Capital Edge (Issue #2)

CBRE’S QUARTERLY CAPITAL MARKETS MAGAZINE, PROVIDING INSIGHTS ACROSS ALL MAJOR SECTORS.

CAPITALedge

CBRE’s Pacific Market Outlook 2024: See the key trends and overarching themes that will guide market shifts and decision making.

Sector spotlights on Retail, Agribusiness and Alternatives with a focus on Healthcare

Australian Capital Flows: 2023 Inbound and Outbound Investment Trends

Creating Resilience: What the Experts are Planning for Obsolete Office Buildings

Future Cities: The Rise of Multi-Storey Warehousing

Intelligent Investment: Student Accommodation in the Spotlight

Flint Davidson

on the state of play

Welcome to the second edition of Capital Edge.

As we embark on 2024 it is clear that the market is intrigued as to what this year will bring.

We believe in 2024, the market presents a compelling narrative divided into two distinct “acts”. The first half promises a measured pace, marked by cautious investment activity amidst cooling inflation. The second half unveils a potential shift, with anticipated interest rate cuts paving the way a resurgent demand for quality assets leading to reinvigorated transactional volumes.

ACT I: STRATEGIC MANEUVERING IN A CAUTIOUS LANDSCAPE

The initial months of 2024 will witness tempered investor sentiment, reflecting broader economic caution. The extended timeframe required to close transactions will mean transaction volumes will still lag although we expect improvement from 2023. This shouldn’t be interpreted as a continuation of a subdued market. We expect the first movers to be busily setting themselves and benefitting from a rare phase in the cycle for capital to take advantage of sellers acceptance of market pricing and a limited number of conviction buyers. This will be the “value buying window”.

ACT II: REBOUND AND REINVESTMENT FUELED BY POLICY SHIFTS

As we progress through the year, the anticipation of interest rate cuts will boost confidence in the beginning of a return to more normalised monetary policy. This potential policy shift should act as a catalyst, boosting investment activity and injecting much needed momentum into the market. Investor demand, particularly for prime assets, will return driven by occupiers support of the best assets and locations. This is where astute investors who have navigated the first half with prudence can capitalise on the upswing.

Industrial & logistics & living sectors and are expected to remain attractive propositions for foreign investors due to their inherent resilience and consistent rental growth. Office investment will improve while the credit market might witness a moderation as interest rates adjust. Healthcare, life sciences, and data centres are likely to maintain their allure for large institutional investors due to their strong underlying demand and growth potential.

We understand the complexities of this divided market. Throughout the year we will continue to provide in-depth analysis, expert opinions, and insightful perspectives on the trends shaping each act. We wish all of our valued clients the best for the year ahead.

Flint Davidson

Head of Capital Markets, Pacific

+61 411 183 061

flint.davidson@cbre.com.au

2024Outlook Pacific Market

Commercial Real Estate is poised for a year of adaptation and strategic opportunity - but how do you navigate such a transformative market?

Emerging precincts defined by infrastructure investment in metro rail, healthcare, and technology hubs; a continued resurgence of CBDs; construction labour challenges; development cost growth stabilising; sustainability-focused capital expenditure in secondary markets; higher occupancy rates. Here is a selection of some key sector trends to look for in 2024.

OFFICE

01

PREMIUM OCCUPANCY

02 DESIGN

03 SUPPLY

04 RENTS

Vacancy in offices commanding premium rents is just 5.5%. Three quarters of occupier relocation decisions favour same/higher rents, supporting leasing in new builds and redevelopments.

To help productivity and encourage staff back to the office, occupiers are likely to keep investing in wellness features.

We have pulled back supply growth assumptions to 1.0% pa from 1.7% pa to 2028. Tenant delays in leasing decisions, high construction costs and financing issues are impacting supply.

For 2024, we expect Brisbane to have the highest net effective rent growth, followed by Perth and Sydney. All markets are likely to see some face rent growth albeit movements in incentives should drive relative performance.

01 DEMAND

INDUSTRIAL & LOGISTICS

Gross take up in 2023 fell short of the 10 year average for the first time since 2019 due to the lack of vacant space available to lease. Given our expectations of rising vacancy levels in 2024, we forecast greater leasing activity over the year ahead. We do not anticipate demand for good quality assets in core locations to drop.

02 SUPPLY

03 VACANCY

The 2024 supply pipeline is forecast to total a record high of close to 4.5 million sqm (over double the long term average). The 2024 pipeline is already 50% pre-committed (as at Q4 2023).

Australia’s industrial vacancy rate of 1.1% remains the lowest globally. Normalised demand levels, coupled with a mixture of speculative built products and sublease space, are expected to place upward pressure on the vacancy rate – however, this is forecast to remain below 4%.

04 RENT

GROWTH

05 ESG & POWER

We expect single digit rent growth across most markets in 2024 and CAGR 4% over 2024-27. For Auckland, effective rents are expected to fall back slightly in 2024 as increasing vacancy will lead to a more competitive leasing environment and incentives creeping into the market.

Sourcing renewable power and providing onsite charging for EV fleets will become a key consideration for logistics supply chain. Secondary stock could see improved business case for upgrading whole of site.

“

We expect a more balanced picture with mid to single digit income growth and flat/modestly higher capital values by the end of 2024. Development activity and profits are likely to bottom out.

“ Sameer Chopra

Head of Pacific Research

RETAIL

01 OUTLOOK

02 FLOCK TO SHOP

03 TOURISM RETURNS

04

Rising consumer cost-of-living, subdued housing market and rising energy costs are headwinds. But easing labour supply and return of international visitors are likely to help retailer margins. We see competition for premium supply and relatively stable valuations.

CBRE’s Live Work Shop survey found that Australians value physical retail for its immediate availability and to see/try before they buy.

By 2024, spend by international tourists should have returned to 2019 levels. Nearly a quarter of tourism spend is on food and shopping categories.

The majority of regional centre and CBD supply is comprised of extensions and refurbishments with very few new centres being constructed. Neighbourhood and large format retail (LFR) centres comprise 53% of the future pipeline, located in regions of population growth.

05 RENT GROWTH

Rents for shopping centres are forecast to grow at low single digit rates through 2024 and CBD shops will start to recover in 2024, buoyed by increased foot traffic.

