christarrant
July 15th, 2004, 07:36 AM
Two stories in todays AUSTRALIAN which show that office leasing is on the up and apartment sales aren't too bad either.
Pie in the sky
By Maurice Dunlevy
July 15, 2004
WHAT were they thinking?
With apartments springing up across the country, Lend Lease chose to launch an apartment tower in Melbourne's Docklands - arguably the most oversupplied high-rise market in the country.
That was Friday; two days earlier Grosvenor Australia announced twin apartment towers for the southern Sydney CBD, the only area rivalling Docklands in apartment oversupply.
Already a quagmire for thousands of investors, analysts believed they had rightly written off the new high-rise apartment markets in inner Melbourne and Sydney.
Melbourne, Sydney and Brisbane have sprouted 9200 inner-city apartments in the past 12 months ( 3,800 in Sydney, 3,000 in Melbourne and 2,400 in Brisbane) and a further 8400 ( 3,000 in each of Sydney and Melbourne, 2,400 in Brisbane) will be finished in the next year, according to economic forecaster BIS Shrapnel.
Adelaide and Perth have a handful of new towers, between them adding only a few hundred apartments.
Lend Lease and Britain's Earl of Grosvenor, who controls Grosvenor Australia, may turn a development profit, but adding to the apartment flood will further savage resale values.
Residential property adviser Monique Wakelin said the re-sale figures spoke for themselves.
One Docklands off-the-plan apartment purchased for $900,000 in late 2000 was re-sold in May for $715,000, she said.
Ms Wakelin advises buyers not only to avoid mass-produced apartments, but also the "pie in the sky asking prices".
Lend Lease Asia Pacific chief executive officer Ross Taylor said the Victoria Harbour apartments targeted the luxury end of the market.
The units are priced from $400,000 upwards and the penthouse has sold off-the-plan for $3.9million.
In the Melbourne CBD, Australian Super Developments, an offshoot of building industry super giant Cbus, has already started a 61-apartment conversion in the heritage-listed Herald and Weekly Times building - without a single pre-sale and with price tags of up to $2million.
In Sydney, where anecdotal evidence suggests southern CBD apartment prices have dropped about $100,000 in the last few years, Grosvenor is proposing a new 150-unit Sussex Street project.
But have the experts been too quick to write off the sector?
Grosvenor Australia managing director Robb Kerr said he understood why some would think it odd that an experienced international company, which had operated in Australia for 36 years, would want to build an apartment project in one of Australia's most oversupplied precincts.
He said the project still hinged on the outcome of market research, but signs were promising.
"It's the mass market where the problems are, and this project runs against the mass market," he said.
"Our pitch is certainly at the upper end in terms of both quality of style."
Even so, industry watchers remain sceptical about new apartment developments.
It has taken Lend Lease 14 months to pre-sell 60 per cent of its Victoria Harbour project, which will add 148 apartments to the Docklands precinct.
"Market rumour says Lend Lease has had a hell of a time finding buyers," said one analyst, who did not want to be named.
Deutsche Asset Management senior portfolio manager Mark Ferguson said that while Lend Lease's Victoria Harbour apartments were at the top end of the market, and had attracted a higher proportion of owner-occupiers, buyers were taking a risk because delivery was at least two years away.
"Committing now means you will ride a lot of market uncertainty over the next 12 to 18 months. Buyers really need to make certain they are getting their apartment at an attractive price."
He said the buyers most at risk continued to be off-the-plan purchasers in the southern end of the Sydney CBD.
"There will be a lot of pricing pressure on the generic end of this market, and buyers will be exposed to significant risk as the housing market slows down.
"There's no point of difference with these apartments because they are purely designed for the investor market, and everybody knows that is slowing."
Macquarie Bank head of property research Rod Cornish said quarterly CBD apartment price movements had been all over the place in recent times, but Real Estate Institute of NSW figures indicated residential prices fell 3.5per cent in the past year in the Sydney CBD.
However, CBD vacancies were about 3per cent, considerably lower than the 5.1per cent of two years ago.
Despite a slowing of Brisbane apartment activity since its peak in the third quarter of last year - the number of sales fell 40 per cent - the median price at the end of March was $210,000, a 23.5per cent rise on the March 2003 price of $170,000. March quarter apartment vacancies were 3.3per cent, up from 2.8per cent in December.
