A $60 billion pipeline of infrastructure projects slated for Western Australia is helping the state’s economy recover from the aftermath of one of the biggest mining booms the world has ever seen.
That was one of the key outtakes at CBRE’s Perth Market Outlook event, which highlighted the favourable conditions that are aligning to underpin economic growth and strengthening of the state’s property market.
CBRE’s Perth Senior Managing Director, Lloyd Jenkins, said the Western Australian economy had turned the corner, fuelled by an uplift in business sentiment and investment spend.
“Since June 2016, 50 new or planned expansion projects have been announced in the state’s resources sector, including five new lithium mines, highlighting the strengthening focus of renewal energy and the contribution WA can make to this growing industry,” Mr Jenkins said.
“Encouragingly, there is also significant infrastructure investment outside of the resources industry, with $13 billion earmarked for the Perth metro area over the next five years. This huge level of private and public investment indicates a great deal of confidence about future prospects for WA.”
CBRE’s Head of Research for Australia Bradley Speers said investors chasing yield spread were increasingly looking beyond the eastern seaboard markets to Perth.
“Cap rates are unlikely to compress much further in Sydney and Melbourne, so investors are looking beyond gateway cities to alternative markets such as Brisbane, and now, more increasingly so, Perth,” Mr Speers said.
“Perth yields spreads over the national average, which could be called the ‘Perth Premium’, are currently well above the historical norm. When the ‘Perth Premium’ reverts to long-term average, capital growth in the Perth commercial property markets will outperform the national average.”
He added: “Historically, when looking at the Perth market, what we know is that when it turns, it turns quickly. Countercyclical investors that get in the boat early tend to get the best seat.”
Speaking at the event, CBRE’s Head of Asia Pacific Research, Dr Henry Chin said both asset diversification and asset enhancement were highly important for investors in the region.
“With income growth APAC-wide falling across all of the major commercial real estate sectors, assets need to be enhanced to increase operating income. Landlords can increase revenue by making their building stand out from its peers, whilst also reducing operating costs by making buildings smarter and leaner,” Dr Chin said.
CBRE’s 2018 Asia Pacific Investor Intentions Survey reveals 33% of office occupiers identify co-working centres as an ideal strategy for increasing their space requirements over the next two years. By comparison, 42% of investors rate flexible space as the number one occupier trend that will have the most impact on real estate value.
“Flexibility in the workplace is here to stay and one of the best strategies to improve the attraction of a building. The results from our latest Investor Intentions Survey indicate that half of investors surveyed believe that having up to 20% of a building contain co-working space will enhance a building’s value. Given that we are virtually at the end of the yield compression cycle, and that investors see co-working as a means to add value, we expect the number of co-working options will increase over the next few years,” Dr Chin said.
Dr Chin went on to say that multi-family and logistics assets would attract greater investment over the coming years amid their growth potential and higher entry yield.
“Japan is the only market in the APAC region that has an institutionalised multi-family market currently - China will be next and thereafter, Australia. There is also growing interest in logistics assets, underpinned by growth in the e-commerce industry, as well as real estate debt and student accommodation,” Dr Chin added.
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CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2017 revenue). The company has more than 80,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.