The Development Digest | 26.8.23 | JLL Development Site Service

We are pleased to provide you with our weekly JLL Development Site Services Market Update - The Development Digest.

Please contact me on 0402 085 702 / jesse.radisich@jll.com if you would like to receive our more detailed weekly updates via email each Friday morning.

This update will cover:

• JLL Representing Gurner in Divestment of Prahran Sites
• Qualitas - Australia’s Next Housing Cycle Has Arrived  
• JLL Asia Pacific Debt Monitor – 18 August 2023
• Headlines of the Week

JLL Representing Gurner in Divestment of Prahran Sites

JLL has been appointed by Gurner to divest two prime landholdings in Hawksburn Village, both of which have approval for boutique commercial projects.

It is a privilege to be entrusted by and to represent arguably Australia’s most recognised and renowned developer, and we are looking forward to a successful campaign.

The offering was featured prominently in the AFR yesterday – see below. 

Qualitas - Australia's next housing cycle has arrived

In a further boost of confidence in the residential sector, Qualitas have said that they believe Australia’s next housing cycle has arrived, with residential projects accounting for about 90 per cent of the $1.4 billion in investments the non-bank lender has earmarked for investment in the first seven weeks of this financial year alone.

As vacancy rates remain around 1% and Qualitas’ increased pricing for off-the- plan apartments (with a particular focus in Melbourne, which has risen 20 per cent in the past 12 months), Qualitas believe the only way through is new supply. Mr Andrew Schwartz said Australia’s under-supplied housing market was attracting global investors, with Qualitas securing additional separate mandates in the past week alone of $750 million for investment in residential construction and $700 million in residential more widely.

As migration returns and Australia’s population is only expected to continue to boom, residential developments remain an attractive investment to investors. Should you wish to receive further information on current levels of supply, or JLL's latest Development Sites, please do not hesitate to reach out to the team at anytime. 

JLL Asia Pacific Debt Monitor – 18 August 2023

Last week, global bond yields were under an upward pressure with the US 10 year treasury yield reaching record high levels of 4.28%, the highest level in this rate hike cycle. As a matter of the fact, yesterday, it climbed to 4.35%, the highest since 2007. Many analysts are wrapping their head around to grasp the latest run of the US long term yield which has leapt from a 3.3-3.4% range in May to 4.35% in August. Some are citing an uptick in risk premium dubbed as “term premium” factored into long term yield, stemming from ‘demand and supply imbalance’, the big woe at the treasury auction markets of late. Others have been attributing the recent big time run to a shift in anticipated monetary policy trajectory driven by a further delay in rate cuts or curtailed size of rate cuts, not necessarily an additional rate hike risk. Based on the latest future market pricing, the markets still bet with a 67% probability that the Fed will keep the policy rate unchanged at 5.5% until the year end. 

Target Rate Probabilities for December FOMC meeting

This explanation is in line with a growing conviction within the market that rates will stay higher for a longer period as witnessed in the below chart. Another explanation is brewing optimism over the US economy, continuing to defy the Fed, showing the surprise on the upside with nearly every economic metric. After stronger than expected US July retail sales got released, the Atlanta Fed has revised its Q3 GDP estimates up to 5.8% at its famed GDP NOW forecasts. Last but not least, some economists are raising the possibility that the US long term neutral rate called R* may have structurally shifted to higher levels with long term inflation expectation trending up. This is why everyone is eyeing “Structural Shifts in the Global Economy”, the highly anticipated symposium at the Jackson Hole where the Fed is likely to discuss this structural shift.  

US Forward rate trajectory June 30 vs now

Our weekly Debt Monitor update is provided by Sungmin Park (Director, Asia Pacific Capital Markets Research).

Headlines of the Week

The AFR – Six-week high for city auction sales

• Preliminary auction clearance rates rose to a six-week high of 74 per cent across capital cities despite more homes being offered for sale, amid signs confidence is returning to the market after the Reserve Bank left interest rates untouched for a second straight month.
• Data from CoreLogic showed the preliminary clearance rate in Sydney climbed by 2.5 percentage points to 77.5 per cent from the previous week, the highest rate since late June.
• Melbourne also posted a higher success rate of 72.7 per cent, 3.2 percentage points stronger than a week ago.

The AFR – Developer bonus could be housing crisis ‘silver bullet’

• A developer density bonus is key to reaching Prime Minister Anthony Albanese’s target of 1.2 million new homes over the next five years, the property industry has told the Victorian government, which is leading other state jurisdictions with a major planning review.
• The Property Council of Australia will release the analysis in a landmark report today called Unlocking Affordable Housing, which concludes that a density bonus achieves the greatest boost to supply at the least cost to government, although shorter-term policy fixes may also be required.
• The Albanese government has offered state and local councils $3.5 billion to fast-track the construction of the 1.2 million homes in a bid to boost housing supply, under a National Housing Accord.

The AFR – Low $A makes RBA’s inflation fight harder

• The value of the Australian dollar has been slashed due to lower interest rates than overseas and fears about China’s slowing economy, making the Reserve Bank’s inflation fight more challenging.
• The Aussie dollar has depreciated from almost US69¢ last month to about US64¢ yesterday. It has slipped by a bit less on a trade-weighted index (TWI) basis to temporarily below 60 this week against the currencies of Australia’s major trading partners.

The AFR – Housing off and running: Qualitas boss

• Qualitas says Australia’s next housing cycle is starting, with residential projects accounting for about 90 per cent of the $1.4 billion in investments the non-bank lender has earmarked for investment in the first seven weeks of this financial year alone.
• The ‘‘vast majority’’ of ASX-listed Qualitas’ pipeline so far this year – of investments closed, mandated but not approved, or yet to be fully mandated – was for the residential sector, showing a further pick-up from last year, managing director Andrew Schwartz said.
• ‘‘We’re at the start of the next cycle,’’ Mr Schwartz told The Australian Financial Review yesterday. ‘‘With 1 per cent vacancy rates . . . the only way through is for new supply.’’

The AFR – Gurner puts ‘outgrown’ office sites up for sale

• Rich Lister Tim Gurner has quit plans to develop two boutique office buildings in the upmarket Melbourne suburb of Prahran after putting the two permit-approved sites up for sale.
• The two Hawksburn Village properties – a 348-square-metre site at 7-9 Robinson Road and a 243sq m site at 13-15 Robinson Road – were approved for office projects of four and five levels and are occupied by freestanding homes.
• Once complete, the two office buildings could have an end value of between $25 million and $30 million.
• As existing sites with permits and architect plans drawn up by Warren and Mahoney and Cera Stribley, they are being offered for about $6 million through Nick Peden and Tim Carr of JLL.

We hope you have enjoyed another edition of The Development Digest. Please contact our team if there is anything we can assist you with.  

Jesse