23 NOV 2022
With rapid shifts in market sentiment and global policies already affecting occupier spaces, RICS’ 2022 Australia and New Zealand (ANZ) Real Estate Conference came at an opportune time for commercial real-estate professionals in the region.
Chaired by JLL New Zealand senior director Jonathan Mann FRICS, it gave attendees a chance to reflect critically on the challenges and opportunities ahead.
This first panel identified the reasons that commercial real-estate professionals should adopt environmental, social and governance (ESG) principles, focusing on the carbon reduction targets of public- and private-sector developers.
Governments across ANZ are now mandating targets for their portfolios. University of Auckland director of property services Simon Neal FRICS said that the New Zealand government is gaining traction for an entirely net-zero public sector by 2025. He added that his institution is among several to have aligned with the government to meet that target, with many now voluntarily reporting on their carbon performance.
Clean Energy Finance Corporation joint head of property Michael Di Russo also acknowledged a ‘momentum shift’ across both industry and policymaking. In the former, the market has transitioned to a risk-based approach where sustainability is central to investment strategies rather than simply a value proposition.
In policy terms, the market is focusing on raising overall ESG standards, with local authorities pushing for the decarbonisation of all commercial buildings – which make up 60% of Australia’s infrastructure – to meet a 2040 net-zero target. Di Russo also drew attention to A$2bn of funding for ESG initiatives in the built environment, money that has either been provided or facilitated by the corporation in Australia.
What is the future role of the office? How can we know how much space we will need? The panel on this subject explored the major decisions that corporate occupiers in ANZ have grappled with. These include whether they should reduce space and sublease, how they can attract staff back to the central business district, and to what extent they could implement flexible working, co-working or other models.
The general consensus on the panel was that, where there are differences in approach, these are often due to diverging industry needs. For instance, the IT sector is more comfortable with home working, while the service sector needs to be in the central business district. Individual companies have taken different directions, being uncertain about the future.
CBRE director of occupier advisory and transaction services Paul Murgatroyd pointed out that, in Melbourne, some occupiers have gone to the extent of closing their offices altogether. So far as he is concerned, this is short-sighted; working models will develop over the next few years, and such occupiers will come to realise the value of collaboration and culture in a physical workspace.
The panel addressed the growing need for tenants to have a workplace strategy for their space demands. It was agreed that, while some larger occupiers had reduced their space at lease expiries, they had in doing so sought to address other corporate aims such as decreasing their carbon footprint or introducing flexible working and similar strategies to engage and retain staff.
Overall, the panel was unanimous in the view that the medium- and long-term trends in office occupation remain unknown.
A further panel addressed what the economic headwinds could mean for the overall property sector. Panellists pointed first to the major factors shaping the macroeconomic landscape, including the pandemic, supply chain issues resulting from China’s zero-COVID-19 policy, the war in Ukraine, and inflation and subsequent interest rate rises. These have all influenced the property sector, not least in terms of the increased cost of capital.
Where then can opportunities be found? In addressing this question, panellists looked at the commercial property sector and commented on asset classes less affected by the potential economic downturn, such as self-storage property, and ‘necessity real estate’, including build-to-rent properties or student accommodation.
Macquarie Group head of global listed real estate James Maydew MRICS commented that human circumstances and life events would ensure constant demand for what he calls ‘necessary’ property. People’s need for accommodation for instance can protect the residential sector through a cost-of-living crisis. He recommended that an ideal adjustment strategy would be to acquire such assets for portfolios.
The general view was that, in Australia, inflation and interest rates would peak in 2023 and then fall some way in 2024. A common view among the panel members was that there would not be a long-lasting recession or property crash, and that commercial property in ANZ will as an asset class remain an attractive long-term investment.
This panel shared thoughts about the meaning of value capture in infrastructure development. This not only involves projects ensuring efficient land usage and creating valuable public space, but also the various financial and other mechanisms that governments have at their disposal to help fund infrastructure such as taxes, development levies and stamp duty.
Successful examples of value capture were shared by panellists, including major Transport for London projects and Battersea’s regeneration in the UK. JLL director, strategic consulting, Ryan Gerrish MRICS noted how these ventures began with visions for placemaking, connectivity and urban and community improvements, but they also unlocked land parcels for other real-estate ventures, which would have taken longer to accomplish for a single piece of infrastructure.
This prompted panel members to discuss the importance of Sydney Central Station and precinct regeneration, where the financial investment and funding model is still being developed.
The conference sessions closed with a further panel discussion about the challenges and opportunities presented by the sector’s adoption of PropTech. Among the barriers that panellists identified are organisations’ natural reluctance to change, and the struggle in determining the right person to effect such change. They agreed that selecting a champion in an organisation – and having that champion be well connected with or influential on the budget holder – is key.
Panel members said they have found that best practice is to show real-estate organisations how to perform an actual function, task or role using software, rather than simply selling the product. They then discussed the background of their own particular platforms, namely AI Assets and Arealytics, and their plans for these in Australia.
The RICS 2022 ANZ Real Estate conference offered thought-provoking discussions on the way the sector must adapt and – in many cases – is adapting and reforming to meet the opportunities and challenges in the road ahead.
How these reforms will be made in the current climate depends on how far professionals across the sector collaborate and invest in change, and on there being more standardisation in ways of working.
Meanwhile, you can also read the highlights from the recent ANZ Commercial Management Conference here.