Times will get tougher, but the property industry can’t afford to step back from delivering on the “social dividend”, says Frasers Property Australia’s outgoing CEO, Rod Fehring.
After more than a decade with Frasers Property Australia, the last five as CEO, industry veteran Rod Fehring is handing the reins to chief financial officer Anthony Boyd.
Fehring qualified in planning and project management in the early 1980s, working on various urban renewal projects before joining Delfin in 1996, before it was acquired by Lendlease in early 2001.
During his 10 years with Lendlease, Fehring ran its development businesses in Australia and established an internal venture capital arm before restructuring and establishing its retirement living business during the GFC. He joined Frasers Property Australia’s predecessor, Australand, in 2010. He was appointed CEO in 2015 after Singaporean Frasers Centrepoint (later renamed Frasers Property Limited) acquired the business for $2.6 billion.
During Fehring’s time at the helm, Frasers Property Australia has amassed a $4.5 billion portfolio of assets, and grown at a compound rate of 25 per cent, all the while championing sustainability, gender diversity and action on climate change.
Reflecting on his career, Fehring says “complexity” is the biggest challenge ahead for Australia’s development industry.
“The social dividend expected from development is much more demanded and demanding now than it was when I started in the industry,” Fehring explains.
“Until now, the rise of these expectations – from consumers, governments, shareholders, communities – corresponded with consistent economic growth. But those expectations and the layers of complexity that come with meeting them all have a cost, time and return impact.
“In an expanding economy with sustained population growth we can’t afford not to meet those obligations consistently – and exceed them.
“But that complexity comes at a premium and our ability to pay that premium will come under pressure over the next three to five years. That is one of the big changes I can see playing itself out.”
Developers will need to find ways to “deliver differently, at a lower cost but with a better product or they will depart the industry, because I don’t think expectations will fall. I think the demands on industry participants will continue to grow, but their wherewithal will be far more limited”.
He expects to see a “hollowing out” of the middle of the market. “Being in the middle will be the last place you want to be – you can be small but razor-sharp in your niche, or big and capable of being nimble, because being big is only about having the resources to adapt to disruption, it is no guarantee of success”.
The only certainty is uncertainty
Australians can’t afford to take an “introspective view,” as a consequence of disruption, Fehring warns.
“Our expectations – for our children’s futures and our lifestyles – come with an obligation to be outward looking, expansive and connected to the rest of the world. I worry that growing introspection could be seriously damaging for Australia and will take, maybe, a generation of millennials to turn this attitude around. My generation needs to get its act together soon if we are to help ease the burden on the rising new generation.”
Vendors will need to moderate their expectations, too, he says, as “ever-compressing cap rates and the pursuit of yield will all wash back on land values”. The “continuing truth” that land will always increase in value may no longer hold.
Last week, the National Housing Finance and Investment Corporation published research that predicted the global COVID-19 pandemic could cut demand for housing in Australia by up to 232,000 dwellings over the next three years.
Fehring, who chaired the Australian Housing and Urban Research Institute for eight years, says this is “mathematically correct”.
“The issue for the industry particularly and the community more broadly is how we provide housing as an opportunity for people because, in Australia, housing has been the number one wealth creator for the vast majority of people who vote. We need to ensure rising generations also have access to housing on terms they can afford.”
Culture trumps strategy
While Fehring is reluctant to pick development winners in a career that contributed to some of Australia’s iconic projects, he says it’s hard to go past Sydney’s Central Park. “Wrapping that up well was a highlight,” he says. He quickly adds that his role was in the last phases of the project and a “fantastic team” spent eight years putting the project together from the ashes of the GFC.
As chair of the Green Building Council of Australia he championed sustainable housing and the development of what is the new Green Star Homes standard, currently in pilot phase.
“The housing construction sector has been among the most innovative and creative sectors in the Australian economy. I have no doubt that the sector will not only embrace the challenge of shifting housing construction to a low carbon future, assisted by the Green Star Homes tool, and in no time the industry will be setting new standards.”
The float of Frasers Property’s industrial platform – which Fehring expanded from $1.6 to $6 billion in just five years – was a “pretty good achievement” he says modestly. “We’ve grown a foothold in Australia and Europe, which will see us continuing to grow for the next three to five years and beyond.
“But more important than that, I’m particularly happy with the retention of people and the growth of those people throughout our industrial and diversified business. The business is in very good hands.”
Fehring says perhaps his greatest achievement during the last decade has been establishing a “constructive culture” at Frasers Property. “We were on that journey 10 years ago. But cultures change slowly, and we’ve been able to accelerate that shift over the last five years.”
A pillar of the cultural change strategy has been gender diversity, and Fehring is one of the 21 Property Male Champions of Change. “The Property Council can take a lot of credit for opening the industry’s eyes to the importance of gender diversity,” he says.
“Culture beats strategy any time of the day. With the right culture and a bad business model you can still muddle your way through. But a bad culture and a brilliant business model never works.
“I’ve always taken the view that leaders need to leave a business in better shape than they found it. I had the great privilege of inheriting the business from Bob Johnston [now CEO of The GPT Group] and I am confident this will continue under the new leadership team.”
Fehring will remain in the industry as chair of Frasers Property’s Australian, UK and European businesses, but he also hopes to spend more time with his family including a newly-arrived grandchild.
“If I’ve learnt anything over the last 30 or 40 years, it’s that human beings yearn for social connection. COVID has done nothing but heighten this. That’s the privilege of the property sector – we do make a long-term difference to the way people live and connect with each other because we create places they want to be. And what more could you want from a career?”