2024Outlook Pacific Market

STUDENT ACCOMMODATION

01 MARKET SIZE

02 PENETRATION

03

NEW SUPPLY LAGGING

04 RENT GROWTH

Australian and New Zealand universities service ~1.4m domestic and 0.6m international students.

Just 6% of students have the opportunity to live on/close to campus in purpose built accommodation.

An incremental 8,000 rooms could be delivered over 2023-26, representing a 7% uplift to the current volume.

Median rents grew from $406 per week to $530 per week over 2018-23. CBRE forecast rent growth in inner city living sectors will continue to outperform inflation, with the private rental market vacancy likely to remain sub 1%.

01 VOLUMES

02 INVESTOR INTENTIONS

03

CAP RATE EXPANSION

04 DEBT MARKET

05

RELATIVE VALUE

INVESTMENT

We see flattish investment volumes in 2024 before resurging in 2025. This is still just half of 2017-19 volumes, presenting significant upside potential to our forecasts. Industrial and retail are likely early beneficiaries of improving transaction volumes, followed by office in 2025.

For 2024, investor intentions favour: office 33%, industrial 25%, Residential 25%, retail 10% and hotels 6%. Residentialto-rent continues to gain as an asset class investors would like exposure to.

We foreshadow trough to peak expansion of c200bps for super prime industrial, 150-200bps for prime office, c75100bps for retail and c30-50bps for living sectors. Higher rent growth will continue to insulate valuations in the industrial and living sectors.

Lenders are keen to grow their book to take advantage of higher credit margins but increased prelease requirements may curtail activity. Industrial is a preferred asset class to grow exposure.

2024 opens up a new set of opportunities for investors. Our updated relative value chart is included inside. Brisbane and Perth shopping centres screen well. Sydney and Melbourne office and industrial values reflect liquidity premium.

01 LOW VACANCY

02 SUPPLY SHORTFALL

03 RENT GROWTH

04 VALUES SUPPORTED

RESIDENTIAL

Capital city vacancy will fall further to 0.8% by 2028, from 1.8% in 2023. We expect tight conditions with vacancy at around a third of the previous decade average.

CBRE forecasts the future supply of apartments to range from a high of 80,000 (expected in 2026) to as low as ~60,000 in 2024 and 2027.

CBRE expects median rents to grow by $120/week (+26%) between 2023-28. A number of precincts are likely to see mid/high 30% rental growth.

In the past three years, construction costs (+37%) have outstripped value growth. In our view, capital value for residential projects will accelerate significantly to ensure a healthy ecosystem for developers.

“ “

We are witnessing a steady increase in I&L vacancy rates across all cities as demand normalises and supply, to an extent, is being added to the market. Despite the rise in space availability, we do not expect to see vacancy rates surpass 4% over the next 12 months.

Sass Jalili Head of Industrial & Logistics Research, Australia

CBRE Appoints Head of Alternatives to Further Strengthen its Capital Markets Offering

CBRE has appointed Mark Granter to a newly created Pacific role as Head of Alternatives Capital Markets, adding weight to the team’s capabilities as the alternatives sector continues to develop.

Mark has worked at CBRE for 33 years, the majority of this time in the Capital Markets business where he has brokered some of Australia’s largest property transactions.

In his new role, Mark will specialise in transacting larger digital infrastructure and data centres, healthcare, energy & renewables and social infrastructure assets, while continuing his work with CBRE’s Client Care team.

WHY ALTERNATIVES?

There has been a distinct shift of investor focus to Alternatives, such as living sectors, data centres, healthcare, student accommodation, childcare, self-storage and renewables. Large institutional investors are rebalancing their portfolios, to reduce an overexposure to the more traditional property sectors, particularly office.

The other major developing trends that are accelerating the interest in Alternatives are associated with the new economy and in the technology space, due to AI and the energy transition to renewables. The energy transition has led to an increase in wind and solar farms, new infrastructure, electric charging stations and carbon farming.

Demographic and social changes, and the way we now live is driving strong demand in social infrastructure sectors like childcare, selfstorage and healthcare, together with the living sectors – BTR, affordable/social housing and manufactured housing or land leases. Adding to the demographic changes is the huge projected population growth in Australia.

Fundamentally these Alternative sectors currently offer far stronger protection and stability in both income growth and capital value.

Going forward we do see these Alternative sectors forming an important part of a balanced property investment portfolio and some of these Alternative sectors will ultimately become mainstream. One could argue that healthcare is already a mainstream sector.

Capital Spotlight

ASX 200 Company Streamlines Data Centre Infrastructure with Innovative Sale-Leaseback

An ASX 200 company recognised the longer term limitations of its legacy data centre facilities situated across Australia and New Zealand and embarked on a strategic initiative to enhance its digital infrastructure platform. CBRE, acting as their exclusive advisor, implemented a sophisticated sale transaction that optimised value, secured long term flexibility, and aligned with their evolving digital footprint.

CBRE’s approach involved a comprehensive analysis of potential deal structures, meticulously evaluating total sale value alongside various leaseback and sale options. This included granular assessments of both colocation leasebacks (priced per kilowatt) and institutional triple net leasebacks (priced per square metre).

To achieve optimal outcomes, CBRE undertook a confidential and very targeted off market campaign. Carefully curating a shortlist of prominent global real estate investors and data centre operators, CBRE facilitated a comprehensive Expressions of Interest (EOI) process. The EOI invited prospective buyers to submit proposals considering diverse leaseback structures, colo terms, data centre operating expertise and final bid prices, all structured around a 5 to 7 year term with extension options. This approach empowered potential buyers to tailor their proposals, incorporating assessments of the

ASX 200 company’s future digital footprint requirements. Developers could evaluate the viability of onsite development, while data centre operators could propose colocation solutions at the existing and alternative facilities.

The meticulous execution of this strategy yielded significant results. CBRE successfully identified an Australian REIT as the preferred purchaser, with a triple net leaseback structure ultimately determined to be the most advantageous option for our client. This outcome delivered immediate capital while simultaneously securing long term flexibility, allowing the ASX 200 company to divest noncore assets and focus on its core business operations. This process also identified the preferred colocation data centre operators to partner with the ASX 200 company and assist them with their future digital strategy.

