Five bold expert opinions on property’s biggest issues today

From residential price growth to the state of construction costs, these are the expert opinions around today’s biggest property sector issues.

October 26, 2023


While progress towards a post-pandemic recovery is tracking in the right direction for the economy, Australia’s real estate sector isn’t entirely out of the woods yet. That’s the latest diagnosis from CBRE’s senior experts in our final 2023 podcast episode of Talking Property: The House View Q4. 

Phil Rowland, Pacific Advisory Services CEO, and Sameer Chopra, Pacific Head of Research, identify the ongoing challenges in the real estate sector, particularly in the capital markets arena, as the cost of debt rises and sentiment wanes. An acute housing supply shortage in Australia is also continuing to dominate the media headlines. 

But with challenges also comes the opportunity to capitalise on specific areas of the market while forecasting the trajectory of certain sector trends.  

The five bold expert opinions on today’s most important property sector topics are: 

  1. When will the fastest growth in residential prices occur over the next three years
  2. When will office occupancy return to pre-pandemic levels 
  3. When will construction costs ease  
  4. The outlook for big refurbishment projects  
  5. The outlook for alternative investments like purpose-built student accommodation  

Residential House Prices 

Chopra remains bullish on the local residential market and is steadfast in backing its strong outlook.   

"It's partly because of the robust jobs picture,” he says.  

“And our new controversial view here is that the fastest growth will be at the front end of the cycle and late cycle. I'm expecting 2023 and 2025 will be double-digit capital value growth, whereas 2024 will be more modest and sort of flat - low single digits. So, I'm calling it plus 10% this year, plus 5% next year and then plus 10% the year after.  

“You’ll get to about 25% price growth over three years and that reflects the higher cost of building new stock.” 

Chopra says this outlook is due to the expectation of supply shock in the early stage followed by interest rate relief in the late stage set to play out.  

“There is a 28% mismatch between construction costs for new stock and capital values, so we expect overall prices will need to increase by about that much through this cycle.”
For growth in apartment values specifically, Chopra’s research team have compiled the following forecasts: 


Office occupancy revival 

Office occupancy continues to be a controversial talking point amidst the global embracement of hybrid work models. Despite the resistance towards returning to the office full time for many, Chopra maintains the bold and controversial prediction that occupancy in Australia will be back to 2019 levels by the end of this year or early next year for CBD offices. 

“If you fly on a plane now, it feels just like the time before the pandemic. Kids who are going to university are talking about better experiences like their parents had, and retailers are talking about returning back to just in time supply chains. So why not the office environment?  

“I expect office occupancy will start to recover and it’s possible we will be talking less about office occupancy next year.” 

Rowland agrees, citing the company’s recent global Office Occupier Survey which found that over a third of firms still expect office utilisation to grow from current levels compared to less than 10% who expected it to fall from current levels.  

“I think that office normalisation is a good trajectory,” he says.  

“There is an an upside and portfolio optimisation could also lift that utilisation, but we also need to be cognisant of the opportunities that are offered from hybrid work as well.” 

Easing construction costs 

Construction costs were a major talking point as Australia began its wake from a pandemic-induced slumber. 

“We know construction cost growth roughly peaked in June 2022 when it was increasing at about 17%,” says Chopra. 

“And currently it's increasing, but at about 7% year-on-year. It's kind of halved in terms of its growth rate and my view is that we'll see flat growth by the year’s end.  

“The key here will be just what goes on with construction and labour wage pressure - whether it starts to ease as some of these residential projects get completed.”  

Rowland adds that due to the size of the infrastructure pipeline and the tightness in the labour market, he is still expecting Australia to reach mid to high single digits in construction cost growth. 

“I'm afraid this will continue to add challenges to the development pipeline, particularly in housing.”  

State of big refurbishment projects  

When it comes to refurbishment CapEx, it’s important to consider what’s being reflected in the current market landscape.  

“A number of our clients have articulated some very large pipelines of new projects. This includes refurbishments featuring net zero initiatives,” says Chopra.  

“These commitments were all made when debt was cheaper, construction was cheaper and valuations were higher.  

“I expect that we will probably see a major downshifting, unfortunately. Not because clients don't want to do this, but more because the economic climate does not let them do it.” 

Potential of alternatives and PBSA  

It’s not all bad news for the real estate sector. In the alternatives space, purpose-built student accommodation (PBSA) is looking like a very strong performer in Australia.   

Currently, there are more students looking for on-campus living than there are vacancies.

“It is very tight and stressful situation,” says Chopra.  

“There are around 1.6 million university students in Australia and currently we have one purpose-built student accommodation bed for every 16 students. So it's a deeply underpenetrated market.”  

Rowland echoes similar sentiments, stating that even with the supply coming through over the next three years, it still won’t be enough to alleviate the immense demand with the market continuing to remain very tight.   

There will also be a lot of dispersion in student rentals, according to Chopra.   

“A lot depends on the location and whether it's a new or recently built facility with some amazing amenities around safety, socialising and gyms.  

“I've seen everything from suites that are at $350 a week, up towards $800 a week. We have a lot of proprietary CBRE data and what it shows is that on average, student accommodation has rent growth of about 5.5% per annum.”  

Beyond the local appetite, Rowland explains that PBSA is also an asset class which has been favoured by the global investors.  

“Yields have been more resilient to interest rate changes than the more traditional sectors – but they are about 0.75% higher than build-to-rent.”  

Elsewhere in the alternative assets sector where Rowland is spending more time with clients includes the energy transition.  

“There's certainly a growing role for real estate investors to carve out the value of the hard assets like land and infrastructure from energy supply,” he says.  

“And this could be like what we experienced with telecom towers and healthcare, for example. It's a high growth business where we are dedicating more of our time and resources.”  

The House View Q4

A special quarterly podcast series delivering deeper insights into today’s property industry drivers, potential disruptors and untapped opportunities for investors and occupiers.