied a notional into account that the notional to the same use) as the use to yield that a lessor would require in lessee must construct the which the Leased Premises are order to lease the land. The value of premises, at its cost, on the land in fact put by the Lessee at the the land was therefore assessed at to enable it to be put to the use Review Date (whether or not about $25.686 million and, once a to which Homebase puts the that is the highest and best use yield of 5.5% was applied, that led to a Leased Premises.” of the Leased Premises) and: “Fair Market Rent” of $1.412 million, (a) without taking into rounded down to $1.4 million. Put another way: account the Lessee’s Homebase’s valuer took a similar - Homebase submitted that and any sublessee’s approach, but with what the Court the proper construction of trade fixtures described as “one major difference”. the lease required that regard and fittings; This valuer adopted a capital value of be given to the fact that a (b) ignoring any $27 million and, once a yield of 5% hypothetical lessee would value attaching to was applied, this gave rise to a market have to incur the costs of permanent structural rent of $1.35 million. However, after constructing permanent or other improvements reciting various provisions of the lease, structural and other to the Leased Premises Homebase’s valuer commented that: improvements to the land that made at the Lessee’s are necessary to put the land expense; “[t]o put the Leased Premises to the same use as it was put by (c) ignoring any value to the same use or as the use Homebase at the relevant Review attaching to: to which they are in fact put Date under the lease; yet

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THE PRIMARY ISSUE IN THIS CASE CONCERNED THE PROPER CONSTRUCTION OF THE PHRASE “FAIR MARKET RENT”, AS THAT PHRASE WAS USED IN CLAUSE 2.3(C). HELPFULLY, THE PHRASE WAS DEFINED IN THE LEASE.

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- the City submitted that adopting such a construction would give effect to them, depart from any reasonable notwithstanding that the The Court conception of a “Fair Market result may appear capricious also noted that the Rent” and, absent clear words to or unreasonable, and that it interpretation of a written the contrary, when the parties may be guessed or suspected contract involves the defined a phrase in the lease, the that the parties intended ascertainment of the meaning, parties should be taken to have something different; which the document would convey intended a meaning reflecting - the Court has no power to to a reasonable person having all the core concept or meaning of remake or amend a contract the background knowledge that the phrase used and defined. for the purpose of avoiding a would reasonably have been available result which is considered to be to the parties in the situation in inconvenient or unjust; which they were at the time of the A RECAP ON THE PRINCIPLES OF - if the language is open to two contract. In that light, the meaning CONTRACTUAL INTERPRETATION constructions, preference will of the terms of a contract was to be The Court noted that its primary duty be given to that construction determined by what a reasonable when construing an instrument such as which will avoid consequences person would have understood a lease was to endeavour to discover the that appear to be capricious, them to mean. That normally intention of the parties as embodied unreasonable, inconvenient requires consideration not only of in the words they have used in the or unjust — even though the the text, but also of the surrounding instrument. The Court also noted construction adopted is not circumstances known to the various general principles relevant to the most obvious, or the most parties, and of the purpose and the construction of contracts generally, grammatically accurate; object of the transaction. including the following: - it will be permissible to But putting these general principles to one side, the Court also noted that construction of a LANDLORDS AND TENANTS (AND THEIR ADVISORS) rent review clause comes with added SHOULD EACH BE CAREFUL TO ENSURE THAT complexity, as the rent review clause is both for the benefit of the tenant DEFINITIONS IN LEASE AGREEMENTS ARE CLEAR (because without such a clause they AND APPROPRIATE. would never get the long lease they require) and the landlord (because it - the whole of the instrument depart from the ordinary ensures that they will receive a fair has to be considered, since meaning of the words of rent for the duration of the lease). the meaning of any one part one provision so far as In this way it is difficult, of it may be revealed by other is necessary to avoid an if not impossible, to resolve parts, and the words of every inconsistency between that such disputes by reference to fairness clause must, if possible, be provision and the rest of the or justice. Rather, the focus must be construed so as to avoid instrument; and on the actual meaning of the words inconsistency and render - the Court should construe used in their particular context, them all harmonious with one commercial contracts (such and the definition of “Fair Market another; as leases) fairly and broadly, Rent” must not be construed in - if the words used are without being too astute or isolation but in the context of the unambiguous, the Court must subtle in finding defects. lease as a whole.

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A PAUSE So, pausing there for one moment (and before reading the Court IMPACT determination below), we invite you This case is an important reminder to put yourself in the position of the of the importance of lawyers Consequently, landlords Court having to decide this matter. avoiding ambiguity when drafting and tenants (and their advisors) Taking into account all of the any form of contractual documents, should each be careful to ensure that above principles of contractual including leases. Confusing or definitions in lease agreements are interpretation, whose side are you imprecise drafting in contracts can clear and appropriate. on — Homebase, or the City? have unfortunate financial, or other, It is also worth offering a consequences for the parties. caution to valuers who take on As for valuers requested to the rental review role — whether THE DETERMINATION advise lawyers on how to draft rent for a lessor, lessee or acting as the In the end, the Court sided review clauses in leases, they should agreed expert — that they should with Homebase. seek to impart their experience look closely at the lease wording to The Court determined that the and expertise in a practical and determine if they really want the rent was to be calculated on the understandable way, particularly job. Additionally, valuers should basis that the leased premises were when considering how a rent review also reserve to themselves the right to be put to the same use, and could process should be undertaken. to seek independent legal advice only be put to the same use, as that This case also revisits to assist them in their review or which the leased premises were put the well-known principles of determination role. by Homebase at the review date. contractual interpretation, More generally, the case It necessarily followed that the reinforcing that disputes between serves as a further indication that hypothetical lessee would have to parties in relation to the meaning Australian courts are not afraid incur the cost of constructing the of a clause in a contract will be to favour constructions which, on permanent structures and other resolved not by reference to a fair one view, may lead to a surprising improvements to the land that are or equitable outcome, but rather outcome. The principal focus is, necessary to put it to the same use as with regard to the language used and must always be, on a literal and it was being put by Homebase. and considered in the context of the objective interpretation of the actual The Court refused to accept the contract as a whole. words used. An appeal is pending in City’s submission that the complete Importantly, this case considered this matter. purpose of the rent review clause one particular definition of “Fair was to ensure that the rent was Market Rent” as written into the assessed on the basis that the land was lease — it did not set any precedent AUTHORS' NOTE vacant. According to the Court, this as to how rent should be calculated The authors would like to take approach was too narrow and did not in any other circumstance. However, this opportunity to thank Gabe sufficiently accommodate the various the case does indicate that close Perrottet, Summer Clerk at DLA detailed elements of the basis on which attention will be paid to any specific Piper Australia, for his research and rent was to be assessed under the clause. definitions adopted in a lease. drafting assistance. „

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RIGHT OF WAY: HOW HIGH ARE THEY?

Does the legal concept of ‘right of way’ pose a significant prohibition in modern property and planning law? CHRIS SHAW and BENJAMIN LAI of Shaw Reynolds Lawyers discuss.

