Talking Property | The ‘metro-fication’ of Sydney

KH:
Hello and welcome to CBRE's Talking Property podcast where our team of experts, our clients and industry specialists share insights into the way we live, work, and invest through the lens of commercial real estate. I'm Kathryn House, CBRE's Australian Communications Director, and I'm your host for this latest Talking Property episode. Today we'll be discussing the impact that major infrastructure projects can have on our cities. To do so we’ve teamed with REA group who are helping us to crunch the data on four sizable examples around Australia in the coming months, the first being the Metro rail project in Sydney. Planned as a network of four metro lines, 46 stations and 113 kilometres of new metro rail by 2030. And for the sections already completed, there's been early evidence that this is pushing up residential prices and attracting a younger, more vibrant demographic that favours high density living and eating out. So, without further ado, I'd like to welcome CBRE's Pacific Head of Research, Sameer Chopra and REA Group Economist Anne Flaherty, to chat about this first installment in this new infrastructure series and the already considerable impact that the Metro project is having on Sydney and the learnings that can be applied to other cities. Thanks for joining me, Sameer and Anne. 

SC:
Thanks Kathryn.  

AF:
Thanks for having us. 

KH:
So Sameer, can you talk us through some of the key findings from the report and why you think infrastructure improvements, like rail, are so critical in driving the growth of our cities? 

SC:
Yeah, Kathryn, I think, you know, fundamentally what this project does is it cuts down commute time and commute is one of those big pain points for most people. And so, in any way that you can reduce that pain point just helps capital values and we'll talk a little bit more about where capital values sort of go, but we've seen a decent improvement in outperformance in capital values for suburbs along the train line. The other big thing is it's also attracting a lot of people. So, we're finding that population growth in suburbs along the Metro line is two times faster than suburbs further away. We find these suburbs are much more dense. So, you know, suburbs along the train line are denser, they have more apartments. It's attracting younger people, we find they have a greater propensity of Gen Z and Gen Y. 

And then in sort of a circular argument, this is also then pulling in cafes and restaurants, which then pulls in more Gen Zs and Gen Ys. And so yeah look, I think this train line has had a very good impact. I'll make one other comment, Kathryn, which is, we're still in the first innings of this. The train links have been opened between Tullawong to Chatswood. I don't think we have fully appreciated what'll happen when the link opens up all the way from Chatswood through the city and out to Bankstown. And then when the third stage opens up to Parramatta, I think, you know, we're very early in this, there's another three, five years for people to sort of participate in this. 

KH:
Yes, it's interesting you say that. I was talking to someone in our Capital Markets team, and they were saying people understand it in theory, particularly that reduction in commute times, but it's not until they actually experience it that then it starts to have that impact. So, with say Macquarie Park to the city, people actually being able to experience that shortening of commute time, it's actually really sinking in that this can have such a huge impact. 

SC:
Yes, look, it's, you know, today if you live further out and you've got a bus journey, a train journey, change trains at Chatswood and then come into the city, it can take about an hour and 20 minutes. And for some of these people, commute will drop to about 30 minutes, by way of example. So, you know, if you give someone back 15 minutes each way, every day, that's worth a lot. Anne and I were talking about this beforehand, it really makes all these suburbs really attractive, Anne. 

AF:
Yes, absolutely. And people are willing to pay more money as well when it comes to living in a suburb where they can reduce that commute time. So we've actually seen that, on average, there's about a 5% premium in the rate at which your suburb grows when there's a Metro station. But the further out you are often the bigger this premium is. So there are some suburbs in the outer suburbs of Sydney, so for example Castle Hill and Baulkham Hills, where that premium goes up above 20%. I think it's also good news for the Sydney CBD itself as well because, we know there was a lot of research done during the pandemic about why people enjoy working from home, what their key pain points are when it comes to that return to the office. And overwhelmingly the number one reason given was time spent commuting. So anything that can be done to reduce the pain and the time commuting is going to help to support more office recovery, more people coming back into the city. So, it's not just making these suburbs with Metro stations more vibrant, it's also helping to ensure the return of the vitality of the Sydney CBD. 