This data centre sale-leaseback transaction exemplifies the successful application of a sophisticated and tailored approach to a complex real estate transaction. CBRE’s meticulous approach, targeted buyer engagement and negotiation, marketing and deep understanding of the data centre market landscape facilitated a solution that not only unlocked financial benefits but also empowered our client to embrace digital transformation with agility and confidence.

From Simon Rooney

Head of Retail, Capital Markets, Pacific +61 418 284 680 simon.rooney@cbre.com

“Private Capital Drives Value in a Shifting Market”

• Syndicators and private investors responsible for 89% of all regional and sub-regional transactions in 2023

• Investor focus shifting towards larger sub-regional/regional opportunities

• Expect larger institutional capital to re-engage in the retail sector in 2024

Investment fundamentals for retail real estate are the strongest they have been over the last 10-15 years. The ensuing recalibration of retailer store networks and re-basing of rents following the pandemic have been viewed positively by the market as the “reset retail had to have”, providing a platform for the sustainable, robust growth currently evident in shopping centre performance.

The positive outlook for retail real estate is supported by the following key trends:

• Strong demand-side drivers of population, employment and income growth

• Current and forecast supply levels remain well below the 10 year historical average – half of which relates to neighbourhood shopping centres

Sector Spotlight

• Government support for the sector, via stage 2 tax cuts.

While retail transaction volumes in CY2023 reduced by ~47% Y-o-Y primarily due to investor sentiment around rising interest rates (+425bps or 13 increases since May 2022), the predominant theme for transactions has been the dominance of privately sourced capital – responsible for $3 billion or 89% of all regional and sub-regional transactions (>$50 million).

Syndicators and private investors have been the most proactive investors, taking an opportunistic, counter cyclical view, acquiring high quality assets which they have historically been priced out of by institutional capital, at material discounts to peak valuation, while income has been re-based to sustainable market levels.

The quality of real estate and returns on offer, represent an attractive value proposition when compared to office and industrial sectors, which has facilitated the re-entry of offshore capital into Australian retail – a trend we expect will gain momentum in 2024.

While significant liquidity remains on the sidelines, particularly larger institutional capital, we expect transaction activity to significantly increase following the commencement of interest rate stabilisation and potential cuts, possibly as early as 2H 2024.

However, there remains a number of potential economic headwinds which investors will be cognisant of, including:

• Further interest rate rises should inflation prove to be sticky

• Lagged impact of inflation and increased interest rates on retail spending, negatively impacting retailer performance.

Despite the increase in interest rates, current retailer performance has proven resilient, while long term fundamentals of the retail sector remain strong and likely to weather the current economic headwinds. Private capital is expected to continue to aggressively pursue acquisitions on the basis this window of opportunity is closing, with significant capital ready to be deployed following the commencement of the interest rate loosening cycle.

WA Australia’s Largest Single Retail Transaction Since 2019

MIDLAND GATE

100% interest with management rights in a dominant, 69,074sqm regional shopping centre investment – positioned on a landmark 143,528sqm site at the gateway to Perth’s burgeoning Northern Growth Corridor.

The centre is securely anchored by a highly productive triple supermarket offer of Coles, Woolworths and ALDI, in addition to discount department stores Kmart, Big W, Target and an eight screen Hoyts Cinemas complex.

CBRE exclusively introduced the purchaser (Fawkner Property) and capital partner (PAG) and negotiated the transaction via a strategic off market process. Offshore institutional investors are increasingly looking to partner with specialist domestic managers which are proactively engaging and seeking out high quality regional shopping centre opportunities.

Midland Gate’s town centre location, proximity to the Perth CBD, heavy rail infrastructure, supportive local government, favourable zoning and Northern Growth Corridor location provides potential to develop a long term, future mixed-use development strategy.

Simon Rooney

+61 418 284 680

simon.rooney@cbre.com

Sale Price $465,000,000

Sale Date Q4 2023

Interest 100% (with management rights)

Vendor Vicinity Centres (Mandate Client) / Vicinity Retail Partnership

Purchaser Fawkner Property / PAG

Passing Yield 6.92%

Fully Leased Yield 7.32%

Capital Value $6,732 per sqm

GLA 69,074 sqm

Site Area 143,528 sqm

QLD Landmark Cairns City Centre Regional Investment

CAIRNS CENTRAL

Cairns Central is the premier retail and entertainment hub in Far North Queensland, serving both locals and tourists as the regions only regional shopping centre.

Securely anchored by a strong performing Myer department store, dual supermarket offers of Woolworths and Coles, Kmart and Target DDS stores as well as an Event Cinemas complex – supported by exceptional specialty tenant performance of $14,000 per sqm, ranked 11th nationally across all regional centres.

CBRE represented and advised the purchaser (Fawkner Property), illustrating the trend of astute investors increased focus on the regional shopping centre market and the compelling returns on offer.

The property is positioned in the heart of Cairns city centre, representing the only regional shopping centre within 350km and is the major shopping destination for the Far North Queensland region. Underpinned by exceptional tenant performance, the centre is ranked 1st across all regional shopping centres within Queensland for total centre MAT per square metre.

Simon Rooney

+61 418 284 680

simon.rooney@cbre.com

Sale Price $390,000,000

Sale Date December 2023

Interest 100% (with management rights)

Vendor Lendlease (APPF Retail)

Purchaser Fawkner Property

Passing Yield 7.24%

Fully Leased Yield 7.42%

Capital Value $7,501 per sqm

GLA 51,991 sqm

Site Area 94,290 sqm

Alternatives Focus on Healthcare “An Oasis of Strength in a Shifting Landscape”

From

Mark Granter

Executive Managing Director, Alternatives

+61 439 035 433 mark.granter@cbre.com.au

• Growing investor base beyond REITs, targeting diverse property types

• Stability shines in volatile markets, backed by demographics and government support

• Core asset with growth potential, attracting private and institutional players

The year 2023 solidified the healthcare sector’s allure for seasoned investors. REITs and private syndicates remained firmly entrenched, but the appeal broadened. Stock volume surges translated into heightened market awareness, attracting new entrants with up to $50 million at their disposal. Notably, this wasn’t solely a REIT phenomenon; a diverse swathe of private investors ventured into the space.