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WHAT IS A RIGHT OF WAY? and enjoyment of the benefiting Manly Properties sought to A right of way is an easement party (the dominant tenement). build over a portion of the new granting a party the right to use It further canvasses the interesting way at a height of 12 feet. another party’s land for access. question of whether aircraft would When Castrisos, the registered What then is an easement? As any be constantly trespassing on private proprietor of lot 1, refused to third year law student can recite, property as they navigate the skies. consent to the proposal, Manly an easement is a non-possessory Fortunately, the common law has Properties sought an order against right over real property that satisfies carved up a solution to circumvent them. Pursuant to section 89 of the four essential characteristics enunciated in Re Ellenborough Park1 (and endorsed by the Victorian Supreme Court in Riley2): “HE WHO OWNS THE LAND UP TO THE SKY.” a. There must be a dominant IF AN INSTRUMENT OF GRANT IS SILENT and servient tenement; AS TO HEIGHT, IS THE SKY THE LIMIT? b. The easement must accommodate the dominant tenement; c. The same person must not such potentially vexatious problems. the Conveyancing Act 1919 (“CA”), own and occupy the dominant This paper focusses on the New Manly Properties requested the NSW and servient tenement; and South Wales and Queensland Courts’ Supreme Court exercise its jurisdiction d. The right claimed as an easement treatment of this legal peculiarity. to modify or extinguish an easement. must be capable of forming the Citing Holland J in the case: subject matter of a grant.3 FACTS — MANLY PROPERTIES Instruments granting a right of PTY LTD V CASTRISOS5 “the section is designed to way often specify the way’s use or In Castrisos, the NSW Supreme relieve wholly or partly... a purpose, which in turn determines its Court contemplated the defendant’s land owner from the burden of ambit of operation. It is common for argument that an express grant of restrictions and easements whilst such instruments to be drafted widely a right of way silent as to height at the same time recognising to afford the parties flexibility in use. amounted to an “easement ad coelum”. the legal rights of the owners Often, however, instruments are silent In the matter, a property situated of the dominant tenements, as to the height of such right of ways. between two streets was sub-divided and ensuring that they will into six lots. A right of way 8 feet 7 not be unduly prejudiced” USQUE AD COELUM? inches wide ran between lots 1-4 and A traditional property law maxim 5-6. This way was burdened on the FINDINGS — states: “cujus est solum ejus usque southern boundary of lot 6’s land “REASONABILITY” TEST ad coelum”, or simply “he who owns and benefited all six lots, providing In defence, Castrisos argued that, the land owns up to the sky.4” If access for wheeled vehicles to an inter alia, Manly Property did not an instrument of grant is silent as off-street loading and turning area. have the right to build over the to height, is the sky the limit? The issue arose when the existing or proposed way, invoking If so, this poses a significant registered proprietor of lots 5 and 6, the traditional maxim that property prohibition in modern property Manly Properties Pty Ltd, proposed to rights extend up to the sky. and planning law as it restricts substitute the existing 8 feet 7 inches In light, the Court rejected the registered proprietor of the wide way with a new 9 feet wide way Castrisos’ argument. The Court first encumbered land from exploiting on the northern boundary of lot 5 accepted that the proposed way was the air space extending vertically as part of a rebuilding project. The wider, and in all circumstances as to infinity over the way, even proposed new way would again benefit good, if not better, than the existing if such exploitation would not all six lots and include a loading and way. Accordingly, the Court was substantially detract from the rights turning area of a size and shape not willing to countenance an exercise less beneficial than the old one. of its powers pursuant to section 89 This is of greater importance CA as it would not cause substantial 1 Re Ellenborough Park [1956] Ch 131; [1955] 3 All ER 667; [1955] to our present consideration, as injury to the benefiting parties. 3 WLR 892; 99 SJ 870 part of the rebuilding project Following, the Court turned its 2 Riley v Penttila [1974] VR 547 attention to Manly Property’s right 3 Peter Butt, Land Law (6th ed, 2010) at [16.09] 5 Manly Properties Pty Ltd v Castrisos to build over the proposed way. 4 Zollman, Law of the Air (1927), p6 and others [1973] 2 NSWLR 420 In coming to its conclusion, the

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Court was unsurprisingly willing to read down a right of way that IT IS AT LEAST was silent as to height, and in the CLEAR IN AUSTRALIA course rejected the defendant’s THAT THE BLANKET argument of an easement ad coelum. PRESUMPTION In Holland J’s judgment, His OF EASEMENTS Honour espoused a test that EXTENDING USQUE envisages a reasonable height in AD COELUM HAS light of the way’s prospective use: BEEN RESOUNDINGLY SUPERSEDED BY A “as far as the height of the REASONABILITY TEST. right of way is concerned, it is, with respect to its prospective use as a carriageway...”

His Honour continued to add:

“[the height of the way is] necessarily limited by the fact Some time after, the defendant Court might be willing to imply that the access to the turning proceeded to erect a block of that 14 feet would be imputed. area provided by the easement apartments on his land. As part of the Regardless, it is at least clear is only 8 feet 7 inches wide... this construction works, the defendants in Australia that the blanket fact imposes its own limit on the erected a cantilever awning presumption of easements possibility of use and precludes protruding from the apartments extending usque ad coelum has any claim that the easement was and extending above and across the been resoundingly superseded ever an ad coelum right of way.” way. This awning was approximately by a reasonability test. Indeed, 8 feet 4 inches above the ground. in 2008 the Victorian Supreme In doing so, His Honour qualified Court laid down the rule in the “reasonable height” test to FINDINGS — MINIMUM McMahon7 at paragraph 205: contemplate surrounding facts and VERTICAL CLEARANCE circumstances in light of ambiguity While the Queensland Supreme “the width and height of a on the face of the document. The Court applied a similar approach right of way extend as far as natural width of the way gave rise to Castrisos, the Court chose not is required by the reasonable to the inference that no vehicles to qualify the reasonable height by needs of the owner of the wider than 8 feet 7 inches could reference to the width of the way. dominant tenement.” have foreseeable use over the way. Instead, Townley J held that The corollary inference therefore is unrestricted access for all types In our opinion, future that the reasonable height should be of vehicles required a minimum developments that consider limited to sufficiently accommodate vertical clearance of 14 feet, without construction over a way silent vehicles up to 8 feet 7 inches wide. regard to the fact that the way as to height should ensure that was only 5 feet wide. Accordingly, a reasonable minimum vertical FACTS — DOUGHTY AND His Honour found that a vertical clearance is maintained without KENYON V SMITH 6 clearance of 8 feet 4 inches amounted prejudicing the way’s prospective The Queensland Supreme Court to substantial interference with use. In particular, proposals should considered a similar matter in the dominant tenement’s use. pay special attention to the nature Doughty and Kenyon. In that and all surrounding circumstances matter, a 5 feet wide right of way CONCLUSION to ascertain a reasonable height was granted over a strip of the While the Doughty and Kenyon that would not cause substantial defendant’s land situated on the judgment does not expressly mandate interference with the rights and common boundary with the plaintiff. a reasonable height, this case does lend enjoyment of benefiting parties. „ some credence for the proposition 6 Doughty and Kenyon v Smith that in cases where a reasonable 7 McMahon & anor v McMahon [1959] QWN No 41 height is difficult to ascertain, the & ors [2008] VSC 386

