From the federal election to a growing e-commerce market and an abundance of food and beverage retail, analysts have identified the events and trends that will have the greatest influence over property decisions in 2019.
The federal election due in May is expected to slow down public sector activity in the office market, while a New South Wales state election in March could result in lower leasing volumes across Sydney’s offices.
On the plus side, 2019 should see Perth and Brisbane return to investors’ radars with positive rental growth forecast.
Australia’s strong economic forecast will continue to drive take-up in offices across the board, as well as provide a welcome boost to the retail sector, says Andrew Ballantyne, Head of Research in Australia for JLL.
“The Reserve Bank of Australia has indicated growth in the Australian economy of up to 3.5 percent in 2019. This is going to lead to business growth and demand for offices, plus wage growth which, given Australia has a workforce of 12.5 million people, will be the catalyst for a rebound in discretionary retail spending,” he says.
Here are more of the biggest trends that will shape the markets in 2019:
Echoing the global trend, the popularity of co-working will continue to influence office design in 2019.
Though, with the number of new flexible office providers (which includes co-working and serviced offices) increasing by 25 percent last year, according to research from Office Hub, competition among providers is expected to intensify.
For operators, focusing on a specific industry will provide a distinction in a crowded market, helping hone their spaces and services which large workspace brands can struggle to do, says Tim O’Connor, head of Office Leasing at JLL.
“Just as co-working has helped corporates broadly reduce overheads and build flexibility into their workplace operations, it is now servicing specific industries, such as legal and medical, that want the same.”
New co-working entrant +U, in Sydney, has jumped on this trend, dedicating its seven floors to specific industries, including beauty and wellness, marketing and creative, professional services and startups. Schoolhouse studios in Melbourne is another, providing spaces for ‘creative practitioners and visual artists’.
Industry-focused spaces are not the only way operators are seeking to stand out. The opening of Australia’s first co-working hotel, Kafnu, in Sydney, indicates they are ramping up hospitality as a differentiator, too.
And in Melbourne, the co-working provider OneRoof is dedicated to female-led businesses, which is a trend taking off in the U.S.
Joint ventures in industrial
Developers are expected to tie up with capital partners to get a foothold in Australia’s key industrial markets this year as a shortage of serviced land makes it increasingly difficult to achieve scale and geographical diversification in their portfolios.
Based on historical industrial supply ratios, approximately 1.57 million square metres in additional industrial space is required in Australia per year over the next decade, according to JLL Research.
However, a dearth of developable land, especially in Sydney’s inner south, which is a high-demand area for e-commerce providers, will make that need difficult to fulfil.
Industrial land values there have increased by about 50 percent over the past 12 months. While good for current landowners, the squeeze will make it difficult for investors to execute on their investment mandates, says Sass J-Baleh, head of industrial research for JLL.
“This year we expect more developers to purchase land and develop product in partnership with capital investors as a workaround to current supply constraints and tightly held assets. We would then expect the joint ventures to recycle their capital into new development projects,” J-Baleh says.
In December, the major UK fund manager M&G Real Estate acquired a half-share in the industrial property portfolio Dexus Industrial Trust Australia, which has two properties, one in Brisbane and another in Greystanes, in Sydney’s West.
How much food is too much food? That’s the big question for 2019 as shopping centre landlords have turned to cafes, restaurants and new fast food trends to fill the space that fashion outlets once occupied, as well as to increase footfall and time spent.
This trend has prompted concern of saturation in the market, says Andrew Quillfeldt, Retail Research Director, JLL Australia, given that “food and beverage spending growth is currently below the long-term average.”
However, the speed at which the sector is growing signals good news for long-term prospects.
“Over the long term food and beverage leasing demand will be well supported by changing spending patterns across different generations which show that younger people spend more on dining out than in supermarkets, in contrast to Baby Boomers and other older generations.
Investors in dining precincts in city centre locations where tourism continues to grow, along with inner-city, high-density living, will be in the best position to capitalise in the long term, he adds.
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