Article | Intelligent Investment

Why Australia’s living sector is expected to deliver big opportunities in 2024

As the housing shortage crisis evolves, we ask the experts from ISPT, Brookfield and Investa for their latest property market opportunities for 2024.

January 31, 2024

The image shows a living room inside a modern apartment.

It’s hard to ignore the current conversations surrounding Australia’s ongoing housing shortage crisis which continues in 2024. What is of equal significance though is the proactive measures being taken by some of today’s leading investment and fund management companies to address this predicament.  

In this second episode of our three-part podcast series, CBRE enlisted the help of industry leaders from major players ISPT, Brookfield and Investa to identify the latest property market opportunities for 2024. 

While the living sector was a clear and common theme of focus throughout their insights from the latest podcast, other areas in the property market from life sciences to industrial & logistics and premium office were also earmarked as strong investment opportunities.  

Here are the commercial assets leading property experts are focusing their funds on.   

New opportunities from shifting demographics 

Chris Chapple is the CEO of ISPT, a company established in 1994 by some of the country’s leading superannuation funds. Its current portfolio is worth $21.5 billion and spread across 140 office, retail, industrial, education, health and life sciences, and residential properties.  

On the living sector, he sees interesting opportunities off the back of supply and demand fundamentals – especially in build-to-sell.  

“Australia's population growth is one of the key macro trends that we're looking at that underpin this high conviction thematic for us,” he says. 

“Our total population is forecast to grow by over three and a half million people over the next decade, which is a huge increase. And that means that we need to deliver over one and a half million new dwellings just to house Australia’s growing population.  

“We couple that long-term demand growth story, which we're seeing through the population growth. And with the likelihood of supply shortages over the next three to five years and it really represents a great opportunity for us to deliver new supply into the market.” 

In addition to this, Chapple underscores the nation's vacancy rate of approximately 1 percent as a motivator.  

“We believe that's indicative of the early phase of expected above average annual rental growth. There's really a perfect storm there at the moment of the underlying demand and a shortage of supply. 

We really see that living sector as an exciting area that we’ll look to invest more in through 2024 and beyond.” 

Elsewhere on ISPT’s investment radar is health and life sciences as well as industrial. The mega-trends underpinning the company’s strategy include demographic shifts within Australia, particularly the country’s ageing population. This means investing in assets like private hospitals, medical precincts, innovation districts and seniors living in care.  

“The sector fundamentals are actually really good,” says Chapple. “They're underpinned by ageing demographics and population growth. And when you also look at the fact that 70 percent of the funding for health goods and services come from both federal and state governments, complemented by funding through private means, there's a stable base of income that comes into that sector.” 

“And given that healthcare costs and expenditure are going to continue to keep increasing, we also think that the innovation around this and the partnerships is where we see huge potential.”  

The emphasis on the industrial & logistics sector, while starting to come off from unprecedented highs, still has strong underlying demand fundamentals, according to Chapple. This continues to be buoyed e-commerce, population growth, the onshoring of manufacturing, the implementation of automation and rising cold storage demand. 

Eyes on all sub-sectors of living

Brookfield Senior Vice President Leonie Wilkinson works alongside the company’s local and global teams. As well as being focused on premium office, she also oversees portfolio management for Brookfield's Australian core and core plus real estate investment strategies, including fund and asset performance, return profile and the pursuit of acquisition and disposition opportunities.  

She sees good investment opportunities coming through a number of secular themes that apply across all sub-sectors of real estate. Her focus this year includes the living sector, logistics and office. 

“What we're seeing globally is that real estate fundamentals are in quite good shape all around the world, particularly for high quality assets. But on the other hand, what we're seeing is capital markets that are quite disrupted. For us that equals very good investment opportunities and we think that 2024 is going to be a good vintage for us in terms of the specific sectors that we're looking at in the real estate industry,” she says.  

“Here in Asia Pacific and in Australia we're seeing some of the disruption, but not quite as severe as other parts of the world. That gives us very good opportunities to enter into a time when there's less capital coming in and less certainty around investment returns.” 

While Brookfield believes that build-to-rent is a good place for an institutional investor to get exposure into growing rental income streams, Wilkinson is also aware of how crowded the Australian space is right now.  

“We're not overcommitting into that particular sub-sector of living, but we are going to be active across other sub-sectors of living and you'll see us investing in places like seniors housing and student accommodation,” she explains.  

In the logistics space, Brookfield sees strong fundamentals underpinned primarily by e-commerce demand. However, Wilkinson notes that Brookfield is already starting to see some bifurcation between demand and rents that will be paid for the best quality assets and lower quality assets. This concept of quality also extends into office sector.   

“What we're seeing in our operating platform around the world is that the flight to quality has played out very strongly in the office sector,” says Wilkinson. “We're seeing demand for premium office increasing all the time. But the interesting dynamic at this moment from 2024 and then over the next couple of years is that the supply coming into premium office will start to become more muted. And that's a combination of the uncertainty in the sector at this moment, and also rising construction costs.  

“What we think that's going to mean in the next two to four years is that there'll be continuing demand for the very best office assets but less new office assets available.” 

Backing build-to-rent and co-living assets 

Pete Menegazzo has been with Investa for 17-years and took on the CEO role in 2021. The company is a $14 billion (AUM) real estate investment manager, developer and industry innovator with a focus on creating spaces that help shape our future cities.  

In 2024, Investa expects to see compelling opportunities in different sectors, including the living sectors such as build-to-rent and co-living spaces alongside office. 

Echoing similar sentiments to Chapple and Wilkinson, Menegazzo says that the living theme is highly attractive for global investors at the moment.  

“Investors are really focused on strong and growing underlying cash flows given the higher interest rate environment,” he explains.  

“The fundamentals of low vacancy, low supply and strong population growth are supporting a positive outlook in that regard. There are some headwinds as well, such as the cost of construction and funding, but being disciplined on underwriting and getting early builder coverage on building costs and ensuring we've got plenty of contingency in the underwriting are ways we’re mitigating those risks.” 

Having worked on co-living spaces for 18 months, Menegazzo has found it difficult to find compelling BTR opportunities, particularly in Sydney.  

“What we're finding is the different planning regimes that the co-living sector operate under are really helping drive returns to an acceptable level for investors.” 

In the office space, Investa expects 2024 to be a turning point. This particularly applies to prime office assets, with the need for liquidity expected to drive some compelling risk-adjusted opportunities, for early movers.  

“I liken that to what we saw in the couple of years post GFC where some of the best buying opportunities really emerged and it really required a strong level of investor conviction to move with confidence,” he says. 

Alongside this, Menegazzo will have the “brown to green theme” in his sights – the adaptive reuse of buildings which sees the buying of ageing or obsolete properties and repositioning them as boutique, high quality office buildings with leading ESG credentials. 

Hear more of their expert insights from the second episode of Property Predictions 2024.

Australia’s 2024 Property Predictions: Episode 2

In the second episode of our 2024 property outlook series, we chat with ISPT’s Chris Chapple, Brookfield’s Leonie Wilkinson and Investa’s Pete Menegazzo.

The image shows a low angle photo of two doctors walking up a stair case in a hospital.