080 ANZPJ MARCH 2014

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082 ANZPJ MARCH 2014

082_LifeStyle Contents.indd 082 3/11/2014 6:13:57 PM INTERNATIONAL

PHANTOM MENACE? The ‘Ghost Cities’ of China are an intriguing distraction in a complex and often baffling property market, TIM LOHMAN writes.

or years, China’s immense gain occupants is clear evidence the most notable example is US building boom has both of a property bubble inflating on hedge fund manager James Chanos, amazed and dismayed in the back of false demand, and who, in April 2010, likened China’s equal measure. an overriding need to stimulate reliance on property to a heroin Some feel the creation China’s economy at all costs. addiction. Mr Chanos argued that ofF entire new cities, and major Stark examples, such as the city the country was “on a treadmill to adjuncts to existing cities to house of Ordos in Inner Mongolia, and the hell” and that the property bubble millions of migrant workers and post-apocalyptic South China Mall, would burst in a year’s time. a growing middle class, is a sign have been jumped on by the media But that year came and went, of a modernising economy set to and used as proof that the bubble is and there was no collapse. And then grow for many years to come. real and due to pop at any moment. another year passed, and another, For others, the fact that several Hedge fund managers have and still no crash. China’s new of these new developments fail to gotten in on the act as well. Perhaps developments began filling up, and

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property prices — particularly in major cities such as Beijing and KANGBASHI, Tianjin — have continued to grow. CHINA Despite this, reports of a looming property bubble persist. It’s timely then to take a look at the multiple currents that move through and IMAGE BY influence the complex, and often KARMAFIER murky, Chinese property market. URBANISATION AND DEMAND Possibly the greatest single influence on the Chinese property market sparks from the mass migration of workers from the land into urban regions, as they go in search of new opportunities in the country’s modernising economy. This decades-long urbanisation process has, according to the World Bank, seen China’s urban population shift from 17% in 1970 to 44% in 2010. By comparison, the US’s urban population during the same period grew from 74% to 82%. When one considers that 56% of China’s population of more than 1.33 billion people still reside in rural areas, there is clearly massive and sustained demand for urban property for years, if not decades, to come. So in large part, ghost cities can be simply explained as local governments better quality new housing stock — a distrust of paper assets, is a wave of building supply ahead of a massive point argued by ANZ Bank China speculation. While hardly unique to and sustained wave of demand. economists, Li-Gang Liu and Hao Zhou. China, property speculation poses Putting this pent-up demand “The housing stock built from the a serious risk to the stability of the for housing in perspective, Tom 1950s to the early 1990s has significant property market, according to a Miller, senior Asia analyst at Gavekal quality problems,” the economists say 2013 Royal Bank of Canada Wealth Dragonomics and editor-at-large of in an October 2012 analysis, Greater Management (RBCWM) assessment. the China Economic Quarterly says China Economics Weekly Insight. “The fact that speculative that of the approximately 266 million “We find that Chinese home investment activity is widespread migrant workers residing in urban buyers prefer newer buildings to in the Chinese property market is centres, less than 1% own a home those built before the 1990s, and of much greater concern than the in the town or city they work in. most of the older housing stock is ghost town phenomenon, which “If you look at China’s housing of very poor quality. This means gets more headlines as it is visible stock, you can say that it has over-built China will not only need to build and extreme,” reads the assessment, in certain places,” Mr Miller says. “Its more new apartments to meet entitled Global Insight – Special modern housing stock is about 180 people’s demand, but also to replace Report China Property Market, million units, but there are 220 million those low-quality housing.” by Jay Roberts & Yufei Yang. urban households in China, so from that “We do not know how much perspective you can say there actually SPECULATION AND BANKING housing demand in China is real isn’t enough; there is a massive shortage.” Another product of China’s demand for accommodation, how much In addition, an increasingly affluent increased affluence, along with is for investment, and how much of middle class is driving demand for a lack of investment options and such investment is actually speculation.

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However, Gavekal Dragonomics’ the over-heated property sector. Mr Miller says that the Chinese “Because the bank is putting Government has also moved to address money through a trust and not this issue through instituting high lending directly, it can bypass central requirements for first home buyers. government-mandated loan quotas or “China has very strict lending restrictions,” RBCWM says. policies about putting down a With local governments heavily very large down payment for a dependent on land sales for their property,” he says. “It is 30% but revenues, there is the incentive in practice it is more like 40%.” to continue to push through In addition, the level of debt developments at the expense of among Chinese households is also economy-wide central planning. very low by Western standards, meaning most are able to service OUTLOOK their property loans easily. While there are clearly challenges for “If you go back five years ago, the Chinese central government in people were buying properties managing its property sector, it’s a with cash, or not borrowing very fairly safe bet that if it continues on much money at all,” Mr Miller says. its current course, then the world may “Leverage has risen a lot over the last be witnessing the biggest and longest two or three years, but it is still very sustained building boom in history. low compared to other economies.” What is for sure is that China’s Another area of concern for mass-migration of millions of the Chinese property sector is that workers off the land — let alone the of ‘shadow banking’ — trusts and demand for investment properties wealth management products, and upgraded homes — will off-the-books lending by major continue to drive demand for new banks, and private lending — used housing stock for years to come. to fund property developments and That doesn’t mean there won’t the purchase of new properties. be bumps along the way. Gavekal According to RBCWM, the Dragonomics’ Mr Miller says there major issue here is that China’s will be hard landings for developers However, it is clear investment and banks have potentially over-exposed and the construction industry speculation are widespread.” themselves to risk by funding failed working in China’s smaller tier three According to Li-Gang Liu and property developments, or those and four cities. Without the strong Hao Zhou, the Chinese Government that will not have a rapid return. economic magnet of jobs, these has recognised the issue and moved The size of this issue can be seen cities and developments will simply to make speculation more difficult by back in January this year as the struggle to attract workers — unless giving local branches of the People’s Industrial and Commercial Bank the central government acts to force Bank of China the discretion to raise of China rejected calls for it to bail businesses and workers to these areas. the down payment and mortgage out a troubled three billion yuan While the overall property rates for second-home buyers. (AU$15.4bn) property trust product. sector is likely to continue its “The second-home buyers will According to The Straits longer-term growth, a series of need to pay 60% of the housing Times, the rejection could shatter localised or regional boom and bust value as the down payment, and are assumptions that state-owned banks cycles may well be on the cards. charged by 110% of the benchmark will always protect investors from “People talk about a China bubble mortgage rates (at around 7%), which losses on risk off-balance-sheet but I don’t think it makes sense to is already quite high compared to investment products sold through think of China as one market,” Mr global standard,” the economists the shadow banking system. Miller explains. “It’s much more state in a 2013 China analysis. In addition, as the main source like bubble wrap than a single The boom in construction and of funding for provincial-level bubble. You can have corrections property has also prompted concerns developments, shadow banking also in individual cities; it doesn’t mean that China’s banks may be heading for poses a risk by subverting efforts by that you will have a huge burst a US style sub-prime financial crisis. the Chinese Government to cool off bubble in China as a whole.” „