Sector Spotlight

The sector’s inherent resilience and stability resonated with a wider buyer spectrum, prompting investors to transcend traditional core assets and diversify into healthcare. CBRE witnessed robust competition from both established and emerging players across various price points. The spectrum of transacted properties encompassed hospitals, diagnostic facilities, oncology clinics, medical centres, and allied health spaces. Notably, a contingent of traditional office and retail investors trained their sights on healthcare for portfolio diversification, a trend poised to amplify buyer activity in 2024.

Media focus on healthcare intensified throughout 2023, fueled by substantial federal and state government commitments to infrastructure improvements and operational efficiencies. This sharpened investor focus, prompting previously hesitant players to reconsider their stance. Australia’s underlying demographics, characterised by a rapidly aging population, further bolstered investment confidence. The projected rise in the over-65 cohort directly translates to higher healthcare expenditure, a trend astute investors readily grasp.

The backing of both federal and state governments, coupled with guaranteed patient volume increases and public pressure for ongoing service enhancements, solidify healthcare assets as fundamentally secure investments. This perception has earned them the coveted moniker of “recession proof.” While capitalisation rates and book values experienced minor corrections in 2023, the impact was significantly milder compared to the broader commercial asset landscape.

Healthcare’s evolutionary trajectory stands in stark contrast to the short term success stories of other asset classes. Its strong historical performance is undeniable, having navigated the turbulent waters of the 2007-09 Global Financial Crisis with remarkable resilience. Pre-crisis, healthcare cap rates trailed industrial assets by 100 basis points and comfortably surpassed retail and office holdings by 200 basis points. Fast forward to December 2023, and healthcare stands tall with an average cap rate of 6%, exceeding office assets by an impressive 50-100 basis points.

The CBRE Healthcare & Social Infrastructure team, national specialists in the field, projects a dynamic start to 2024. Both private and institutional investors are actively seeking healthcare assets to enrich their portfolios, viewing them not as opportunistic ventures but as foundational pillars. The sector’s unwavering stability and robust growth potential offer a beacon of hope in an increasingly volatile market, and investors are heeding the call.

Manningham Medical Centre Sold for $45 Million in Landmark Melbourne Healthcare Deal

200 HIGH STREET, TEMPLESTOWE LOWER

Manningham Medical Centre in Melbourne’s east has been acquired for $45 million, solidifying its position as a premier healthcare asset in the region. The transaction, facilitated by CBRE’s Healthcare & Social Infrastructure team, signifies a pivotal moment in the Australian healthcare property market, attracting significant interest from both domestic and international investors.

Completed in the early 2000s and strategically located at 200 High Street, Templestowe Lower, the six storey, 5,000sqm medical centre boasts a robust and diverse tenant mix with a weighted average lease expiry (WALE) of 6.3 years. Anchor tenants such as thriving general practices, Nexus Day Hospitals, Sonic Healthcare, and Capital Radiology contribute to a stable income stream exceeding $3.39 million annually.

Beyond its physical attributes, the affluent demographics of the surrounding area played a key role in the property’s allure. “The Manningham Medical Centre is one of the most trafficked healthcare assets in the country on a comparative square metre basis and this listing represents the highest quality healthcare offering within

Victoria for several years” commented Sandro Peluso, Director of CBRE’s Healthcare & Social Infrastructure team.

The successful acquisition of the Manningham Medical Centre underscores the burgeoning investor confidence in the Australian healthcare property sector, particularly assets offering robust tenant profiles, favourable demographics, and long term growth potential. This landmark transaction sets a new benchmark for healthcare property deals in the region and paves the way for further investment in this dynamic sector.

Sandro Peluso

Marcello

+61 417 065 777 marcello.caspanimuto@cbre.com.au

Jimmy Tat 毕家辉

+61 439 399 118 jimmy.tat@cbre.com

Vacant Aged Care Facility Sold to Offshore Investor

SPRINGVALE ROAD, DONVALE

An international investor has purchased a vacant aged care home in Donvale for $12 million with plans to refurbish and reopen the facility.

CBRE’s Marcello Caspani-Muto, Sandro Peluso and Jimmy Tat managed the sale on behalf of Melbourne-based property investment company Region Amber.

Located at 296-302 Springvale Road, the 18,224sqm site comprises a 6,600sqm two-storey facility with 115 beds. The aged care home was operated by Bupa until July 2022.

“Until recently, Chinese groups have focused primarily on development or retail investment assets, however that interest is now widening to include aged care, health and childcare assets. This aligns with rapid growth in China’s middle class. Historically China’s consumption has centreed on essential items such as food, beverage, clothing and footwear, but the rise of the country’s middle class is shifting the focus to lifestyle and health, where higher levels of spending are expected in addition to increased demand for health-related goods,” Mr Tat said.

Mr Caspani-Muto added, “Nationally the volume of vacant seniors living and healthcare assets continues to climb. We saw record volumes of transactional activity in 2022 and we are on track to surpass that again in 2023.”

“Our team has witnessed continually strong activity across the Victorian market with heightened levels of opportunity across the Queensland metropolitan markets, we are also now beginning to see a flow-on effect across New South Wales.”

Sandro Peluso

+61 418 389 757 sandro.peluso@cbre.com.au

Jimmy Tat 毕家辉

+61 439 399 118 jimmy.tat@cbre.com

+61 417 065 777 marcello.caspanimuto@cbre.com.au

QLD Retirement Village Purchased by the State of Queensland

TANAH MERAH VILLAGE, LOGANHOLME

The State of Queensland Department of Housing has purchased a vacant retirement village in Loganholme for $44 million including GST. Located at 3745 Pacific Highway, Tanah Merah Village sits on a 23,030sqm site and was developed over three stages in 2008, 2010 and 2018.

The village comprises 124 apartments, a large community centre, a fully equipped commercial kitchen, a pool, an AV room, a salon and a library. Included was also a 6,297sqm land parcel offering further development.

Will Carman, Adelaide O’Brien of CBRE’s Brisbane Metropolitan team and Marcello Caspani-Muto, Sandro Peluso and Jimmy Tat of CBRE’s Australian Healthcare & Social Infrastructure brokered the deal on behalf of Aveo.

“Given the record low residential vacancy level in Loganholme, this property was highly sought after and one of our most contested campaigns of 2023,” Mr Carman said.

“The State of Queensland intends to use the site for affordable housing. While offers higher than the sale price were received, Aveo proceeded with the State of Queensland due to the heightened social need for this infrastructure.”

