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July 2, 2019

Governments in Australia are pushing through accommodative policy for infrastructure investment, an effort to modernise rapidly expanding cities that are increasingly requiring upgrades and new projects to sustain growth.

In New South Wales, Australia’s largest state economy, the government announced in its recent budget A$93 billion to fund projects across health, education and transport as it drives an infrastructure boom the likes of which hasn’t been seen in more than 20 years.

In Victoria infrastructure spending has increased dramatically in recent years, with A$107 billion in projects commencing or underway.

Queensland’s Government has committed to almost A$50 billion of infrastructure spending over the next four years, including A$23 billion for road and rail.

“Governments are accepting that gridlock and congestion are a hindrance to world city ambitions,” says James Kennedy, head of Government & Public Institutions in Strategic Consulting, for JLL Australia.

“The current focus on infrastructure will be transformative, creating jobs growth to absorb expanding populations, and productivity because people will be spending less time traveling.”

The backdrop to this is a developing policy shift towards more asset sales to finance a fresh wave of large infrastructure projects that will address the connectivity demands of relentless population growth.

“Tapping into the huge amount of wealth available globally will increase the speed and scale at which projects can be delivered,” says Kennedy.

How they do it
As governments plough record sums (A$93 billion is the highest infrastructure spend for NSW ever) into roads and railways, investors have taken note.

Experts expect a greater number of overseas investors to starting teaming up with local Australian firms that know their home turf, says Tim Young, head of strategic consulting in Queensland, JLL.

“Often these groups will form a consortium to ensure the greatest chance of success for winning projects,” he says.

A survey of international investors with a collective global infrastructure portfolio worth A$380 billion, confirms a growing appetite for Australian assets. When canvassed by Infrastructure Partnerships Australia in 2018, 90 percent of respondents said they would be ‘highly likely’ to invest in Australian infrastructure in the next two-to-three years – a 20 percent increase from 2017.

In New South Wales, government policy has been underpinned by a series of major privatisations, as well as reforms to the federal government’s asset recycling program incentivising state governments to sell or lease infrastructure assets through public-private partnerships. The NSW transport minister Andrew Constance has publicly signalled further asset sales, pointing to the depth of superannuation money looking for investments and long-term returns.

Investors shift focus
In NSW and Victoria the infrastructure pipeline is moving towards the ‘recycling’ of assets, which is unlocking funds for the development of new projects, says Kennedy.

“Even further incentives by the federal government could encourage state governments to accelerate these value-adding real estate deals with the private sector and as a result we’d see tired precincts reinvigorated with better public spaces and new housing, especially around transport hubs,” says Kennedy.

At the same time, investors are turning their attention to digital infrastructure, such as facilities for electric vehicles.

Western Sydney promises
Growing populations will continue to ensure transport projects receive the lion’s share of investment.

The NSW budget fell heavily in favour of Western Sydney, a vast area being transformed by the development of Sydney’s second airport at Badgery’s Creek, where small private investors as well as large funds have been buying and selling land to cash in on rising values.

A$2 billion was allocated to a rail connection linking the Airport to Sydney’s city centre.

Another A$6.4 billion will accelerate the development of the Sydney West branch of the driverless Sydney Metro rail, shortening the travel time between greater Parramatta and the Sydney central business district to 20 minutes.

“One million square metres of office stock is projected for Parramatta by 2022 – that’s not far off the total office stock in Adelaide, which tells you the scale it’s growing to,” says Dan Kernaghan, Managing Director – NSW, JLL.

“There have been major pre-commitments from public and private sector tenants and one of the key drivers of that is improved connectivity, allowing organisations to look beyond the traditional city centre to secure lower office rental rates.

“Infrastructure changes real estate,” he adds.

Click to read what Australia’s federal election outcome could mean for property.

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James Kennedy

Head of Government & Public Institutions in Strategic Consulting, for JLL Australia

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