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FITBIT FORCE WIRELESS ACTIVITY TRACKER Rating: 4.5/5 Fitbit’s latest fitness wristband improves upon a solid concept established in last year’s Flex model by adding an easy-to-read screen, an altimeter and REVIEWS simpler charging. The Flex only showed progress towards a goal, but now you’re also be able to see your exact step count, calories burnt, levels climbed and distance travelled on-the-fly on the Force’s screen. More detailed information can be found on the Fitbit smartphone app, which has a clean and intuitive interface. It’s capable of syncing information in real time using Bluetooth LE. The app currently supports Apple iOS devices TOSHIBA 1313.3IN 3IN CHROMEBOOK CHROMEBOOK and 17 recent Android phones and tablets. If you Toshiba has entered the Chromebook don’t have a compatible device, you can still sync market with a 13.3in device that uses a stats to the Fitbit website using an included USB latest-generation Intel Celeron processor dongle for PCs. and 2GB of RAM. The company says that The Force is splash-proof, so there’s no need its Chromebook weighs 1.5kg, and has a to be afraid of washing your hands. However, maximum thickness of just over 20mm. Fitbit advises users not to submerge the Force Chromebooks are designed to be low-cost more than one metre. Since the Force only logs alternatives to regular laptops. Instead of step-based activities, those of you who like biking Windows they run Chrome OS, and they are or swimming may find it doesn’t represent your specifically designed for those who rely on day very well unless you go into the website and Google services, such as Gmail. Other key manually enter these activities. features of the Toshiba Chromebook include Like other Fitbit monitors, the Force will track a screen resolution of 1366x768, a full-sized your sleep, and includes a silent, vibration-based HDMI port to connecting it to a monitor or alarm clock. While a nice idea in concept, it’s a TV, Wi-Fi, and Bluetooth 4.0. The battery life bit of a hassle to turn on or off. The lithium-ion is stated as being up to nine hours, though polymer battery on the Force lasted us about this will depend on how the Chromebook is a week, which is excellent for a device you’re being used. supposed to put on and forget about. - Elias Plastiras - Adam Bender

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LENOVO YOGA 8 ANDROID TABLET Rating: 4/5 Consumer research was the driving factor behind the design of Lenovo’s Yoga 8 Android tablet. SNAPSHOTS Users wanted something easy to hold, and that could stand on its own for display purposes. The result is a tablet that doesn’t look or feel like a standard Android slate, and this is a good thing. As the name suggests, this tablet has an 8in screen, and it features a native resolution of 1280x800. Like most tablet screens, it’s glossy and supports multi-touch input. It’s a thin tablet with an alloy back that offers good grip. The whole IMATION 2-IN-1 MICRO USB thing tipped our scales at just 397g. FOR ANDROID One thing that makes the Yoga 8 stand out Imation’s 2-in-1 micro USB flash drive immediately from most tablets is the cylindrical for Android may not be the most spine that’s located along the bottom edge of the imaginatively named product, but it’s tablet. This gives it a comfortable gripping point definitely an interesting one that’s bound to that can be used when you want to read e-books appeal to data-swapping Android users. It’s or browse websites. a USB stick that has both regular USB and All of the heavy parts of the tablet are located micro-USB ends, meaning you can plug within the cylinder, which helps to give the unit it into a PC or directly into an Android good overall balance when it’s held up. device and quickly transfer files without The second aspect of this cylindrical spine is having to use a cable or a cloud service. the stand that it houses. However, it won’t work on all Android When closed, this stand sits flush up against smartphones; your phone needs to run the rear of the tablet, and you hardly know it’s Android 4.1 or higher, and has to support there. This stand can be used when you want to USB on-the-go. Imation stated that it’s rest the Yoga 8 on a table to watch some videos, or also currently working on 2-in-1 drives for tilt it to suit the way you are sitting and provides Apple devices. easy typing. - Elias Plastiras - Elias Plastiras

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Rolls-Royce launches Ghost Series II

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Technical Specifi cations GHOST SERIES II (SHORT WHEEL BASE) DIMENSIONS Vehicle length 5399 mm/17 ft.9in Vehicle width 1948 mm/6 ft 5in Vehicle height (unladen) 1550 mm/5 ft 1in Wheelbase 3295 mm/10 ft 10in Turning circle 13.4 m/44 ft Boot Volume (DIN) 490 ltr/17.3 ft3 olls-Royce Motor Cars has WEIGHT revealed the successor to the Unladen Weight (DIN) 2360 kg/5203 lb Ghost, which launched in 2009. Engine The luxury car company Engine / cylinders / valves V/12 /48 Fuel management Direct injection used the 2014 Geneva Motor Max power @ engine speed 563bhp/570 RShow in March as the venue to reveal the PS(DIN)/420 kW @ 5,250 rpm Ghost Series II, which is a “subtle redesign” Max torque @ engine speed 780 Nm/575 lb ft @ of the Ghost, according to Rolls-Royce. 1,500 rpm At the launch, Rolls-Royce Motor Fuel type Super unleaded1 Cars CEO, Torsten Müller-Ötvös, PERFORMANCE described the vehicle as “the ultimate Top speed 250 km/h/155 mph entrepreneur’s business tool”. (governed) Acceleration 0 - 60 mph (UK) 4.7 sec “Following the worldwide success of Acceleration 0 - 100 km/h 4.9 sec its predecessor, I am confident that this re-designed and updated Rolls-Royce will FUEL CONSUMPTION Urban 21.2 ltr/100 km/13.3 continue to attract increasing numbers of mpg (Imp.) new customers to the marque, in particular Extra urban 9.8 ltr/100 km/28.8 mpg business entrepreneurs seeking an oasis (Imp.) Combined consumption/range 14.0 ltr/100 km /20.2 of calm in a frenetic business world,” mpg (Imp.) the CEO said at the car’s unveiling. CO2 emissions 327 g/km The Ghost Series II includes tweaks to the car’s exterior, including TECHNICAL SPECIFICATIONS GHOST SERIES II (EXTENDED WHEEL BASE) re-sculpted LED headlights. DIMENSIONS “As a design statement, Rolls- Vehicle length 5569 mm/17 ft.3” Royce Ghost Series II continues to Vehicle width 1948 mm/6 ft 5” Vehicle height (unladen) 1550 mm/4 ft 11” transcend time,” said the Rolls-Royce Wheelbase 3465 mm/10 ft 2” director of design, Giles Taylor. Turning circle 14 m/45.9 ft “This is ensured by the deft treatment Boot Volume (DIN) 490 ltr/17.3 ft3 of features such as the new headlights, WEIGHT the new wake channel on the bonnet and Unladen Weight (DIN) 2420 kg/5335 lb surfacing that lends the car a more dynamic, ENGINE purposeful stance, and hint at the cutting Engine / cylinders / valves V/12 /48 edge technology inside. I am very pleased Fuel management Direct injection with the overall sense of design harmony.” Power output @ engine speed 563bhp/570 PS (DIN)/ 420 kW@ 5,250 rpm The car has on-board Wi-Fi Max torque @ engine speed 780 Nm/575 lb ft @ and, like last year’s Rolls-Royce 1,500 rpm Wraith, includes Satellite Aided Fuel type Super unleaded1 Transmission (SAT). The Ghost PERFORMANCE Series II also includes updates to the Top speed 250 km/h/155 mph on-board navigation systems and (governed) Acceleration 0 - 60 mph (UK) 4.8 sec the vehicle’s user interface. „ Acceleration 0 - 100 km/h 5.0 sec

