Multifamily Residential in Australia

Multifamily Residential is a mature asset class in the US and Europe.  However it is a fast emerging asset class in the U.K., Asia and Australia.  

Multifamily refers to a multi-unit residential building (e.g. an apartment building) owned by a single institutional owner.  Individual dwellings are rented to residents, typically on the open market, but in some instances to special market sectors (e.g. social and affordable housing, military housing).  In mature markets, product varies widely in terms of location (inner urban to suburban), density (low rise to high rise) and positioning (affordable housing to premium product).  In the world’s largest securitised market, the U.S., the sector is the second largest real estate investment class.  

Emerge Capital’s in house research provides an overview of the sector, global case studies, and discusses the catalysts for this asset class to emerge in Australia.

Smart Cities: Implications for the Real Estate Sector

At its core, Smart Cities is about efficiency. The concept, and the myriad of emerging technologies supporting it, create the possibility of cities that function better than they currently do. The real estate industry has the potential not only to shape the evolution of Smart Cities, but also be one of the key beneficiaries of this new technology. 

Key implications of Smart Cities technologies for participants in the real estate sector include the following:

  • Developments with Smart technology will attract price premiums: As well as being desirable for tenants, Smart developments are attractive to buyers as they enable efficient utilisation of buildings and lower operating costs.
  • Essential for maintaining relevance in the market: These technologies allow for more interactive and flexible services. Inactive players will not meet the growing expectations of customers and be left behind.

This insights piece aims to add perspective around the concept of Smart Cities and investigates its potential impact on urban development. We believe an early proactive approach to identify the impact of Smart Cities and a strategy to capitalise on this change will be key to success.  

Securing GCC Real Estate Funding

A number of challenges lay ahead for GCC real estate developers as the combination of lower oil prices, stronger currencies, regional instability and global capital market volatility begin to impact on real estate prices and capital availability.

Emerge Capital's view is that while the GCC economies continue to face potential downside risk, the GCC is now far better placed to deal with a period of low oil prices than in the past, due to the size of Sovereign Wealth Funds and the strength of their more diversified economies.  While the market may be slow, large scale development will proceed albeit at a slower pace.

Our latest Insights report outlines the factors driving these challenges, how they impact the GCC real estate capital market and its players, and opportunities for GCC developers to respond proactively to these challenges and stay ahead of the market.

Australian Healthcare Real Estate Update

Healthcare real estate has one of the highest returns and lowest volatilities as a real estate investment asset class in Australia. The asset class is typically less cyclical than other real estate classes, providing attractive risk-adjusted returns for investors.

Long leases and low vacancy rates are a key attraction of healthcare real estate, providing investors with relativelysecure income compared with other real estate sectors. While average lease term for core commercial real estate sectors is circa 6 years, healthcare assets typically have 10 - 20+ year leases. Furthermore, the average vacancy rate for healthcare real estate is only circa 2%.
 

Switching to a Rising Interest Rate Environment


There has been significant commentary surrounding the impact the U.S. Federal Reserve’s (the “Fed”) expected interest rate rises will have on the global economy and of particular concern for us – its impact on the global real estate market.

Given the recent rate rise, the question now is,

  1. At what pace should the interest rate increase by? and
  2. How will this impact the emerging markets and real estate as a whole in the short and long-term?

 

Investing in Australia Real Estate

Our analysis indicated that broadly speaking Australian real estate remains attractive when compared to other key international, especially when viewed in terms of the spread over government bonds. Comparison to other investment classes, including stocks, bonds and cash, also reveals that Australian real estate has displayed relatively high and stable returns.

Investing in Placemaking

Placemaking describes the multifaceted approach to creating a vibrant location where people want to live, work and visit.

The return on investment from placemaking include soft and hard benefits which occur during both development and trading.

1. Indirect Benefits include:

  • The creation of energetic precincts that are attractive to locals, and tourists alike
  • Greater economic actively and employment opportunities.

2. Direct Financial Benefits are more readily quantifiable, and can be broken down into two phases;

  • Development Portfolios:
  • Faster absorptions rates; Higher forecast rents; Higher prices / lower capitalisation rates
  • Trading Portfolios:
  • Lower vacancy rate; Capacity to maintain / increase rents; Lower capitalisation rates and increased valuations; Increased GST revenue from the increases economic activity.