“The property was available in one line and drew interest from multiple sectors including build-to-rent, private residential, student accommodation and social and affordable housing,” Ms O’Brien added.

The sale translates to $354,839 inc. GST per apartment which included 85 one-bed apartments and 39 two-bed apartments.

Will Carman

+61 477 666 355 will.carman@cbre.com

Adelaide O’Brien

+61 419 642 670 adelaide.obrien@cbre.com

Sandro Peluso

+61 418 389 757

sandro.peluso@cbre.com.au

Marcello Caspani-Muto

+61 417 065 777 marcello.caspanimuto@cbre.com.au

Jimmy Tat 毕家辉

+61 439 399 118 jimmy.tat@cbre.com

From

John Harrison

Head of Agribusiness

+61 404 335 267

“Agribusiness Adapts to New Challenges and Opportunities”

• Agribusiness boom slowed and challenged throughout 2023

• Increasing pressure to align with global natural capital, carbon and ESG expectations

For the past two years, Australia’s agricultural land values enjoyed a meteoric rise fueled by low interest rates, soaring commodity prices, and bountiful seasons. This golden era, however, yielded to a more complex reality in 2023. Commodity prices softened, interest rates climbed, and weather uncertainties emerged, causing a market slowdown in the latter half of the year.

Despite dampened activity, pockets of resilience remain. Large families, corporations, and institutional investors, particularly those seeking assets exceeding $50 million, continue to demonstrate strong appetite, especially for well developed properties with robust production capabilities. Foreign investors also show increasing interest, drawn by the sector’s long term potential.

Sector Spotlight

FUTURE FOCUS: NATURAL CAPITAL, CARBON AND ESG

The market’s future, hinges on its ability to adapt to a new set of imperatives – natural capital, carbon, and ESG (environmental, social, and governance). Driven by global trends and heightened awareness of environmental and social responsibility, these concepts are reshaping the agricultural landscape.

Responding to this shift requires a holistic approach that balances the needs of land, capital, and co-existence. Land encompasses the natural resources that underpin agricultural production and environmental outcomes. Capital refers to the financial and human resources necessary for sustainable and profitable farming practices. Co-existence highlights the importance of collaboration and trust amongst stakeholders, including farmers, consumers, investors, regulators, and communities.

Several key strategies can pave the way for this transformed market:

• Natural Capital Accounting: Measuring and monitoring changes in natural capital through dedicated tools and methods will inform decision making and responsible resource management

• Sustainable land management: Practices like regenerative agriculture, agri-forestry, and conservation tillage enhance soil health, reduce emissions, and improve yields, contributing to both environmental and economic sustainability

• Carbon and biodiversity markets: Participation in schemes like the Emissions Reduction Fund and Biodiversity Stewardship Program provides financial incentives for farmers to adopt low emission and high conservation practices

• ESG frameworks: Aligning with industry led frameworks demonstrates the sector’s commitment to sustainability and ethical practices, opening doors to new markets and investors

• Stakeholder collaboration: Partnering with research institutions, industry bodies, government agencies, and community groups fosters knowledge sharing and facilitates a smooth transition towards a more sustainable future.

At CBRE Agribusiness, we’re excited by these evolving opportunities. In 2023, we successfully navigated diverse transactions across Australia, demonstrating our commitment to navigating this dynamic market and supporting its evolution towards a sustainable and resilient future.

QLD & NSW

CBRE Orchestrates Packhorse Portfolio Sale

PACKHORSE PASTORAL PORTFOLIO

CBRE facilitated the strategic disposal of the Packhorse assets, in a circa $115 million transaction. We particularly note the successful sale of Moolan Downs and Ottley Station to Hancock Agriculture, marking a significant expansion of their premium Wagyu cattle operations.

Moolan Downs’s 10,000 hectares in Queensland’s Western Downs, and Ottley Station’s 8,400 hectares in northern NSW perfectly align with Hancock’s strategy of securing first class land for their 2GR Wagyu brand. These well established properties offer optimal breeding and backgrounding environments, further bolstering Hancock’s annual turnoff.

Stuart’s Creek Station which comprises 8,300 hectares and is located north-west of Roma in Queensland was purchased by Queensland Investment Corporation (QIC). The purchase by QIC enables them to further explore environmental market opportunities that are complementary to the existing traditional cattle grazing operations.

James Auty

+61 407 053 367

james.auty@cbre.com

Vendor

Packhorse Pastoral Company (Australia)

Purchasers Multiple

Sale Price $115,000,000

Total Area 27,124 ha

$ per ha ~$4,240 per ha

Sale Date Q3 2023

Poultry Pioneer David Bartter’s “Ballandry” Aggregation Sold

RIVERINA REGION

Poultry pioneer David Bartter’s 26,839 hectare “Ballandry” aggregation in the NSW Riverina region has been sold to a joint venture between an Australian farmer and a Canadian investment fund.

The aggregation comprises 16 individual dryland cropping properties, which were amalgamated by Mr Bartter over the past 40 years, acting on the theory that neighbouring land typically only becomes available once in a generation, if at all.

The property has benefitted from a regular fertiliser and liming programs as well as the incorporation of legumes into crop rotations. Current crop rotations include wheat, barley, canola and legumes such as lupins and vetch.

Average long term wheat yields at Ballandry have been 2.5 tonnes per hectare, however in recent years Mr Bartter said the property has been able to produce well above 3 tonnes per hectare.

“By improving the soils, we are now able to grow crops with much higher yields on less rainfall than what we have ever been able to do before,” Mr Bartter said.

Ballandry was purchased on a ‘walk-in-walk-out’ basis and included 45,457 Murrumbidgee Irrigation Delivery Entitlements as well as the benefit of the 2023 crop.

The overall Ballandry offering includes 20,000 tonnes of grain and fertiliser storage as well as machinery sheds, workshops, plant and equipment. It has an annual cropping program of 21,833 hectares across three aggregations and is only 37km north of Griffith.

Boo Harvey

+61 498 990 075 boo.harvey@cbre.com

Two Significant Agri Offerings Hit the Market

VICTORIA'S YARRUM AGRICULTURE ALMOND AGGREGATION

The 635ha Yarrum Agriculture Almond Aggregation in Victoria has been listed for sale, providing an incoming purchaser with a substantial earlystage horticulture opportunity.

