Tag: National
By: Sian Sinclair, Sandie Boswell, Rebecca Iwanuscha from Grant Thornton.
Real Estate and Construction (RE&C) companies are continuously looking for ways to innovate, optimise processes, remain competitive and ease the pressure. This has been particularly relevant in these challenging times of resourcing and talent constraints, material cost escalations and wet weather, which are all impacting the ability to deliver on time and on budget.
To incentivise innovation activities onshore, the Federal Government’s Research and Development Tax Incentive (RDTI), Australia’s flagship innovation program, is available to support businesses across all industries undertake research and development (R&D) activities.
While the ATO advises that close to 12,000 companies access the RDTI annually, from our experience, many in RE&C sector may not be accessing the savings available despite undertaking eligible R&D in Australia. This is generally because companies are unsure whether the RDTI can apply to their activities – or that if it does, the administrative effort involved in pulling together a robust claim may not get the required payoff.
The purpose of this update is to address some of the uncertainty in the sector and share guidelines around the RDTI program to ensure that businesses in the RE&C industry aren’t missing out on tax incentives they’re eligible for – and could be crucial to their innovative development.
RDTI tax offset
The RDTI has different levels of support depending on a company’s aggregated turnover (grouping rules apply). Where turnover is below $20m, offsets are refundable and equal to the company’s corporate tax rate plus an 18.5 per cent premium on eligible expenditure. In some instances, this may result in a cash refund from the ATO.
Alternatively, if turnover is greater than $20m, the offset is non-refundable but can be carried forward to offset future income tax obligations. The offset rate is equal to the company’s corporate tax rate plus 8.5 per cent, but may be up to 16.5 per cent depending on the R&D intensity (spend) for the income year. The higher rate is available to companies that achieve an R&D intensity of greater than 2 per cent of their total expenses.
Common eligibility assumptions
From our experience in this sector, the following issues often lead to uncertainty and misconceptions around the ability to make a claim under the RDTI program:
- The Building Exemption: Under the RDTI legislation, companies cannot claim expenditure to acquire or construct a building. This means any costs that get physically incorporated into a building, part of a building or extension, or an alteration or improvement to a building, are ineligible for R&D tax purposes.
- R&D Expenditure at Risk: To claim RDTI, the costs incurred must be at risk to the R&D entity. The ATO has released additional guidance regarding whether R&D expenditure is at risk in its Taxation Ruling 2021/5. A common example is the different types and terms of construction contracts where some may specifically channel financial risk away from a company (e.g. reimbursement or cost-plus contract arrangements).
- On Own Behalf: When contracting out R&D activities, companies also need to consider the ‘On Own Behalf’ rule which takes into consideration which entity bears the financial risk, which entity controls the R&D activities and which entity has beneficial ownership of the results of the R&D activities.
Those that operate in this industry are inherent problem solvers each and every day. For that reason, it is worth ensuring that the appropriate consideration is given to the activities occurring onsite and within the offices that support the projects to capture any innovation being developed.
Despite the above key exclusions, there still remains a significant opportunity for RE&C companies to access the RDTI program and , there are many other activities that should server as triggers to consider whether the RDTI provisions could apply, including:
- Innovating with new types of materials, existing materials used in new ways, new construction techniques
- Developing new prototypes that are not incorporated into a physical building
- Innovating to increase site efficiency (e.g. design for manufacture and assembly) or construction sustainability
- Developing software to automate processes, including RegTech and PropTech solutions
- Working in conjunction with a Cooperative Research Centre (CRC), for instance Building 4.0 CRC.
On the contract side, there are commercial examples of contractual relationships where a company may still retain the financial risk. While there has been increased scrutiny on these form of contracts during the recent period of high profile collapses of construction groups, lump sum or design and construct contracts still exist. However, it’s important to analyse each contract based on its specific scenario and in the context of the broader RDTI legislative provisions to determine R&D eligibility of expenditure on uncertain outcomes.
Put simply, there are many avenues of innovation within the RE&C sector and much of it is occurring on a daily basis. So it’s worth giving thought to whether you’re passing up the opportunity to access key government support programs like the RDTI to help leverage your innovation.