In Melbourne, the apartment vacancy rate of 6.7per cent is twice the average for residential property and analyst Monique Wakelin can't see any justification for continuing to build apartment towers at the same pace as the past five to seven years.
"They will be the undoing of many investors, and we haven't scratched the surface yet," she said.
Ms Wakelin said the best way to avoid over-priced, off-the-plan prices was to benchmark recent sales in nearby apartment blocks.
Ms Wakelin said run-of-the-mill apartments should be avoided, even though there are still people who think they are going to make money out of them.
"Apartments in excess of $900,000, and commonly costing more than $1 million, are different.
"Owner occupiers have made a decision they want to live there and are doing it purely for lifestyle reasons."
While analysts have been critical of Docklands' apartment oversupply, the Victorian Government has produced figures that paint a more favourable picture.
Of 3286 apartments marketed for pre-sale, under construction or completed, 81per cent - or 2658 - have sold.
About 80per cent of Melbourne apartments are normally sold to investors, but the Docklands figure is only 54per cent, and of 125 re-sales registered by the Valuer General's Office at the end of May, average annual capital growth was 4.8per cent.
The apartment vacancy rate in the area was estimated at 7.1per cent, with yields of 5.3per cent based on advertised rental asking prices.
It looks like developers will still make money out of high-rise, but as more and more flood the market, pity the poor investor.
Light at the end of the tunnel
By Florence Chong
July 15, 2004
IT may have been a long time coming, but investors believe a recovery in the ailing office sector is just around the corner.
However, those eyeing the property market have become more cautious about less-than-prime retail properties as consumer spending wanes. And secondary CBD offices are also on the nose.
Jones Lang LaSalle's latest Survey of Investor Sentiment showed the majority of respondents foresaw a stable market across the non-residential sectors.
It found that 11per cent of those surveyed believed returns would improve in the next six months, based on the "net balance" that measures variations in sentiment from a zero base.
JLL head of research Jane Murray said that based on preliminary figures, some $2billion worth of transactions had taken place in the first six months of this year in Sydney.
Some of the bigger deals of the year include the yet-to-be built third tower in Darling Park for $223.35million and 10-20 Bond Street for $136.2million in Sydney, while the Bank of Queensland Centre in Brisbane sold for $118.9million.
The office sector had been largely out of favour with investors as vacancies rose and rents fell, said John Talbot, JLL's NSW managing director.
But he said: "We are seeing many investors re-enter the sector in anticipation of an upturn in tenant demand in Sydney, the country's largest office market."
He said offshore investment groups, particularly German funds, had been eyeing the Sydney office market for opportunities.
"The only real storm cloud for investor sentiment in NSW could be the impact of the recently introduced NSW vendor tax," he said.
"This has the potential to dampen transaction volumes and adversely affect the improving, but still fragile, positive sentiment."
The survey also looked at investors' views of the capital cities.
The former antipathy to Melbourne decreased slightly, despite the city's office oversupply.
Sentiment towards Melbourne was a negative 40per cent last November, improving to negative 29per cent in June.
"Sydney and Brisbane real estate tops the preferred short-term buy list," Dr Murray said.
"Investors believe prospects in both these markets have brightened over the past six months with Brisbane recording a 47per cent net balance and Sydney at 44percent."
Dr Murray said sentiment towards the Canberra market also improved.
"The federal election later this year should bring some more certainty around government spending and tenant demand," she said.
Fuelled by expectations of mining and resource related employment growth, Perth is also generating more interest.
But investors remain concerned about the prospects for Adelaide, given the possible closure of the Mitsubishi plants and the flow-on effect to the office sector.
The survey found that sentiment towards industrial assets remained buoyant with the sector benefiting from solid domestic economic growth and an improving global economy. Dr Murray said investors had become increasingly cautious about the retail market in the short term.
CBD and regional retail property also attracted negative sentiment. Investors believed the strong results seen in retail sales and consumer sentiment in the past few years were unlikely to be sustained.
Mr Talbot said investors were expecting weaker returns in the sub-regional, neighbourhood and bulky goods retail markets, a reflection of the anticipated weaker capital growth over the longer term.