FUEL CONSUMPTION Urban 21.4 ltr/100 km/13.2 mpg “AS A DESIGN STATEMENT, (Imp.) ROLLS-ROYCE GHOST SERIES II Extra urban 9.8 ltr/100 km/28.8 mpg (Imp.) CONTINUES TO TRANSCEND TIME” Combined consumption/range 14.1 ltr/100 km/20 mpg (Imp.) GILES TAYLOR, DIRECTOR OF DESIGN, ROLLS-ROYCE CO2 emissions 329 g/km

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WHAT CLOUD COMPUTING CAN DO FOR COMMERCIAL REAL ESTATE

Commercial real estate seems to have almost passed over technology as an enabler, but OREN ROSEN of Cougar Software explains why cloud computing should become a priority for the sector.

ommercial real estate THREE ISSUES FACING to real-time data. At best, they are (CRE) is one business CRE BUSINESSES TODAY working off some version of the truth sector where technology In my experience, the biggest issues because the data becomes outdated seems to have been facing the CRE business sector today very quickly as each department adds almost passed over. Old can be broken into three areas: its details and changes the dataset. schoolC methods seem to be more the • The accuracy of the data, and There are two issues with this: norm and it is quite typical to find how the entire portfolio team • Because the data changes hundreds of different spreadsheets, uses the data to help make daily, their version is outdated as well as mountains of paper, better business decisions almost the same day that it is littering your CRE operation. • How the portfolio team is able created, resulting in missed During the recent global recession, to share the data so all staff information and loads of most companies were struggling are working on the latest and unproductive time trying to to stay alive, and spending any most accurate data, rather than keep the data flow operational time thinking of innovative ways from a snapshot of data out of • As each stakeholder passes on to run their operations was not a date the minute it is created the data via email with Excel priority. As the recession begins to • Outsourcing the technology spreadsheets, PDFs and more, recede, the focus has returned to infrastructure so that CRE multiple versions of the same data enhancing operational efficiencies, companies can focus on exist on a number of desktops in and improving an organisation’s what they do best. multiple files and formats, making ability to respond to a rapidly version control almost impossible. changing business environment. THE ITERATIVE CRE organisations are now NATURE OF CRE DATA Plus other common problems: taking note as other industries CRE companies are somewhat unique • Complex scenarios and models are moving to the cloud. Recently in the way that property data forms are very time consuming and Gartner reported that it expects the the backbone for all decision making difficult to create and run, if worldwide cloud services market to across the entire property portfolio. that is even possible at all surpass US$150 billion in 2014. This Each department uses the same set of • Financial models are developed is 15% up from 2013, which was more data for completely different purposes. and maintained on single than 17% higher than 2012. The As part of the existing processes workstations, and access to them is numbers prove that computing in within many CRE organisations, the not available to all potential users the cloud is not just a passing fancy. asset managers, property managers, • Heavy reliance on Excel to treasury, and so on, cannot get access develop and maintain gigantic

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spreadsheets and models that host their own servers, nearly VISION IN THE CLOUD • Inconsistencies between different every two years there is a massive Imagine walking past one of the spreadsheets — as each spreadsheet effort and potential downtime to properties in your CRE portfolio and, is created by different users, the switch over to the new technology at a click of a button, being able to see risk of different interpretations and provide training, not to mention vacancy rates, rental rates, building of the results also increases regular upgrades and patches. square footage and any number of • Data can easily be corrupted details about the property, from any through re-entry. IS CLOUD COMPUTING viewpoint. Physical information, as THE ANSWER? well as detailed financial information, SHARING DATA IN THE CLOUD CRE companies are focussing on would be at your fingertips, almost A cloud-based environment changes new technology and implementing like a ‘Facebook for buildings’. this. All the data is housed in one sophisticated solutions to help For this vision to be realised, single repository; the portfolio team them move their information to all CRE data would be stored in simply logs in to access the data. the cloud. Information becomes the cloud, providing one single The changes are made in real time, instantly accessible to all stakeholders, integrated data source for all users, resulting in higher confidence when both internally and externally. with no orphaned information. managers are making decisions These are the pioneers in the Any iterative changes are and forecasting the data. The result industry who are putting manual immediately reflected and accessible is departments no longer work in spreadsheets and reams of paper by all users. Version control is no isolation, as they can now easily behind them. They are accessing their longer a problem either, as versions share the most up-to-date data. data in the cloud using a variety of are always in sync throughout The added bonus is that now mobile devices and taking advantage the entire organisation. Any managers are working with a richer of all the cloud has to offer. changes applied to a version are set of data, and can shift their focus Benefits include: immediately updated centrally. from manual processes like data • The ability to travel with a mobile entry and cleansing the data, to device like a tablet computer and A CLOUD SOLUTION OFFERS: having more time to manage their leave the paperwork behind departments and analyse the accurate • The ability to perform Flexible storage and power scalability: data. After all, this is what they financial models and ‘what- Scalability on very short notice is a were hired to do in the first place. if’ scenarios on the fly big plus when operating in a cloud • The option to customise a environment. If more storage is INFRASTRUCTURE software solution and easily required, then it can be added almost I’m a firm believer in focussing on scale up or down as the instantly — essential for running what I know best and outsourcing the CRE organisation grows complex models and scenarios. rest, and infrastructure is no exception. • Access to practically unlimited Operating in the cloud allows access All too often the focus on technology storage, a must for the vast data to massive computational power on becomes an expensive distraction sets required for running complex demand when running complex models away from the actual business focus. modelling and scenarios with different market assumptions against large portfolios. Once a large run has completed, the demand for power then returns to normal levels. IMAGINE WALKING PAST ONE OF THE Models that previously took PROPERTIES IN YOUR PORTFOLIO AND, hours, or even days, to run now take AT THE CLICK OF A BUTTON, BEING ABLE minutes. This translates into massive TO SEE VACANCY RATES, RENTAL RATES, time savings and is far cheaper than having to build and maintain [AND] BUILDING SQUARE FOOTAGE. large in-house server farms. Any additional growth in CRE companies are in the business • The reduction of hardware corporate requirements can be of investing in real estate and, rather and software maintenance catered for just as easily. than worrying about IT purchases, and other overhead costs they can focus on the business at • The ability to do business Easy upgrades: hand. In fact, today IT has a shelf life globally in any time zone If another module within a CRE of about 18 months, so for companies is greatly enhanced. software suite is required, it can be