Located in Red Cliffs, the aggregation has a price expectation in excess of $22 million and includes two separate landholdings with a combined planted area of 317ha and a further 200ha well suited for further development.

The aggregations, Wilga Road Farm at 971 Wilga Road and Ballinger Farm at 469 Wilga Road, were planted over 2021 and 2022 with a mix of Nonpareil, Carmel and Shasta.

The aggregation is being offered for sale on a walk-in walk-out basis with plant and equipment to be negotiated throughout the sale process.

Ballinger Farm has a new irrigation and fertigation infrastructure, supplying both Ballinger Farm and Wilga Road Farm via a 575mm mainline along Wilga Road. The irrigation system is completely automated and is currently irrigating as a single shift, with an output of 0.6mm per hour.

DUXTON APPLES PORTFOLIO IN SOUTH AUSTRALIA

The Duxton Apples portfolio, comprising a total of 429.96ha across South Australia, has been listed for sale providing an incoming buyer with a substantial horticulture opportunity. The portfolio includes three separate landholdings, Loxton, Nangwarry and Monarto. Loxton and Monarto are freehold assets and Nangwarry is leased until June 2040.

Loxton and Nangwarry are utilised for apple production while Monarto is used for storage and processing with 1,600sqm of cold storage across seven cool rooms, allowing the vendor to capitalise on peak pricing throughout the year.

With 213ha planted including 95ha under net, the portfolio accounts for approximately 25% of South Australia’s apple production. The portfolio comprises a mix of Pink Lady (60%), Granny Smith (25%) and Gala (15%), 2023 production equated to more than 20,000 bins.

Both the Yarrum Agriculture Almond Aggregation and the Duxton Apples portfolio have appointed CBRE Agribusiness to sell the properties via Expression of Interest campaigns, both closing on March 14, 2024.

CBRE Agribusiness is dedicated to being the industry’s premier provider of transaction, valuation and advisory services for investors and owners of all types of commercial farming properties.

Investment Volumes Retreat, But Strategic Opportunities Arise. In & Out Australia 2023

Higher interest rates dampened national property investment in 2023, with overall volumes contracting by 31% to $24.1 billion. The repricing phase persisted in some sectors, impacting deal flows. However, pockets of resilience emerged, notably in living and hotels, where transaction activity surged 39% and 11% respectively, underpinned by investors’ confidence in these assets’ robust fundamentals.

Industrial & logistics (I&L) defied the overall volume decline, experiencing a moderate 13% year-over-year contraction. Nonetheless, it retained its position as the sector with the highest deal flow at $6.3 billion, reflecting its enduring appeal. The office sector, grappling with valuation discrepancies between buyers and vendors, witnessed a significant 65% drop in sales volumes. Retail followed suit with a 21% decline, primarily driven by the absence of large scale transactions, while smaller deals remained active, suggesting continued investor interest.

JAPANESE CAPITAL TAKES CENTRE STAGE, OUTPACING GLOBAL COMPETITORS

The year belonged to Japanese investors, their capital inflows exceeding $2 billion, a marked contrast to the $140 million invested in 2022. Their ultra low domestic interest rates provided a substantial competitive advantage, propelling them to the forefront of the market. Living and office sectors became their primary investment targets.

North American capital maintained second place, albeit with a 17% decline to $1.6 billion, focusing on living and I&L assets. Hong Kong and Singapore, mirroring the global slowdown, saw their investments halve, with Singapore experiencing a particularly sharp 65% drop. European participation dwindled to a mere $180 million.

I&L AND RESIDENTIAL REMAIN FAVORED BY DOMESTIC INVESTORS IN 2024

Explore Insights & Research

According to the CBRE Investor Intentions Survey, Australian investors continue to prioritise I&L in 2024. The sector’s stable capital values, despite softening yields, coupled with robust rental growth, maintain its appeal. Residential assets, fueled by skyrocketing rents and limited new supply, also attract 23% of respondents, particularly build-to-rent, build-to-sell, and student accommodation models. Offices, offering discounts from peak prices, entice 21% of investors.

RISING RETURN HURDLES DRIVE SHIFT TOWARD OPPORTUNISTIC STRATEGIES

Elevated interest rates have pushed return expectations higher, prompting Australian investors to favor opportunistic Value Add and Core Plus strategies in 2024. Core strategies still retain some appeal for 19% of investors.

ALTERNATIVE INVESTMENTS REMAIN RELEVANT, DEBT TAKES THE SPOTLIGHT

Real estate debt, buoyed by the attractive returns offered in the current interest rate environment, emerges as the preferred alternative investment for Australian investors in 2024. Healthcare, life sciences, and data centres, driven by strong underlying demand, also remain on the radar for large institutional investors.

Australian Capital Flows

SENIOR DEBT GAINS INVESTOR CONFIDENCE

Respondents favour senior loans for their lower risk profile. Mezzanine financing also finds favor. Non-bank lenders are expected to maintain debt market liquidity in 2024.

OUTLOOK: CAUTIOUS OPTIMISM EMERGES AS INTEREST

RATE TRAJECTORY IMPROVES

The rapid interest rate hikes since early 2022 significantly impacted Australian capital markets. However, disinflationary trends offer a glimmer of hope. With the RBA predicting a return to target rates by late 2025, markets now anticipate rate cuts in the second half of 2024. This revised outlook, coupled with the belief that Australia has reached peak rates, fosters cautious optimism for a revival in transaction activity and stabilisation of pricing in 2024.

The outlook for interest rates in Australia has improved significantly over the past few months. This should lead to higher volumes in 2024 across sectors, with buyers having more conviction around pricing.

Tom Broderick

Head of Office and Capital Markets Research

+61 430 405 910

tom.broderick@cbre.com.au

Redefining Capital Markets

CBRE has streamlined our Capital Markets offering to better align with our clients. This move aims to provide our clients with more tailored and comprehensive solutions across the investment lifecycle - allowing further leverage of our extensive global network and ensuring access to local market expertise combined with the reach and resources of the largest real estate firm, globally.

INVESTMENT PROPERTIES

Single-asset sales within metropolitan and institutional markets, leveraging in-depth market insights and targeted strategies to maximise value for clients seeking to divest their real estate holdings.

