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Palladium Insights - Spring 2012 Edition
 
1. Wollongong reduced development site prices opens the door for new options   2. Online Retailing benefits Industrial Property
As has been exhibited in other Australian markets in the wake of the Global Financial Crisis and Eurozone Crisis, Wollongong commercial property has been through a downward phase in the market cycle. Future prospects for the Wollongong region are significant as Wollongong enters the recovery phase. Wollongong office vacancy rates have been steadily... Read more...   Online retail sales account for a small but rapidly growing proportion of retail sales in Australia. research commissioned by the National Australia Bank found that online sales totalled $10.5 billion in 2011, representing 4.9% of traditional retail spending. This figure increased by 29% in 2011, compared to traditional bricks and mortar retail sales which grew by... Read more...
3. Workplace Optimisation: multi-generational, multi adaptive and the promise that ‘one size can fit all’!   4. Current trends benefit the Sydney Child Care Market
Corporate real estate is often seen as a cost centre with little ability to demonstrate its ‘real’ returns. Over the last two decades it has been a victim of numerous battles: attracting and retaining human capital, the disruption caused by rapid changes in technology and overcoming ‘inertia ‘when markets demand a rapid response to changing business... Read more...   According to figures produced by the Australian Bureau of Statistics, four of the top ten fastest growing local government areas in NSW are located in the Inner Sydney region (City of Sydney, Auburn, Canada Bay and Strathfield). Another three of the top ten fastest growing local government areas are located in the Greater Sydney Region. While the... Read more...
5. Typical offices no longer work   6. Pierre Hattingh joins Palladium to head Workspace & Property Optimisation
Post GFC, the office has become more of an unknown quantity. The established working environment of the 80’s and 90’s are now dinosaurs, equivalent to the old deep 19 inch monitors that have disappeared as an antiquated form of technology, so prevalent as an office device only five years ago. Even the office environments created five years ago, already feel... Read more...   Pierre Hattingh has joined Palladium Property as a director to head the Workspace & Property Optimisation Services, providing significant expertise and experience to the firm. Optimisation services reviews the use of corporate and workspace by organizations, analysing optimum strategies for property use to increase company returns, whilst managing the entire process... Read more...
 
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Wollongong reduced development site prices opens the door for new options
As has been exhibited in other Australian markets in the wake of the Global Financial Crisis and Eurozone Crisis, Wollongong commercial property has been through a downward phase in the market cycle. Future prospects for the Wollongong region are significant as Wollongong enters the recovery phase. Wollongong office vacancy rates have been steadily declining since 2011 from 9.0% to 6.5% according to recent Property Council of Australia figures. The premium office market remains historically particularly tight with a vacancy rate of just 0.6%.

Shrewd developers are securing options and sites at viable prices, with a number of key CDB core and non core development sites changing hands trading in the $1,000/m2 range (and below in larger sites in over 5,000m2). Colliers International Wollongong comments that this reflects a significant discount from the $2,000/m2 and $1,500/m2 achieved in 2009 for core and non core development sites renewing interest. Rezoning of land within Wollongong Council under the recently gazetted Local Environment Plan has created further opportunity for development allowing land to meet the highest and best use.

Recovery is further evidenced by a number of major projects that are currently underway or in planning stages. The City’s main shopping precinct encompassing Wollongong Central and Crown Street Mall is undergoing a major $350 million upgrade which commenced earlier this year and is scheduled for completion in early 2014. The University of Wollongong’s Innovation Campus, a hybrid commercial and research precinct has so far been highly successful. The completed commercial buildings have achieved strong rental rates in line with Premium CBD commercial space.

Major infrastructure spending planned for the region promises to stimulate the local economy. Nearby Port Kembla has undergone significant upgrades in recent years bolstered by a further $600 million worth of further upgrades in planning stages. Wollongong is substituting its former reliance on heavy industry and coal mining with large investment in the green energy industry. Wollongong is emerging as a ‘green’ hub for the industry, with two experimental bio fuel plants becoming operational in the region in the last 12 months. The Tallawarra gas fired power plant in Wollongong is amongst the most efficient in the country.

Wollongong is ideally positioned, being within easy striking distance of Sydney and only 60 minutes from a global international airport, a major advantage that is not lost over it’s rival and regional competitor, Newcastle. The Illawarra rail line provides direct commuter access to Sydney and supports Port Kembla trade providing key import/export infrastructure. Added attraction flows from new $30 million Illawarra Health and Medical Research Institute and the highly skilled local workforce thanks to the highly regarded Wollongong University (ranked in the top 2% in the world in the Times Higher Education World University Rankings, 2011). The time is ripe in the cycle to source real development options in the ‘Gong’.
 