Importance of good governance
We commonly see the issue of companies that have historically claimed R&D, not having appropriate R&D governance documentation in place. This is an important means of demonstrating that you have an effective, robust tax risk management and governance framework in place, which you apply in practice. In their recent review activity, the ATO have demonstrated that appropriate Tax Governance is high on their priority list and any tax incentives claimed will need to form part of that.
Establishing the right governance and documentation processes can give comfort around the robustness of any claims when it comes time for the ATO review.
For expert advice regarding R&D eligibility, or assistance in preparing your R&D Tax Claim or R&D and Tax governance frameworks, our national specialist team is here to help.
https://www.grantthornton.com.au/
Today we are talking housing supply to the Senate Economics Committee in Canberra.
Andrew Loveday, the General Manager of Property Development at Woolworths maintains that despite the influence of e-commerce on consumer preferences and expectations, physical retail stores remain an essential aspect of the overall consumer experience.
The COVID-19 pandemic had a significant effect on the way people shop, with more time spent indoors leading to a surge in online shopping.
According to Mr Loveday, Woolworths’ nationally saw demand for online grocery deliveries double during the pandemic, necessitating a range of adjustments to meet the unprecedented demand.
Woolworths continues to observe growth online, but brick-and-mortar stores are still critical to the customer experience.
Mr Loveday emphasises the need to accommodate both forms of shopping.
“[Consumers] still want to be able to go to a shop, they want to walk the aisles and touch the products, they want to go to environments that aren’t just shopping centres but are community spaces,” he said at a recent Property Council event.
He said the company has ramped up its ‘direct-to-boot’ initiative across the country as a reaction to the hybridity of online and physical shopping.
“We found that there was a stickiness between good online facilities and good retail facilities,” he said.
“And where you got both right, we experienced the most foot traffic and the biggest sales uplift.
“The other interesting fact is that the start of a shopping experience is changing for a lot of our customers. Whether that’s placing an order to pick up or deliver, or it’s going to our website to look for a specific product, or to look at recipes which they can then go to store or buy online.
“There’s certainly been a shift in terms of the multi-channel way of shopping. Our average digital weekly traffic in the first half of FY23 was 22.7 million, with half of that coming through our apps.”
Mr Loveday said online penetration is still relatively low in Australia compared to other countries. However, companies still need to accommodate for the uptick in growth.
“We’ve developed e stores that combine a supermarket and space for an automated storage system, which enables us to ramp up our online capacity.
“This enables a hybrid model, where the fresh food is picked from the store floor and there’s a whole range of products that are stored in an automated facility.
“If you’re not embracing these changes that we’re experiencing, if you’re not investing in them, then you’re not providing customers with what they want.”
Mr Loveday cited the evolving expectations regarding online deliveries, with customers now anticipating faster and more precise delivery windows, evolving from same day to even as little as a two-hour time slot.
“From our perspective, it’s making sure that we’re providing flexibility and choice for our customers,” he said.
Despite all the changes happening, your local grocery store isn’t going anywhere.
“Bricks and mortar retail remains a fundamental part of how we connect with our customers,” Mr Loveday said.
Image caption – Rojan Pandey, Lead Consultant – Energy & Water at HFM Asset Management – a BGIS company
By Alex Sejournee, Lead Consultant – Strategy, HFM Asset Management – a BGIS company
The Western Australian Government has committed to electrifying two per cent of their fleet by 2026 (255 new electric vehicles) and is offering funding for eligible businesses to install electric vehicle charging stations.
Rojan Pandey from HFM shares more about Electric Vehicle (EV) Charging Stations and what landlords and managing agents need to understand when considering installing them at their properties.
Case study:
Rojan provided a story about an office tower where tenants were given permission to install several fast AC (Alternating Current) and DC (Direct Current) EV charging stations. When all the electric vehicles were plugged in and charging at the same time without the control from a load management system, it resulted in a significant higher peak demand and subsequent increase in electricity costs and a decrease in the electricity on-sell profit for the whole year.