KH:
Yes, I think one of the things I found really interesting and in looking at the stats about the capital value appreciation was that you had neighbouring suburbs that there was a real difference. So, if you compare, say Crows Nest and Cammeray or Castle Hill and Baulkham Hills, the suburbs that were closest to the Metro line had a really significant capital appreciation benefit. 

AF:
Yes, that's right. It was really quite astonishing to see such a staggering difference in capital growth between suburbs that do just neighbour each other. So offer very similar lifestyle amenity. So the addition of a train station makes a suburb much more desirable to live in and people are willing to pay a lot more money to actually purchase in a suburb where they do have access to a rail station. 

KH:
Yes, and I think we'll see that continuing to play out as it's more established as we get more of the Metro line up and running. I think Sameer, one of the things that you were talking about, which would be great to dive into a bit more, were these demographic shifts and that whole sort of Gen Y, Gen Z, you know, that more dynamic sort of population that we're seeing around these train lines, you've described it as the metro-fication of Sydney and I love that term. Can you talk us through how that's playing out and the changes that this is driving? 

SC:
Yes, look Kathryn, I think part of it is, you know, as these new Metro stations develop, there's a lot of other property development around the stations as well. You know, you often get good shopping centres, more retail footprint, better cafes and restaurants and gyms, you know, which tends to pull in these Gen Z and Gen Y type. But the other one that I would say is many of the younger cohort often are not very interested in driving. We are seeing a lower percentage of them take up driving licenses. Many of them are less pro to owning cars. And so, if you can cut your commute and be close to a very good public transport system, then it's kind of liberating in some ways for many of these people. 

KH:
Absolutely. And particularly with petrol prices at the moment as well. <laugh>, 

SC:
I did get a big shock when I put petrol in the other day. 

KH:
Yes. So Anne, you've talked to us about the shifts to date in the capital value appreciation, but it would  be great to get into that in a bit more detail. So, you know, how best can investors capitalise on the Metro and what should they be looking at, do you think? Where should the smart capital be looking at at the moment? 

AF:
You're right, it is something that investors take very close consideration of. And in fact, one of the things that often drives an increase in investment is when a new rail station is announced. So we've seen this in Melbourne for example, where a lot of our train lines have been extended. As soon as a new suburb train station was announced, you'd see suddenly an increase in interest in people looking to buy in those suburbs. Not just investors, also people who are thinking about what's going to change in this suburb down the line. Affordability is a massive issue for a lot of people looking for a house or a unit to live in. And we've seen people moving further and further away from cities because of those affordability issues. So train stations have a really critical role to help here in enabling people to still feel connected into the city, to still be able to commute in but be able to purchase somewhere that they can actually afford. 

KH:
Yes the affordability thing is such a tough one. I was talking to my son about it the other day and he's just about to turn 22 and I'm like, you're going to have to think about how you can afford to stay in Sydney or whether you, you know, you need to move cities. So I think it's a really difficult consideration for our younger people who are wanting to live and work in in Sydney as to how they, where they live and how they afford to buy an apartment here. Sameer, it would de really interesting to have a bit more of a chat talking about, I think in the study, one of the things I saw was that you've compared what we're seeing in Sydney to other major cities globally and there's a couple of case studies in the report. Can you talk us through the lessons that we can learn from other cities and you know, how this might be able to play out in our other markets around Australia? 

SC:
Yeah, look Kathryn, so you know, we've seen, and actually what sparked the interest here was I was looking at some research into the Dubai Metro. So Dubai has had a new train line go in about a decade ago and London has launched the Cross Rail recently as well. And our teams in both of those markets have done some analysis in Dubai. We found, you know, rents were about 15% higher the closer you got to the train in London, we found the shorter the commute, the better the capital value was. In round numbers, the way I describe it is for every 10% cut in your commute, you get about a 6% better capital value. And that was kind of the math that we found in the UK in Australia. You know, we've got a lot of Metro type projects underway. Sydney's got the main Metro and then there's a Paramatta light rail in Sydney as well. 