DEBT & STRUCTURED FINANCE

Comprehensive suite of solutions, including loan advisory, loan servicing, and loan recovery, to assist clients in securing optimal financing terms and efficiently managing their debt portfolios.

CAPITAL ADVISORS

Recapitalisation, restructuring, capital raising, platform creation, and mergers and acquisitions - bolstered by the recent acquisition of Sera Global’s investment banking team (see opposite).

CBRE Bolsters Capital Advisory Capabilities with Sera Global Acquisition

Merger creates a leading global real assets investment banking platform.

CBRE has announced the acquisition of the investment banking team from Sera Global, a leading independent real assets advisor. The move significantly strengthens CBRE’s global capital capabilities and positions the company as a major player in the real estate, infrastructure, and renewable energy sectors.

The Sera team brings extensive experience across key investment banking services, including M&A, capital raising, liquidity solutions, and infrastructure advisory. With the addition of Sera’s professionals, CBRE now has a presence in key markets around the world, including New York, London, Los Angeles, Toronto, Boston, Frankfurt, Barcelona, Madrid, and Seoul.

“The combination of the highly talented Sera team with CBRE is a major step forward in the development of our global investment banking platform,” said Chris Ludeman, Global President of Capital Markets for CBRE. “This addition will allow us to better advise our clients around the world in defining their growth strategies and accessing capital to achieve their goals.”

Sera Global was established by Brookfield Business Partners, a global leader in owning

and operating high quality businesses. “By joining CBRE, the global leader in real estate services, our team is well positioned to deliver a wider range of solutions to our clients,” said Leo van den Thillart, Sera Global CEO. “When we partnered with Brookfield, our goal was to create an industry leading capital advisory practice. As part of our next chapter with CBRE, we look forward to delivering on that vision through a truly integrated global investment banking team.”

The acquisition of Sera Global is a win-win for both companies. CBRE gains a team of experienced investment bankers and expands its global reach, while Sera Global’s clients will benefit from CBRE’s extensive resources and expertise.

The combined team is well positioned to capitalise on the growing demand for real assets investment banking services. With a strong presence in key markets and a deep understanding of the real estate, infrastructure, and renewable energy sectors, CBRE is now a one-stop shop for clients looking for comprehensive investment and capital solutions.

CREATING RESILIENCE

What the Experts are Planning for Obsolete Office Buildings

Across the globe, cities grapple with a trifecta of challenges: creating vibrant 24/7 environments, addressing housing shortages, and reducing the environmental footprint of construction. Enter adaptive reuse, the art of transforming aging or obsolete buildings into something entirely new. In Australia, this trend is gaining momentum, offering exciting possibilities for our urban landscapes.

One key area of focus is converting office towers into apartments. Design studio Hassell’s recent study revealed 86 Melbourne CBD buildings ripe for such a transformation, potentially yielding 12,000 new homes. Ingrid Bakker, Hassell’s Principal, emphasises the importance of building dimensions – a “magic number” of 24 meters being ideal for ensuring natural light and ventilation in apartments. This opens up the possibility of revitalising entire city blocks, adding vibrancy and fostering a safer 24/7 atmosphere.

The conversation extends beyond residential, with David Harding, Executive Director of Business NSW, championing mixed-use towers. He envisions educational spaces, medical facilities, research labs, and even advanced manufacturing alongside living quarters, creating truly dynamic urban hubs. London serves as an inspiration, with vacant offices repurposed into hotels, life sciences facilities, and apartments.

However, challenges remain. Zoe Bignell, head of CBRE’s UK Development Advisory Business, cautions against a one-size-fits-all approach. Planning considerations and potential future shifts in office demand necessitate careful deliberation. Bakker echoes this sentiment, highlighting ongoing discussions with Melbourne authorities to identify and overcome potential hurdles in existing planning codes.

Ultimately, unlocking the potential of adaptive reuse hinges on several factors. Bakker believes valuing the embodied carbon in older buildings – the carbon “trapped” in their materials – is crucial. This would incentivise developers to choose reuse over demolition, contributing significantly to achieving net-zero carbon goals. Harding, meanwhile, calls for a bold rezoning of CBD areas, fostering an environment of innovation and flexibility for architects and developers.

Adaptive reuse presents a compelling solution for revitalising our cities. By breathing new life into aging structures, we can create vibrant, diverse, and sustainable urban environments, all while reducing environmental impact and addressing critical housing needs. As Bakker aptly concludes, “The best building for the planet is the building that you don’t build.” Let’s embrace this philosophy and watch our cities transform.

You can listen to more insights about the potential for adaptive re-use in episode of this Talking Property with CBRE.

FUTURE CITIES

The Rise of Multi-Storey Warehousing

Sky high warehouses towering up to 17 storeys are common in markets like Tokyo, Hong Kong and Shanghai where land is pricey and in short supply. But could going vertical also be one of the solutions in Australia for ongoing supply challenges in the industrial and logistics sector?

Fueled by land scarcity and soaring costs in urban hubs are witnessing a surge in multi-storey warehousing interest. This innovative approach tackles the challenge of maximising storage capacity within limited footprints. The rapid growth of e-commerce further fuels this trend, as the demand for fast deliveries necessitates conveniently located storage facilities close to consumers. While construction costs for multi-storey developments are higher, the premium rents achievable in areas like South Sydney make them financially attractive.

In a recent episode of CBRE’s Talking Property podcast, industry experts shed light on the nuances of this shift. Charter Hall’s Ascent on Bourke development in South Sydney, a two storey facility already pre-committed by major players like Schindler and Coles, stands as a testament to the concept’s viability. However, challenges like construction costs, traffic accessibility, and adapting to Australian building codes remain hurdles for developers. Tenants, on the other hand, weigh factors like height limitations and operational efficiency when considering these vertical warehouses.

Despite not being a silver bullet for supply chain woes, multi-storey warehousing is poised to play a pivotal role in Sydney’s industrial landscape, with several projects already in the pipeline. Moreover, the potential benefits for ESG initiatives add another layer of appeal to this upward trend. In essence, multi-storey warehousing emerges as a promising solution for both developers and occupiers navigating the complexities of space constrained urban environments.

Sky high industrial facilities of up to 17 storeys are common in cities such as Tokyo, Hong Kong and Shanghai. But could multi-storey warehouses also start to proliferate in Australia, given ongoing supply challenges in our industrial & logistics sector?