When we asked Rojan about what went wrong with this project he stated, “It was an ‘item in isolation’ decision, it looked good but the impact on the operations of the property and their energy contract was not considered. The EV market is new and exciting, and landlords and agents can forget the fundamentals that this is a power device connected to your infrastructure. We are now promoting EV chargers that facilitate decarbonisation of the vehicle fleet but may significantly increase power use if not managed properly.”
So, what should landlords and agents be considering with EV Charging stations in commercial properties?
EV charging stations bring various opportunities and risks to your properties. Opportunities include landlords offering EV charging stations as an incentive to tenants. Retail tenants like cafes can use them to attract customers and increase revenue.
Landlords should consider issues such as available electrical capacity, what types of charging stations will be required and where they will be located. Sites with Solar PV need to review their current load profile to utilise excess solar energy for EV charging. Many large electricity users on a contract maximum demand (CMD) arrangement with Western Power need to understand the potential for an increase in average energy cost due to the EV charging stations, which may have flow on effects to your tenants.
Can you provide some more explanation on software management?
Load management software allows charging station operators to control the flow of electricity to multiple EVs charging simultaneously. The software helps prevent power outages and ensures that each vehicle gets the power it needs to charge efficiently. The load management software can also consider the time of day and the cost of electricity. During peak hours when electricity is more expensive, the software may reduce the amount of power allocated to charging stations or delay charging until off-peak hours when electricity is less costly.
What Should Landlords and Managing Agents expect as a result of government grants?
We would advocate your tenants apply for the grants, as it can provide financial support with the installation; however, ensure you understand both the opportunities and risks that EV chargers bring and how you will manage these.
If you would like to know more about how HFM can assist you capitalise on the opportunities and mitigate the risks of electric vehicle charging stations get in touch with them at [email protected]
The Property Council’s 500 Women in Property program for 2023 has launched, with the program set to accelerate more women into leadership positions in the property industry through sponsorship of high-potential talent.
While remote work is expected to continue, it won’t be the primary preference for the majority of Australian workers in 2023, according to the latest research from MRI Software in Australia.
The 2023 Australian Edition of MRI’s Voice of the Employee report shows that just 11 per cent of Australians want to work from home full-time this year, provided they can reach their workplace within 30 minutes and have access to hotel-like amenities around the clock.
The survey of more than 6,000 workers includes just over 2,000 responses in Australia, and similar response levels in the United States and the United Kingdom.
Based on the survey results, approximately two-thirds of employees (including 30 per cent of Australian participants) desire hotel-like conveniences, such as spaces for socialising, modern infrastructure, round-the-clock building access, on-site security measures and staff, outdoor green areas, on-site cafes, air conditioning, WiFi, and parking (each preferred by 44 per cent of Australian respondents).
Moreover, 91 per cent of Australians take into account the availability of amenities when selecting a workplace, with 11 per cent considering it a deal-breaker.
About 43 per cent of Australians place free parking among their top three priorities, which is just behind air-conditioning and high-speed network connectivity.
Nearly half of Australians (46 per cent) prefer a maximum commute time of 30 minutes to reach their workplace. While 15 per cent prefer a commute of no more than 15-minute walk to work.
On-site café or restaurant amenities are now a significant consideration for 29 per cent of Australians, which is consistent with their UK counterparts but slightly higher than their American counterparts.
MRI Software used an example close to home to indicate new worker preferences.
The group moved its Asia Pacific headquarters from Sydney’s north shore to a CBD location on George Street early last year after commute times became a significant resistance for employees returning to office-based work post-pandemic.
Dean Carpenter, Asia Pacific Vice President Operations & Talent for MRI Software in Sydney (pictured above) said they have seen occupancy rates increase from an average of 20 per cent to 90 per cent on peak days.
“Looking through MRI’s new workplace report for Australia, it’s validating that we ticked all the boxes on what the survey indicates will attract and retain staff,” he said.
“We provide a central kitchen with espresso coffee machines, snacks and lunch on certain days.