In Melbourne, you know, there's two particular train lines being considered. One is a suburban loop and then there's the airport link and then Brisbane's got two including the Cross River rail and then Perth's got an initiative with Metro Net as well. So I think across Australia we are starting to see governments invest significantly in this and I think this will be, you know, one or two decades worth of good investment opportunities for people who are astute. One other thing I'd say in here, Kathryn, is just I don't think we are building enough apartment stock close to these train lines. Like even, and even in Sydney it's about 5,000 apartments per annum around the Metro today, that's the supply, We should be doing somewhere between 9 and 10,000 because the Metro is such an attractive thing. So I think we're, we're sort of under capitalising on the volume of supply that we should bring. And that speaks to Anne's point or on affordability, right? One way to increase affordability is to actually increase the volume of stock. 

KH:
Yeah. 

AF:
Yeah, it's probably the most important way to increase affordability And you know, the reality is that in Australia for many years now, we haven't had the supply of new homes keep up with our growing population and those suburbs that are home to a Metro station that do have good connectivity are really your prime locations for focusing development. So we know that people want to live near a Metro station. We know that those are the kinds of areas that really benefit from population growth. You know, Sameer was talking about more Gen Y and Gen Z, your young worker cohort. So increasing the supply of new apartment dwellings in these locations around the Metro line will really, really add a lot, not just for the people living in these areas, but also to Sydney's economy as a whole. 

KH:
And I suppose it's not just the affordability for people wanting to purchase, I mean build-to-rent is such a growing sector in Australia at the moment. And Sameer, you're saying that we're just not building enough apartments around these Metro lines. I'm assuming that this is a really great opportunity for the BTR sector as well to focus on opportunities around these metro stations. 

SC:
Yeah, look, BTR doesn't need to be, you know, right in the city centre. You can spread these sorts of build-to-rent platforms further out, which is what I'm hoping will start to sort of happen in Sydney. I'd say the South-West is an area that's kind of ripe for this sort of disruption. The North-West is seeing a lot of development but not necessarily the South-West. So I think there'll be pockets that need to sort of emerge and, and really sort of take off because we do have this affordability and just lack of choice. Right now, given vacancies are low, maybe that'll help your son out too Kathryn. 

KH:
I think he would love to hear that. And you probably don't want to talk too much about it at this stage, but I'd love to give people a bit of a sneak peek about the upcoming research that you're doing on infrastructure projects in other cities. Can you give us a bit of a really high-level view on what you're going to be looking at next? 

SC:
Yeah, look Anne and I are looking at. outside of trains, we're also looking at the healthcare sector. So we're looking at a couple of big healthcare precincts, because healthcare can also spark a lot of development. And then the third option is to look at tech and we're looking at a couple of technology precincts and how that's pulled in commercial, residential into that area as these developments have taken fruit and there's a big pipeline of healthcare projects and technology projects around Australia. And you know, Melbourne's got quite a few healthcare projects in the hopper. So that's kind of the thinking and looking forward to working with Anne again. 

KH:
Fantastic. Yes, I think technology is such a huge focus at the moment, and health with our ageing population, so it'll be really interesting to see the next couple of reports and the insights that come out of those. So thank you so much for your time, Sameer and Anne. Clearly the Sydney Metro is having a really outsized impact on the Sydney property market and providing some lessons on how we can harness infrastructure better to deliver outcomes for cities, not just in Australia but globally. Thanks so much for tuning into this latest episode of Talking Property with CBRE. If you like the show and want to check out more, you can follow Talking Property on Spotify, Apple Podcasts, or your favourite podcast hosting platform. You can also find a link to the Metro report in the show notes. And if you have any questions in relation to this episode or ideas for future podcasts, please email us at talking [email protected]. Until next time.