It’s a question explored in our latest Talking Property podcast by Charter Hall Development Manager Jack Hansen; CBRE’s Head of Industrial & Logistics Research, Sass Jalili; and CBRE’s South Sydney Managing Director, Nathan Egan.

Step into the world of commercial real estate and join us for Talking Property with CBRE.

INTELLIGENT INVESTMENT

Student Accommodation in the Spotlight

Australia’s student accommodation sector is experiencing an unprecedented upswing, propelled by a confluence of factors. This podcast dissects the key drivers, prevailing challenges, and exciting prospects shaping this dynamic landscape.

Demand Outpaces Supply: Unlike the saturated markets of certain countries, Australia boasts a unique dynamic – a significant under-supply of student accommodation, with only one bed available for every 16 students. This stark imbalance fuels substantial demand, propelling rental prices and attracting considerable investor interest.

A Beacon for Investors: The sector’s inherent resilience to economic fluctuations, coupled with attractive returns, has garnered the attention of both domestic and international institutional investors. They perceive student accommodation as a stable asset class with exceptional long term growth potential.

Navigating Regulatory Maze: Complexities in planning, taxation, and regulatory frameworks currently present obstacles to the sector’s full potential. Streamlining regulations, recognising PBSA (Purpose Built Student Accommodation) as a distinct asset class, and implementing targeted tax incentives could unlock a wave of investment and accelerate supply.

Beyond the Campus Walls: The podcast envisions a future where student accommodation transcends traditional university precincts and major cities. Geographic diversification could cater to a broader student demographic, potentially offering more affordable options and enriching the overall student experience.

Key Takeaways:

• Australia’s student accommodation market presents a compelling investment opportunity, underpinned by robust demand and inherent economic advantages

• Addressing regulatory hurdles and implementing supportive tax policies are critical for sustained growth

• Geographic expansion and diversified offerings hold the potential to further unlock the sector’s potential, benefiting both investors and students alike.

What does the future hold? What measures are needed to address the current supply shortfall? And how can investors access this dynamic sector to propel its future growth?

WANT TO KNOW MORE?

Listen 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.

LISTEN NOW

Strengthening our Living Sectors Business as Senior London Professional Transfers to Australia

CBRE has further strengthened its Pacific Living Sectors Capital Markets business with the appointment of highly experienced property professional Shauny Bult.

Ms Bult has transferred to Sydney after six years in CBRE’s London office, where she has successfully accessed capital from around the globe for large scale BTR projects and transacted on circa £4.5bn (approximately 6,800 units) across development funding structures, joint ventures and completed investment sales.

In her new role as Director, Living Sectors Capital Markets, Ms Bult will work closely with Andrew Purdon, the Regional Director of CBRE’s Pacific Living Sector Capital Markets business, to drive the firm’s service offering in the fast growing build-to-rent (BTR), purpose built student accommodation (PBSA), co-living, single family housing and affordable housing sectors.

“Rental housing in Australia has exceptional investment credentials and offers unparalleled growth potential as an asset class,” Mr Purdon said.

“Our client base has grown significantly over the past 12 months, and we expect investment volumes to follow a similar trajectory in 2024 as the sector matures and new capital enters the market from domestic and overseas sources. Shauny brings extensive experience from the UK where she has advised on some of the most significant BTR transactions including development funding, joint ventures and investment sales.”

Ms Bult said the Living Sector had attracted a £4.8bn influx of investment during H1 2023, accounting for nearly a quarter of capital committed to the entire UK real estate market and ranking second only to the industrial & logistics sector.

“Operational data further validates the strength of rental housing models, delivering resilient and robust returns for investors whilst addressing the pressing need for quality accommodation nationwide. The sector’s success in the UK serves as compelling evidence for the investment trajectory in the Australian market where demographic trends such as urbanisation, population growth and declining housing affordability are closely aligned,”

Ms Bult said.

“I am thrilled to embark on this exciting journey as a part of the Living Capital Markets team in Pacific and contributing to the continued growth and success of the sector.”

Capital Markets Team ONE

RETAIL

Institutional and middle markets

OFFICE

Institutional and middle markets

CAPITAL ADVISORS

Equity and capital advisory services

DEBT & STRUCTURED FINANCE

Origination and loan services

LIVING

BTR, purpose built student accom, co-living and affordable housing

HOTELS

Accommodation, pubs and tourism

INDUSTRIAL & LOGISTICS

Institutional and Middle markets

1ONE CAPITAL MARKETS TEAM

DATA CENTRES

Data centres and digital infrastructure

Our trusted, tenured experts seamlessly collaborate to help clients connect to global capital and opportunities through a cohesive, cross-disciplinary service offering.

DEVELOPMENT

Residential & commercial developments sites

>$20 million

METROPOLITAN INVESTMENTS

Commercial property <$35 million

INFRASTRUCTURE

Airports, roads and ports

ENERGY & RENEWABLES

Energy, oil, gas, mining and renewables

AGRIBUSINESS

Grazing, cropping, horticulture, viticulture, water licenses and carbon offsets

HEALTHCARE & SOCIAL INFRASTRUCTURE

Childcare, medical, aged care, education, recreation and life sciences

connect with Capital Markets

INVESTMENT PROPERTIES

Flint Davidson

Head of Capital Markets & Office flint.davidson@cbre.com.au

Mark Granter

Head of Alternatives mark.granter@cbre.com.au

John Harrison

Head of Agribusiness john.harrison@cbre.com

Mark Lafferty

Head of Metropolitan Investments mark.lafferty@cbre.com.au

Chris O’Brien

Head of Industrial & Logistics chris.obrien@cbre.com.au

Andrew Purdon

Head of Living Sectors andrew.purdon@cbre.com

Simon Rooney

Head of Retail Investments simon.rooney@cbre.com

Michael Simpson

Head of Hotels michaelj.simpson@cbre.com

CAPITAL ADVISORS

Stuart McCann

Head of Capital Advisors, APAC stuart.mccann@cbre.com

Paul Ryan

Head of Capital Advisors, Pacific paul.ryan@cbre.com

DEBT & STRUCTURED FINANCE

Andrew McCasker

Head of Debt & Structured Finance andrew.mccasker@cbre.com