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made available within hours, if viewing a potential acquisition, no All of this hardware and not minutes. Service and software matter how far away from the office. software needs to be managed applications can be customised to suit and maintained by highly trained any CRE enterprise as, when and how Reduction in lost data: and expensive IT personnel. The they are needed within a very short Besides the obvious cost reductions in time and money required is an timeframe. This is a big difference equipment and training, other indirect overhead burden to the business. from the traditional software costs can be recaptured. It is estimated Migrating to the cloud removes purchase, testing and roll out. that in 2010, more than 62% of small much of the burden. Responsibilities, All upgrades to newer versions of to medium enterprises lost at least as well as the maintenance and the software would be transparent to one mobile device over the previous support costs, are unloaded onto users. The level of disruption to the 12 months. The local data lost in the cloud provider. The result entire organisation is greatly reduced. some cases was extremely expensive is the reduction of in-house IT Some cloud providers are offering to recreate. Access to data stored in hardware and software support software rentals for limited periods. the cloud would alleviate much of and other overhead costs. This may be preferable to buying the risk of data loss, as it would not A recent study conducted by software outright. Rentals per day, be stored locally on the device itself. Rackspace Hosting, with support from or on an ad hoc basis, are beginning the Manchester Business School in the to be offered as well — a big cost Consistency across the organisation: UK, found that cloud-based systems saving for smaller organisations. Once consistency is achieved are delivering both cost savings as well corporate-wide, then business as more innovation. Of 1300 US and Access to all platforms: processes can be optimised, and UK executives included in the study, CRE applications in the cloud can be savings in both time and money 62% declared that cloud computing accessed on any device, irrespective realised. Through the use of consistent is allowing their organisations to of the operating system controlling business processes, global consultancy invest more money back into their it, or even the type and vintage of firm, Deloitte, claims average business, stating that profits had the device itself. If an organisation productivity increases of about 5% improved by 22% on average. uses a mix of Apple and Windows and revenue increases of nearly 3%. Overall, cloud computing can workstations, as well as tablets, A standard integrated system provide CRE professionals with a mobile phones and other devices, living in the cloud means: clear competitive advantage. „ every user will be able to access their • A reduction in the risk of required data. The need for across- misinterpretations and the-board workstation upgrades misunderstandings due to or replacements every time a more document preparation by advanced release of CRE software different individuals is implemented no longer exists. • All users utilise the same In a recent survey of 3500 IT system in the same manner decision makers around the globe, • Reducing the reliance on conducted by CSC, more than 33% of key individuals for their respondents identified accessibility particular data manipulation to information through multiple and collation skills devices as the main reason for their • Individuals whose skillset is decision to adopt cloud computing. data analysis become more valuable team players Access anywhere, anytime: Access is no longer limited to COMPETITIVE ADVANTAGE business hours, or when the In traditional corporate IT departments, system is available. Within a cloud applications run on expensive environment, the ability to do corporate-grade hardware and software, business globally in any time zone with additional hardware waiting to is greatly enhanced, due to the take over in the event of any failures. 24-hour global access to systems. Redundancies in networks and network For example — valuations on the fly connection devices, as well as backup can be performed within seconds of power supplies, are also the norm. OREN ROSEN

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090-092 Cloud_Computing2.indd 092 3/11/2014 2:52:35 PM Untitled-1 1 9/2/2013 1:38:01 PM EVENTS VICTORIA’S 2014 2014 STATE STATE OF THEOF THEMARKET MARKET 7 February saw the Victorian property populace gather at the Melbourne Exhibition Centre for the 2014 API/REIV State of the Market conference.

ECONOMIC OVERVIEW apartment supply delivered across The event’s keynote economic Melbourne, as part of a new wave of speaker, Nicki Hutley, chief major international developments. economist and director of policy economics with Urbis, detailed a positive national outlook for 2014 INDUSTRIAL OVERVIEW with particularly robust activity Leading into industrial was a talk by predicted in the residential sector. Nerida Conisbee, national director of “I think we’re over the worst of research with Colliers International. the GFC, and we’re going to start “Leasing demand is stable, yet to see momentum building,” she rents are pretty much going nowhere... said. “We’ve got a much kinder we have got a lot of activity on global economic environment.” the investment side,” she said. At home, Ms Hutley believed we She explained that there’s still a will start to see the end of the rate high level of supply that should lead cycle easings, which should support to stable rents, though she predicted NICKI HUTLEY activity in the property sector as slight growth occurring in the city we’re starting to see some pick up fringe market, primarily as a result more than 50% more assets transacted in credit demand, though she said of an increasing office component. in 2013 than the next best year which it’s unlikely to go into the boom Ms Conisbee said over was in 2010. cycles we’ve seen in previous years. 2011/2012 activity was dominated February 7th saw the by offshore investors, with the Victorian property most active being the Real Estate RETAIL OVERVIEW RESIDENTIAL OVERVIEW Investment Trusts (REITs). Finally, Ian Shimmin, Urbis Robertpopulace Papaleo, director gather of strategic at the director, delved into the state of researchMelbourne with Charter KeckExhibition the retail sector, starting with the Cramer, spoke about residential OFFICE OVERVIEW challenging area around discretionary strength Centreleading into for 2014. the 2014 Martin Reynolds, head of valuations items, with poor spending in this area “The residential market in 2014 and advisory with Jones Lang LaSalle, since the wake of global financial crisis. will continueState to experience of the robustMarket said activity for the commercial Shimmin predicts future growth conditions,conference, following the hosted momentum by market had been subpar in 2013, with to reach from 2-2.5% in 2013 to that has been established in 2013 the vacancy rate in the Melbourne around 4% this year, and 5-6% in wherethe we’veReal had Estate historical Institute interest CBD increasing to 11% — the 2015-2016, claiming this will be rates ofand Victoria very strong population(REIV) and highest level since the 1990s. spurred by change in retail price growth,” said Mr Papaleo. “The key question moving forward inflation, which was “virtually theHe explained Australian that much Property of the for the physical market is, where will benign” in 2013, but also as a gains from 2013 Institutewere largely clawbacks (API). demand be derived from?” he asked. consequence of consumer confidence. from those home buyer incentives “We take comfort from the Lastly, he mentioned a report given away in 2011/2012 and we’ve recovery forecast in the private from the National Australia now got back to a situation where sector housing investment sphere.” Bank (NAB) that claimed a lower house prices are near their previous Mr Reynolds said it was surprising rate of growth in online sales, peak. He also noted that 2014 is going that 2013 was a record year for meaning there will be “more in to see an unprecedented level of new commercial investment sales, with the domestic retail kitty.” „

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Sophie Pullan F Fin, Senior Vice President, Brookfi eld Property Group EVENTS VICTORIA’SAPI/FINSIA QUEENSLAND 2014 STATE ECONOMIC OF THE MARKET INDICATORS LUNCHEON 2014

n 7 February at the Melbourne, creating another wave Brisbane is catching up. He said the Brisbane Convention of migration from southern states. Brisbane housing market in particular & Exhibition “If you have a clear advantage in looks poised for a strong uplift, Centre, Westpac affordability, that means population especially with investor-led growth. economist Bill Evans growth,” Mr Evans said. Mr Evans also said we should acknowledgedO that his forecast of His summary for the global and expect two more rate cuts in two more cuts to the official cash Australian economies included the the second half of 2014, though rate before the end of the year is potential for global growth to remain the Reserve Bank of Australia at odds with other economists. weak in 2014, taking pressure off is on hold for now; while weak “I’m probably the last drowning rates. He cited the Federal Reserve business conditions, together with man who thinks that’s possible… in the US, which has been tapering slow mining spend, weak world but my view is the dynamics that the to a pause in 2014 with plans to growth, weak job growth, and Reserve Bank described today, on why tighten rates “not late [in] 2015”. constrained consumers meant 2014 interest rates are on hold and why He also said he expects the growth is predicted at just 2.3% they’re likely to rise , I think they’re a unemployment rate to drift up to 6.5% Lastly, he noted that the weak little too optimistic around a flaccid as businesses constrain jobs growth. world economy was likely to weigh on world economy,” Mr Evans said. Confidence is likely to remain weak business confidence and consumers Mr Evans highlighted strong despite low rates, he said, as inflation through “job insecurity” — as growth in the property market, “scare” might temper investors there’s no need to think the latest driven by price rises in Sydney and in the property market, in which election was a “circuit breaker”. „

BRISBANE HOUSING MARKET IN PARTICULAR LOOKS POISED FOR A STRONG UPLIFT, ESPECIALLY WITH INVESTORS.