“We use our own MRI OnLocation and MRI ManhattanONE technologies for easy digital check-in and bookable hotdesks or meeting rooms. We shaved an average 15 minutes from every employee’s commute time. Public transport is now within minutes of the office.
“Lockdown taught most business leaders and managers that people can be productive working from home. That remains true today. Our equally true experience is that coming together in the built environment with attractive facilities also unlocks team effectiveness, growth and collaboration that is less achievable working exclusively from home.
“This research indicates people might be latching onto that discovery for themselves. Perhaps the old mantra of “build it and they will come” is right for the modern workplace,” Mr Carpenter said.
James Templeton, National Head of Industrial Logistics, Knight Frank
New research from Knight Frank has revealed the industrial leasing market remains strong, with continuing high demand from occupiers coupled with a lack of supply leading to widespread rental growth.
Vacancy rates are still at an all-time low, with only 547,748 square meters available across the Eastern Seaboard capital cities, according to Knight Frank’s Australian Industrial Review – Q4 2022.
The main culprit is a 56 per cent decrease in availability over the 2022 calendar year and an eight per cent drop in Q4 2022.
Sydney continues to have the tightest market with only 89,129 square meters of available stock, followed by Brisbane (226,916 square meters) and Melbourne (231,640 square meters).
Melbourne’s vacancy rate plummeted by 70 per cent in 2022, while Sydney and Brisbane both saw a decrease of 31 per cent and 38 per cent, respectively.
The report states that due to the persistent high demand from occupiers and extremely low vacancy rates, all capital cities in Australia are experiencing significant rental growth.
Perth was identified as having the fastest rental growth nationally, with prime rents soaring by 41 per cent year-on-year and seven per cent in Q4 2022, due to robust tenant demand and rising construction costs.
In the same vein, Sydney experienced a 12 per cent rental growth over the quarter and 29 per cent rental growth over the year.
Among the submarkets, the South West precinct saw the most robust growth at 37 per cent year-on-year.
Melbourne’s prime rents increased by 19 per cent in 2022, while Brisbane saw a 16 per cent rise and Adelaide saw a 12 per cent rise.
A recent research report released by the Property Council of Australia sounded a stark warning for all levels of government on the woefully inadequate supply of zoned industrial land across Greater Melbourne.
The Urbis-led research shows that there is currently only four years’ worth of zoned industrial land across Greater Melbourne.
Currently, prime net face rents in Sydney are at $210 per square metre, followed by Brisbane ($137/sq m), Perth ($133/sq m), and Melbourne ($126/sq m).
Knight Frank National Head of Industrial Logistics James Templeton (pictured above) said limited availability and pent-up demand had triggered unprecedented rental escalation nationally.
“There is ongoing intense competition for available industrial space, especially new stock, which has led to surging double-digit rental growth,” he said.
“Alongside face rental growth incentives have also fallen slightly, which has seen stronger growth in effective rents, particularly in precincts where rents have historically been lower, such as Sydney’s Outer West and South West and Melbourne’s West.
“In Sydney the South Sydney market is the tightest, with no vacancy recorded since Q3 2021, while the Inner West and Outer West experienced significant vacancy decline in 2022. The limited vacancy has left tenants with no choice but to negotiate or renew leases for space three to 12 months in advance.
“In Melbourne availability of good space is becoming more of an issue, with only secondary stock immediately available in the over 5,000 square metre range.
“Across the three major cities of Sydney, Melbourne and Brisbane the most active sector was transport, postal and warehousing, with logistics and retail trade operators continuing to drive tenant demand.
“We expect further rental growth in the industrial market over 2023, but it is likely to be at a slower pace closer to 10% on average, particularly as more supply is delivered and vacancy likely ticks up from its extremely low current levels towards the end of the year.”
Knight Frank Chief Economist Ben Burston said 2023 was forecast to be a record year for new developments across the East Coast with 2.5 million square metres expected to be delivered.
Mr Burston said the strength in the leasing market and widespread rental growth had offset the impact of rising rates and higher funding costs on asset values and was expected to continue doing so despite yields rising by around 75 basis points in most markets since April last year.