 

Considering Freehold and Leasehold Titles

Government at all level across Australian have begun to examine assets divestment programs in response to the challenging fiscal position being experienced. A key consideration in any Government asset divestment program is whether real estate assets should be divested on freehold or leasehold title. Recent evidence suggested that divesting assets with leasehold title has no / minimal impact on price.

Urban Renewal Quarterly Update – December Issue

The number of Urban Renewal projects coming to market in Australia has accelerated drastically in the last decade and shows no signs of slowing.  With an estimated $71 billion of projects coming to market in the next three years, Urban Renewal will be one of the main drivers of pipeline for the property industry.

Urban Renewal projects are large, complex real estate developments.  They involve the transformation of under-utilised brownfield sites, typically located in inner city locations and owned by government.  Developments are typically mixed-use and have a long gestation period from acquisition to construction commencement. 

Delivering successful Urban Renewal is a complex task and needs to be planned through an appropriate framework that considers a range of different elements. This Quarterly Research is the first of three issues that examine key aspects of an Urban Renewal framework for developers. In this issue, we will examine in detail the importance of Urban Renewal Strategy and Project Identification.

Emerge Capital API property conference presentation

Emerge Capital are proud to have been a key note speaker in this years Australian Property Industry (API) conference on the Gold Coast.  Nathan Parris, Head of Transactions for Emerge Capital, delivered a key note presentation on why Australian real estate is such an attractive destination for Asian capital.

The Growth of Asian Capital in Australian Real Estate: Key Drivers 
Presented by Nathan Parris – Emerge Capital Partners 

Settlement Risk: Looking Over the Horizon...

In recent months, there has been increasing discussion on when the Australian residential market will peak.  Emerge Capital’s view is that while the underlying market  fundamentals remains solid, we believe it is prudent for industry participants to understand the impact future market changes may have on their respective portfolios, particularly in relation to settlement risk.

Our latest research paper seeks to understand the impact any increase in settlement risk will have on Australian apartment developers, and what steps can be taken to mitigate this risk.

Closing the Social Housing Gap...

The shortfall of Australian social housing is a preeminent concern. Ageing dwellings, an outdated product mix, and a rapidly growing undersupply are all symptoms of a social housing crisis.

In Emerge Capitals latest Insights report, we provide an overview of the sector's current challenges and share insights and perspective on opportunities to close the gap in social housing. 

INAUGURAL MOFCOM GUIDE

Emerge Capital are proud to have been asked to contribute in the inaugural Chinese Central Government's Ministry of Commerce (MOFCOM) guide on "How to Invest in Australia".

This guide has been sponsored by the Australian Ministry of Trade and Investment and the Chinese Embassy to provide a comprehensive guide on how to invest in Australia.  

Emerge Capital was asked to author the chapter on “Investing in the Australian Real Estate Market”.

http://au.mofcom.gov.cn/article/wtojiben/wtozuzhi/201412/20141200815320.shtml

Australian Real Estate: Heating Up

The Australian real estate sector is experiencing yield compression, with values increasing across most asset classes.

Emerge Capital's research into the major Australian real estate sectors does not indicate a bubble market. Indeed when viewed in terms of the spread over government bonds, Australian real estate is more attractive than other key international gateway cities.

In our latest paper, Australian Real Estate: Heating Up, Emerge Capital provides insights and opportunities across key real estate sectors. We hope it is an informative read!

Urban Renewal Quarterly Update

As cities around the world look to revitalise inner city precincts, Urban Renewal has become an increasingly important part of Governments agenda.

Emerge Capital works with key Urban Renewal proponents to support and advise in the delivery of these complex projects. We are pleased to release our latest quarterly Urban Renewal update containing our insights and update on this growing sector.

Healthcare Real Estate

Healthcare Real Estate has one of the highest returns and lowest volatilities as a real estate investment asset class in Australia. Despite this it remains widely unsecuritised.

Emerge Capital Partner's latest research paper provides an overview and key insights into this emerging real estate sector.

APREA SINGAPORE CONFERENCE

Emerge Capital was proud to be a guest speaker at the Asia Pacific Real Estate Association (APREA) conference that has just concluded in Singapore.

The conference provided an insightful and topical review on cross-border Real Estate Investments into Europe and Australia.

http://www.aprea.asia

Modelling Escalation in Development

Escalation is a critical lever in preparing real estate development project feasibilities. In Australia, 4% and 3% are very common to be taken as the revenue and cost escalation, respectively.
However, there are some developers that assume price and cost escalations are the same and equal to 3%.
This raises two important questions; should cost and revenue escalations be the same? If not, then what should be the difference between the two?