Lessons from our corporate leaders

What was the biggest challenge the industry faced in 2017? And what emerging trend will have the biggest influence on the year ahead? We checked in with some of the industry’s leaders for their insights.

Housing affordability in the headlights

“Generally speaking, 2017 was a good year for the property industry,” says Susan Lloyd-Hurwitz, Mirvac’s chief executive officer and managing director, and national president of the Property Council.

“But, as we had expected, we have seen price growth moderate in Sydney and Melbourne’s residential sector,” she says.

Despite this easing, house affordability remains a “major issue”, and Lloyd-Hurwitz says it is “something the property industry, governments and the not-for-profit sector will need to approach collaboratively if we’re going to resolve it”.

Kylie Rampa, chief executive officer of Lendlease’s property business in Australia, also points to housing affordability as the industry’s biggest challenge in 2017, and says it will be squarely in the industry’s sights in 2018.

“From social to affordable housing, both in the rental and purchase markets, we need to continue to draw on our international experience, particularly in established markets, to bring the right thinking and action into the Australian market,” Rampa says.

Both Rampa and Lloyd-Hurwitz argue that “density done well” can help us manage population growth, address housing affordability and support liveable, sustainable cities.

But housing affordability won’t be tackled without addressing the planning system. CEO of Frasers Property Australia Rod Fehring says “a clogged planning system that lacks the capacity and expertise to deal with complex development applications” continues to “stymie” the industry, Fehring says.

“This is the major contributor to excessive delays in planning approvals and is compounding the impact of cost escalation in construction.”

Fehring says these indicators should act as a warning to an “industry transitioning from boom to inertia-induced decline”. He emphasises the “urgent need for a more appropriate planning and assessment framework with the scope and flexibility to deliver housing supply, supported by infrastructure, for our cities in the future”.

 

Offshore competition hots up

For The GPT Group’s CEO Bob Johnston, competition from offshore investors in the hunt for quality assets was the industry’s biggest challenge in 2017.

“Asset prices continue to escalate and foreign sources of capital have been a major influence on this,” Johnston says.

Carl Schibrowski, head of development with Brookfield Properties Australia, agrees.

“As local and international capital markets have continued to be buoyant in 2017, asset prices have continued to climb and so the ability to secure yield and grow portfolios by acquisition has been limited,” Schibrowski explains.

“We have also witnessed a highly active and competitive construction market which is positive in terms of growth and employment, but presents resourcing and pricing challenges for development pipelines.”

Darren Steinberg, chief executive officer of Dexus, also says the weight of capital flows continues to drive up commercial asset prices.

“The challenge for the industry will be where to best allocate capital. As investments become more difficult to acquire, there is an opportunity to activate developments in our pipelines.”

 

Revolution in retail

Stockland’s managing director and CEO, Mark Steinert, points to “change in sentiment towards retail” from both consumers and investors as the biggest challenge for the industry this year.

“The media speculation around the potential impact of Amazon has kept the conversation very real for investors and I expect this will continue,” Steinert says, adding that Stockland is “confident there is room for retail town centres and online growth in Australian given population growth, moderate retail supply and the social and experiential element of physical retail”.

Lloyd-Hurwitz expects both retailers and mall owners will need to be “increasingly focused on providing compelling experiences for our customers to remain relevant and resilient”.

Rod Fehring, Virginia Briggs, partner with MinterEllison, and Piper Alderman’s partner Lexia Wilson also nominate the online environment as the trend to watch in 2018.

“Online shopping appears to have been a positive for the industrial sector with the increased demand for large sheds, but what will be the real impact for the retail sector?” Wilson asks.

Fehring points to the “crisis” in the supply of industrial land in Sydney – which is becoming “more expensive and scarce”.

This is having a “crippling impact on supply chains as the retail sector becomes increasingly reliant on convenient access to warehousing and logistics facilities to meet consumer demand for immediate delivery of products purchased online”.

Briggs points to response of retail owners and operators to the “impact of disruptors like Amazon”, which has made the traditional shopping centre more a place of multiple experiences.

“Many landlords of commercial buildings are also changing the services they provide to their tenants by creating co-working spaces, sustainable practices, competitive concierge services and tenant discounts, but I suspect that in 2018 they will need to push these offerings even further and begin preparing buildings for other technology disruptors. For example, preparing basement carparks for the autonomous vehicle.”

 

Technology and big data boom

Most of the leaders argue that technology will be the trend to watch in 2018.

“The tech space is having a big impact on the way we do business,” adds Virginia Briggs. She thinks the industry will need to “keep looking for and developing innovative solutions to the changing expectations that technology is imposing on its consumers”.

The GPT Group’s Bob Johnston says data will drive value. “Advances in the access to, and use of data across our business will continue to be one of the most positive trends in 2018,” he says.

Carmel Hourigan, AMP Capital’s global head of real estate, agrees.

“There’s no doubt the disruption of digital has seen and will continue to see the biggest impact on our industry.

“Not just digital as an enabler of connection between people and place, but how big data is influencing our decision making, the way we work and informing development of new product. We need to embrace this as we continue to focus on creating exceptional experiences that are both attractive to our customers and provide sustainable returns for our clients.”

Dexus’ Steinberg has his sights on technological advances and the “ability to deal with the ever-changing needs of customers”.

“To ensure our buildings are relevant to customers’ needs and don’t become redundant, we need to respond by providing flexible buildings that can deal with the quickened rate of change.”

Stockland’s Steinert also says technology will “continue to be a game changer and disruptor” with many opportunities for business.

“In order to stay relevant, we need to anticipate the wants and needs of our future customers,” Steinert says, and points to “phygital” – a hybrid of physical and digital – and “edutainment” – education-based entertainment – as trends to watch.

“It’s inevitable that smart technologies will transform the way we live, with robots and other automation increasingly affecting and influencing the way we produce and deliver our products and services,” says Kylie Rampa.

“When we look at technology we should not only consider how it’s disrupting our lives and businesses, we should consider how technology can provide an unprecedented depth of understanding about what customers’ need and want.”

But the more things change, the more they stay the same.

AMP Capital’s Hourigan says the challenges of 2017 “haven’t varied much from the last few years”. The industry remains focused on “finding value in a market that is still incredibly competitive, unlocking further value through the creation of exceptional experiences as a manager of real estate, and doing all of this with your clients and customers firmly in mind”.