However, yields for premium retail property were expected to remain within a tight band for some time, Mr Talbot said.
Pie in the sky
By Maurice Dunlevy
July 15, 2004
WHAT were they thinking?
With apartments springing up across the country, Lend Lease chose to launch an apartment tower in Melbourne's Docklands - arguably the most oversupplied high-rise market in the country.
That was Friday; two days earlier Grosvenor Australia announced twin apartment towers for the southern Sydney CBD, the only area rivalling Docklands in apartment oversupply.
Already a quagmire for thousands of investors, analysts believed they had rightly written off the new high-rise apartment markets in inner Melbourne and Sydney.
Melbourne, Sydney and Brisbane have sprouted 9200 inner-city apartments in the past 12 months ( 3,800 in Sydney, 3,000 in Melbourne and 2,400 in Brisbane) and a further 8400 ( 3,000 in each of Sydney and Melbourne, 2,400 in Brisbane) will be finished in the next year, according to economic forecaster BIS Shrapnel.
Adelaide and Perth have a handful of new towers, between them adding only a few hundred apartments.
Lend Lease and Britain's Earl of Grosvenor, who controls Grosvenor Australia, may turn a development profit, but adding to the apartment flood will further savage resale values.
Residential property adviser Monique Wakelin said the re-sale figures spoke for themselves.
One Docklands off-the-plan apartment purchased for $900,000 in late 2000 was re-sold in May for $715,000, she said.
Ms Wakelin advises buyers not only to avoid mass-produced apartments, but also the "pie in the sky asking prices".
Lend Lease Asia Pacific chief executive officer Ross Taylor said the Victoria Harbour apartments targeted the luxury end of the market.
The units are priced from $400,000 upwards and the penthouse has sold off-the-plan for $3.9million.
In the Melbourne CBD, Australian Super Developments, an offshoot of building industry super giant Cbus, has already started a 61-apartment conversion in the heritage-listed Herald and Weekly Times building - without a single pre-sale and with price tags of up to $2million.
In Sydney, where anecdotal evidence suggests southern CBD apartment prices have dropped about $100,000 in the last few years, Grosvenor is proposing a new 150-unit Sussex Street project.
But have the experts been too quick to write off the sector?
Grosvenor Australia managing director Robb Kerr said he understood why some would think it odd that an experienced international company, which had operated in Australia for 36 years, would want to build an apartment project in one of Australia's most oversupplied precincts.
He said the project still hinged on the outcome of market research, but signs were promising.
"It's the mass market where the problems are, and this project runs against the mass market," he said.
"Our pitch is certainly at the upper end in terms of both quality of style."
Even so, industry watchers remain sceptical about new apartment developments.
It has taken Lend Lease 14 months to pre-sell 60 per cent of its Victoria Harbour project, which will add 148 apartments to the Docklands precinct.
"Market rumour says Lend Lease has had a hell of a time finding buyers," said one analyst, who did not want to be named.
Deutsche Asset Management senior portfolio manager Mark Ferguson said that while Lend Lease's Victoria Harbour apartments were at the top end of the market, and had attracted a higher proportion of owner-occupiers, buyers were taking a risk because delivery was at least two years away.
"Committing now means you will ride a lot of market uncertainty over the next 12 to 18 months. Buyers really need to make certain they are getting their apartment at an attractive price."
He said the buyers most at risk continued to be off-the-plan purchasers in the southern end of the Sydney CBD.
"There will be a lot of pricing pressure on the generic end of this market, and buyers will be exposed to significant risk as the housing market slows down.
"There's no point of difference with these apartments because they are purely designed for the investor market, and everybody knows that is slowing."
Macquarie Bank head of property research Rod Cornish said quarterly CBD apartment price movements had been all over the place in recent times, but Real Estate Institute of NSW figures indicated residential prices fell 3.5per cent in the past year in the Sydney CBD.
However, CBD vacancies were about 3per cent, considerably lower than the 5.1per cent of two years ago.
Despite a slowing of Brisbane apartment activity since its peak in the third quarter of last year - the number of sales fell 40 per cent - the median price at the end of March was $210,000, a 23.5per cent rise on the March 2003 price of $170,000. March quarter apartment vacancies were 3.3per cent, up from 2.8per cent in December.