Guy Bennett, Managing Director, Cushman & Wakefield
With higher interest rates, increased economic uncertainty and geopolitical tensions continuing to frame 2023, Cushman & Wakefield’s new managing director said transaction rates are set to be lower than the records set in 2021, but that more stable rates and inflation will help ease uncertainty.
A diminished supply of new houses aimed for investors would put more strain on an already overstressed rental market as developers look to owner-occupiers, according to Knight Frank’s recent research.
The Australian Residential Developer Survey 2023, which polled 70 companies at the end of last year, discovered a concentration on creating owner-occupied stock, with 56 per cent of respondents stating that owner-occupiers were the primary targeted customers for their most recent project.
This was compared to just 11 per cent focused on investors and 33 per cent being a balance between the two buyer types.
Going forwards, there will be a greater emphasis on owner-occupiers, with 58 per cent of respondents stating that they would seek owner-occupiers for their next project, while just eight per cent would target investors entirely, and 34 per cent would be balanced.
According to the findings of the poll, the main focus for developers is townhouses and terrace homes, with 31 per cent reporting they had developed this style of housing in the last three years, compared to 18 per cent for freestanding houses and 46 per cent for apartments.
35 per cent of respondents said they would develop townhouses and terraces, followed by freestanding homes (18 per cent) and apartments (45 per cent).
Erin van Tuil, Partner and Head of Residential at Knight Frank, stated that more builders are choosing for a balanced buyer pool or residences created just for an owner-occupier.
“Many owner-occupiers are looking to move from a standalone house to a townhouse or terrace home to downsize or rightsize,” she said.
“COVID put the spotlight on how we are living as being stuck at home during lockdown gave people the time to reflect on their lifestyles, with these downsizing or rightsizing buyers now looking for more generously sized townhouses or apartments, but with impressive amenities to provide convenience and luxury.”
The total number of dwellings approved rose 18.5 per cent in December, in seasonally adjusted terms, according to data released by the Australian Bureau of Statistics (ABS), mainly driven by new apartments.
“The increase in the total number of dwellings approved in December was led by a sharp rise in approvals for private sector dwellings excluding houses (+56.6 per cent). The result was driven by a number of large apartment developments approved in New South Wales and Victoria,” Daniel Rossi, ABS head of construction statistics, said.
“Approvals for private sector houses continued to track downwards, falling by 2.3 per cent.”
Michelle Ciesielski, Partner and Head of Residential Research at Knight Frank, stated that the supply of new houses in most Australian major cities remained tight, negatively influencing the present low rental vacancy rates and resulting to significant rental increase.
“There will continue to be significant pressure for the rental market with fewer new dwellings being designed for investor buyers to add to the rental pool, coupled with other issues for investors such as recent higher investor mortgage lending rates.
“Aside from developers exploring a hybrid, build-to-rent model for responding to the rental crisis, the incentive for developers to build more investor stock is limited.
“There is also the further challenge with affordability, with 52 per cent of developers surveyed saying the cost of living crisis is having a significant impact overall on buyer sentiment.
“However, as migration picks up the pace over the next two years, there will be more demand for rental stock, which will lead to a greater undersupply, pushing up rents even further.”
According to the Knight Frank report, the building pipeline for apartments in Sydney, Melbourne, and Brisbane will decline over the next two years.
The vast majority of respondents to the Knight Frank poll indicated worries regarding the availability of acceptable development land for the future, with 79 per cent of developers asked indicating land was ‘restricted’ or ‘extremely limited’.
Nine out of ten developers also stated that the impact of planning restrictions was a barrier to the delivery of future home supply, with half of respondents now feeling that a site with development approval is best for their next acquisition.
Nevertheless, planning delays are projected to be the biggest obstacle this year, with 15 per cent of developers selecting this as the top issue affecting residential construction in 2023.
Buyer sentiment, material costs and availability, labour costs, the local economic outlook, construction delays, land availability, viability of development finance, skills and labour availability, and mortgage availability and cost were all followed by this.