February 7th saw the Victorian property populace gather at the Melbourne Exhibition Centre for the 2014

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096-097_March14_NSW_QLD_EconomicEvent.indd 096 3/10/2014 5:38:40 PM EVENTS VICTORIA’STHE API NEW 2014 SOUTH STATE WALES OF THE DIVISION’S MARKET PROPERTY MARKET OUTLOOK 2014

our sectors of the Australian property market were analysed by a panel of experts at the API NSW Division’s Property MarketF Outlook 2014 last month. RESIDENTIAL OUTLOOK Michael Blythe, chief economist, L-R: DAVID HARRISON (CHARTER HALL), DWIGHT HILLIER (COLLIERS INTERNATIONAL) Commonwealth Bank of Australia JASON EDGE (CBRE) AND MICHAEL BLYTHE (COMMONWEALTH BANK) Mr Blythe said the residential market was nicely on track for “a predicted sector would continue to grow. He and international demand from 180,000 new dwellings in 2014 and highlighted the increase in offshore REITs was being met by strong 2015. Residential is a very important purchasers, saying “the Chinese supply, particularly in western part of the Australian economic story.” are here in a big way”, and in Sydney, while there is also a growing He did not believe there was particular for conversion activities. demand for englobo sites. enough evidence to point to a housing The leasing markets were the key bubble, highlighting the fact that to capital growth, with incentives the current situation was not “an at, or close to, peak levels in most RETAIL OUTLOOK excessively debt-driven model”. markets. There was limited effective David Harrison, executive director, On the topic of jobs, he noted rental growth forecast for 2014. Charter Hall that lower job security concerns Mr Hillier said those who Mr Harrison said retail turnover could increase the potency of are likely to take advantage of remained below trend, with current policy settings, and added market conditions to sell included department stores a significant drag that recent bad news about job state governments, private on overall performance growth. losses in manufacturing has investors and developers. However, Mr Harrison fed fears about job security. Mr Hillier warned that improved said the signs pointed towards Mr Blythe said several things performance of offshore markets “uplift”, and made particular need to go right if good economic and political and legislative mention of retail development outcomes are to be maintained, changes offshore could draw in regional shopping centres. including successful navigation through capital away from Australia. He noted that the poor the resources boom, a successful performance of bond funds in a rising growth and inflation transition, interest rate cycle, off a very low while avoiding a housing “bubble”. INDUSTRIAL OUTLOOK income base, makes secure property Jason Edge, NSW senior director, investment very attractive. Given the COMMERCIAL OUTLOOK industrial & logistics services, CBRE strong performance of equity markets Dwight Hillier, managing director, During a comprehensive look that led superannuation assets to valuation & advisory services, into the industrial market, Mr grow by record levels, a significant Colliers International Edge revealed a number of findings weight of money is likely to move Mr Hillier said there was a heavy in detailed graphs. He concluded toward property with secure income focus on CBD markets and that that eastern seaboard yields continue streams. Historically, retail has proven the outlook for the commercial to strengthen, while a strong local the optimal asset class for this. „

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CAPABILITY LOCATOR

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AVA PROPERTY

Nicholas Bond AAPI a: 15 William St, Richmond, VIC 3121 Trevor Crittle AAPI t: (03) 9428 7676 Nicholas Tassell AAPI f: (03) 9428 7672 Tim Williamson AAPI www.avaproperty.com.au

BARTROP REAL ESTATE BALLARAT Real Estate Auctioneers & Valuers a: 54 Lydiard St Sth, Ballarat 3350 “A Real Estate Office Since 1876” t: (03) 5331 1011 m: 0407 501 609 BRUCE E. BARTROP, FAPI, FREI, FCIS e: realestate @bartrop.com.au Certified Practising Valuer www.bartrop.com.au

Servicing Greater Ballarat / Central Highlands Regions

BEM PROPERTY CONSULTANTS & VALUERS

IAN BLACKALL FAPI STEVE ECCLESTON FAPI RICHARD MONTAGUE AAPI

Independent property consultants and valuers specialising in:

• Capital and Rental Valuations • Telecommunications Expertise • Corporate Real Estate • Rent Submissions and • Land Tax & Statutory • Premises Search and Determination Valuation Reviews Selection • Local Government • Just Terms Compensation • Lease Negotiations and Consultancy Representation

a: Level 4, 12 Mount St, North Sydney, NSW 2060 m: PO Box 1741, North Sydney NSW 2059 t: (02) 8920 3044 e: [email protected] www.bemproperty.com.au

BEATTY LEGAL SPECIALIST VALUATION LAW EXPERTS

Andrew Beatty Level 4, Beanbah Chambers t +61 2 8203 2381 Director 235 Macquarie Street f +61 2 9233 0233 Sydney NSW 2000 e [email protected] www.beattylegal.com

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BUTTERWORTH AUSTRALIA Identity throughout Australia a: 21 Aristoc Road, Glen Waverley, VIC 3150 Bob Butterworth FAPI t: +61 3 9884 7336 e: [email protected] The Valuation Expert for Hospitality, www.butterworth.com.au Tourism & Leisure

CHARTER KECK CRAMER INDEPENDENT STRATEGIC PROPERTY CONSULTANTS

PLAN ENHANCE PETER HUTCHINS APPI Strategic Research Corporate Real Estate Managing Director Urban Economics & Policy Private Equity Strategic Asset Management a: Level 19, 8 Exhibition St CREATE Accommodation Solutions Melbourne, Victoria, 3000 Land Surveying Commercial Valuations t: (03) 8102 8888 Civil Engineering Residential Valuations e: [email protected] Quantity Surveying Specialist Valuations www.charterkc.com.au Development & Project Management

COLLIERS INTERNATIONAL VALUATION & ADVISORY SERVICES t: +61 2 92570222 e: [email protected] www.colliers.com.au

DAVID COLLIER PROPERTY CONSULTING VALUERS, ADVISORS, ADVOCATES AND AGENTS

ANDREW COLLIER AAPI DAVID COLLIER e: [email protected] e: [email protected] m: 0414 775 243 m: 0414 251 280

14 View St, Woollahra, NSW 2025 www.dcpc.net.au

EDMONDS & ASSOCIATES

Philip Edmonds B.Ec (Hons) FAPI a: Suite 2D, 1 Gurrigal St, Mosman, NSW 2088 Certified Practising Valuer t: (02) 9960 8244 Certified Practising Accountant e: [email protected] www.edmonds-associates.com.au