In Melbourne, the apartment vacancy rate of 6.7per cent is twice the average for residential property and analyst Monique Wakelin can't see any justification for continuing to build apartment towers at the same pace as the past five to seven years.
"They will be the undoing of many investors, and we haven't scratched the surface yet," she said.
Ms Wakelin said the best way to avoid over-priced, off-the-plan prices was to benchmark recent sales in nearby apartment blocks.
Ms Wakelin said run-of-the-mill apartments should be avoided, even though there are still people who think they are going to make money out of them.
"Apartments in excess of $900,000, and commonly costing more than $1 million, are different.
"Owner occupiers have made a decision they want to live there and are doing it purely for lifestyle reasons."
While analysts have been critical of Docklands' apartment oversupply, the Victorian Government has produced figures that paint a more favourable picture.
Of 3286 apartments marketed for pre-sale, under construction or completed, 81per cent - or 2658 - have sold.
About 80per cent of Melbourne apartments are normally sold to investors, but the Docklands figure is only 54per cent, and of 125 re-sales registered by the Valuer General's Office at the end of May, average annual capital growth was 4.8per cent.
The apartment vacancy rate in the area was estimated at 7.1per cent, with yields of 5.3per cent based on advertised rental asking prices.
It looks like developers will still make money out of high-rise, but as more and more flood the market, pity the poor investor.
Light at the end of the tunnel
By Florence Chong
July 15, 2004
IT may have been a long time coming, but investors believe a recovery in the ailing office sector is just around the corner.
However, those eyeing the property market have become more cautious about less-than-prime retail properties as consumer spending wanes. And secondary CBD offices are also on the nose.
Jones Lang LaSalle's latest Survey of Investor Sentiment showed the majority of respondents foresaw a stable market across the non-residential sectors.
It found that 11per cent of those surveyed believed returns would improve in the next six months, based on the "net balance" that measures variations in sentiment from a zero base.
JLL head of research Jane Murray said that based on preliminary figures, some $2billion worth of transactions had taken place in the first six months of this year in Sydney.
Some of the bigger deals of the year include the yet-to-be built third tower in Darling Park for $223.35million and 10-20 Bond Street for $136.2million in Sydney, while the Bank of Queensland Centre in Brisbane sold for $118.9million.
The office sector had been largely out of favour with investors as vacancies rose and rents fell, said John Talbot, JLL's NSW managing director.
But he said: "We are seeing many investors re-enter the sector in anticipation of an upturn in tenant demand in Sydney, the country's largest office market."
He said offshore investment groups, particularly German funds, had been eyeing the Sydney office market for opportunities.
"The only real storm cloud for investor sentiment in NSW could be the impact of the recently introduced NSW vendor tax," he said.
"This has the potential to dampen transaction volumes and adversely affect the improving, but still fragile, positive sentiment."
The survey also looked at investors' views of the capital cities.
The former antipathy to Melbourne decreased slightly, despite the city's office oversupply.
Sentiment towards Melbourne was a negative 40per cent last November, improving to negative 29per cent in June.
"Sydney and Brisbane real estate tops the preferred short-term buy list," Dr Murray said.
"Investors believe prospects in both these markets have brightened over the past six months with Brisbane recording a 47per cent net balance and Sydney at 44percent."
Dr Murray said sentiment towards the Canberra market also improved.
"The federal election later this year should bring some more certainty around government spending and tenant demand," she said.
Fuelled by expectations of mining and resource related employment growth, Perth is also generating more interest.
But investors remain concerned about the prospects for Adelaide, given the possible closure of the Mitsubishi plants and the flow-on effect to the office sector.
The survey found that sentiment towards industrial assets remained buoyant with the sector benefiting from solid domestic economic growth and an improving global economy. Dr Murray said investors had become increasingly cautious about the retail market in the short term.
CBD and regional retail property also attracted negative sentiment. Investors believed the strong results seen in retail sales and consumer sentiment in the past few years were unlikely to be sustained.
Mr Talbot said investors were expecting weaker returns in the sub-regional, neighbourhood and bulky goods retail markets, a reflection of the anticipated weaker capital growth over the longer term.
However, yields for premium retail property were expected to remain within a tight band for some time, Mr Talbot said.