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JONES LANG LASALLE WEIGH UP YOUR OPTIONS Valuation experience and expertise plays a crucial John Talbot role in maximising asset value. This includes Managing Director, sales, acquisitions, property finance and strategic Investments and Advisory Group, Australia property asset planning. t: +61 2 9220 8486 e: [email protected] www.joneslanglasalle.com.au Melbourne — Brisbane — Canberra — Sydney — Adelaide — Perth

KENDALLS VALUATION & ADVISORY

• Specialist Retail Valuations under RSL Act 1994 John Kendall FAPI • Expert Valuations / Evidence for Litigation Trials a: Level 4, 345 Ann St, Brisbane QLD 4000 • Port Infrastructure / Marina / Riparian Valuations t: (07) 3613 7394

NAVIGATING A BALANCED OUTCOME • Commercial & Industrial Freehold / Leases m: 0434 227 253 • Tourism / Leisure / Hospitality Valuations e: [email protected] • Wide Range of Specialised Valuation Classes www.kendallsva.com.au

K L Dowling & Co

John K Dowling FAPI FREI • Rental Determination a: Second Floor, 415 Bourke Street, Valuations and Expert Evidence • Mediation & Arbitration Melbourne 3000 prepared for: • Sale, purchase & loan security t: (03) 9600 1314 • Litigation • Insurance & general purposes f: (03 9600 1402 • Compensation e: [email protected]

KNIGHT FRANK AUSTRALIA VALUATIONS AND ADVISORY SERVICES

www.knightfrank.com.au/en/professional-services/valuations

MJ DAVIS VALUATIONS CONSULTING VALUERS

Tony Looby FAPI Murray Liston AAPI Colin Sorrenson FAPI Director Director Consultant e: [email protected] e: [email protected] e: [email protected]

www.mjdavisvaluations.com.au po: PO Box 565. Liverpool. NSW. 1871 • t: (02) 9601 2500 • f: (02) 9822 5783 • e: [email protected]

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MVS

Bevan Richardson AAPI Andrew Cowie AAPI Allister Paterson AAPI George Boulougouris AAPI Peter Raptis FAPI George Boulougouris AAPI    Brisbane Sydney Melbourne Newcastle   a: 2B/96 Lytton Road a: Suite 1403, a: Level 10, a: Suite 3, Level 5, 45 ZZZPYVYDOXHUVFRPDX East Brisbane 115 Pitt Street. 50 Market Street, Hunter Street, QLD 4169 Sydney NSW 2000 Melbourne Vic 3000 Newcastle NSW 2300 t: 1300 737 687 t: 1300 793 687 t: 1300 793 687 t: 1300 137 018 f: 1300 737 688 f: 1300 793 688 f: 1300 793 688 f: 1300 137 019 e: [email protected] e: [email protected] e: [email protected] e: [email protected]

www.mvsvaluers.com.au

® Capital City Offices Phone Sydney Greg Preston/Greg Rowe (02) 9292 7400 Melbourne Damian Kininmonth/Neal Ellis (03) 9602 0555 Brisbane Troy Chaplin (07) 3846 2822 Adelaide Rob Simmons (08) 8277 0500

Regional Offices- NSW Albury/Wodonga Daniel Hogg/Michael Redern (02) 6041 1362 Gosford Bob DuPont/David Rich (02) 4324 0355 Griffith Daniel Hogg (02) 6041 1362 Newcastle Bob DuPont/David Rich (02) 4922 0600 Services: Wagga Wagga Daniel Hogg (02) 6041 1362 ‡ 9DOXDWLRQ ‡ $VVHW0DQDJHPHQW Regional Offices- VIC ‡ )DLU9DOXH9DOXDWLRQV Ballarat Darren Evans (03) 5334 4441 ‡ 3URSHUW\&RQVXOWDQF\ Bendigo Damien Jerinic (03) 5334 4501 ‡ 3ODQW 0DFKLQHU\9DOXDWLRQ Geelong Gareth Kent (03) 5221 9511 ‡ &RUSRUDWH5HDO(VWDWH Gippsland Alex Ellis/Tim Barlow (03) 5672 4422 ‡ 6WUDWHJLF3RUWIROLR3ODQQLQJ Mornington Neal Ellis (03) 5976 0900 ‡ ,QVXUDQFH5HSODFHPHQW&RVWV Warrnambool Stuart McDonald (03) 5562 5851 ‡ 5HQWDO$GYLVRU\ Yarram Alex Ellis/Tim Barlow (03) 5672 4422 ‡ 3URSHUW\0DQDJHPHQW ‡ 5HVHDUFK Regional Offices –QLD ‡ 6WDWXWRU\9DOXDWLRQV Cairns Robert Cowell/Brian Walsh (07) 4031 9552 www.prp.com.au

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TAYLOR BYRNE RESIDENTIAL • COMMERCIAL • RURAL Head Office INDUSTRIAL • RETAIL • LITIGATION a: 67 Grey St, South Brisbane QLD 4101 FAMILY LAW • ACQUISITION t: (07) 3840 3000 www.taylorbyrne.com.au QLD OFFICES: Brisbane | Bundaberg | Cairns | Emerald | Gold Coast | Hervey Bay | Gladstone Kingaroy | Rockhampton | Roma | Mackay | Sunshine Coast | Toowoomba | Townsville NSW OFFICES: Ballina | Coffs Harbour | Grafton | Inverell | Lismore | Port Macquarie

TPC VALUERS

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WKW WAYNE WOTTON FAPI Partner m: 0408 933 385

WK WOTTON & PARTNERS a: Suite 49 Upper Deck Jones Bay Wharf, 26 – 32 Pirrama Road, Pyrmont, NSW 2009 t: +61 2 9552 6633 e: [email protected]

DAVID CURTIS AAPI Partner m: 0407 778 954

WOTTON CURTIS & PARTNERS a: Suite 1, Level 1, 3 Hopetoun Street, Charlestown, NSW 2290 m: PO Box 273, Newcastle, NSW 2300 t: +61 2 4920 7111 e: [email protected] www.wkw.com.au

„ Real Estate Valuers „ Property Consultants „ Real Estate Asset Managers

104 ANZPJ MARCH 2014

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INNOVATIVE CAREER DEVELOPMENT LEADER PROFESSIONAL INTEGRITY

NATIONAL

BECOME A VALUER WITH MVS NATIONAL

Develop your Career with Industry Leading Training and Mentoring

NATIONAL --‘Our ‘ Our People Are Our Advantage’ MEMBERSHIP BENEFITS

As a financial member of the API, you are able to draw on great discounts and privileges from a variety of leading companies.

Please visit the member benefits website for more details: benefits.api.org.au

API Members receive substantial savings on * Login to the API Member new Volkswagens Benefits website to access

*This offer is available to Australian Property Institute members who complete and submit to a participating Volkswagen dealer an approved Volkswagen Group Australia Membership Confirmation Declaration. Offer only available on new stock vehicles purchased at participating Volkswagen dealers by 31st December 2014. While stocks last. Offer is not transferable or redeemable for cash. Volkswagen Group Australia reserves the right to change, modify or extend this offer.

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