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Online Retailing benefits Industrial Property
Online retail sales account for a small but rapidly growing proportion of retail sales in Australia. research commissioned by the National Australia Bank found that online sales totalled $10.5 billion in 2011, representing 4.9% of traditional retail spending. This figure increased by 29% in 2011, compared to traditional bricks and mortar retail sales which grew by 2.5% over the same period. International online sales grew faster than domestic online sales according to the recent NAB Online Retail Sales Index Indepth Report.

Online retail may provide a lower degree of risk. Like traditional bricks and mortar retail, online retail sales traditionally exhibit a decline in the first quarter of each year which rebuild in the lead up to Christmas. However, this element of seasonality is not present to the same extent in online retailing as in traditional retail, thus reducing cash flow pressures for both tenant and landlord.

The rapid growth in online retail has seen increasing demand for distribution and warehousing facilities, as the online retail business model requires a shift away from physical retail space towards industrial/storage space. The total share of online sales for the various retail sectors (i.e. fashion, electronics, books or groceries) and their rate of growth offer opportunities for industrial property investors due to differing retail accommodation requirements.

This increase in demand for warehousing space is clearly evident in the Sydney industrial market. Despite the present uncertain economic climate, the market has exhibited increasing rents and declining vacancy rates for premium grade warehouse facilities, particularly in South Sydney, Sydney’s North Shore and Northern Beaches. The North Shore in particular has seen continued demand from small and medium enterprises. Strong levels of demand coupled with a lack of supply has resulted in these increased rents and declining vacancy rates. The shortfall in new supply can be attributed to a lack of suitably zoned sites and stringent financing constraints.

The boom in online sales and resulting demand for quality warehouse space has created the opportunity for redevelopment and refurbishment of ageing industrial and warehouse buildings. The adoption of standard form Local Environment Plans by local governments in NSW has created further opportunities as parcels of land are rezoned. The paradigm shift away from traditional retail and the rezoning of land necessitate astute landowners and investors reassess the highest and best use of sites in the prime inner Sydney regions.   

However, obtaining development consent from local authorities for new projects or extensions has become a complex process and timely, usually requiring a panel of expert consultants. It is also of paramount importance that the correct end product is supplied in an appropriate location in order to need the retail sector requirements and benefit from opportunities created by the online sales boom.

 
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Workplace Optimisation: multi-generational, multi adaptive and the promise that ‘one size can fit all’!


Corporate real estate is often seen as a cost centre with little ability to demonstrate its ‘real’ returns. Over the last two decades it has been a victim of numerous battles: attracting and retaining human capital, the disruption caused by rapid changes in technology and overcoming ‘inertia ‘when markets demand a rapid response to changing business strategy. The development of Activity Based Workplaces (ABW) attempts to win many of these battles.

Objectives driving changes to corporate working space have typically comprised cultural change, workflow process engineering, cost reductions, flexibility and future proofing.

Trends that have become dominant post the Global Financial Crisis and current economic environment include:

  • Extending leases rather than moving
  • Smaller premises
  • Smaller fit out spends
  • Potential Energy efficiency
  • ABW ( Activity Based Workplaces)

ABW have utilized vacancy rates (absent employees) of around 30% of some knowledge-based businesses. They contribute to the democratization of the work place with no hierarchy of space use, offering employees the opportunity to move around and position themselves according to efficient work interactions. They offer variety and a greater ‘future proofing’: working groups can scale up (and down) or re-locate themselves in an office landscape that offers numerous facilities.

Most interesting is its ability to facilitate the varying generations of the workforce. Baby boomers, Gen Y, Gen X and Gen Z all require and respond differently to workspace. They demand greater degrees of flexibility in working methods, work times, and work technologies.

The main cost benefits for a company’s adopting AWB are two fold; reduced space (m2) requirements and a reduction in costs of ongoing changes (churn) to existing fit outs.

The result is positive for investors, providing for a greater confidence as tenants commit to longer lease terms. However tenants also benefit from being able to negotiate greater lessor incentives. It is significant that ABW places less importance on large floor plates. Due to the longer commitment period buildings selected need to have good services and meet evolving sustainable benchmarks.

The main question around the benefit of ABW centres on productivity of the workforce and talent retention. It changes how people work and for some, these working environments are too disruptive, due to the need to configure your workspace every day.  However, restructuring of the company information technologies reduces the inconvenience involved.

ABW is here to stay. At face value it seems that ‘one size can fit all’, it is however dependent on the culture of the business involved.

In solving the current corporate real estate strategy careful management and in depth knowledge is essential. The days of simply negotiating terms, signing a lease and drawing up layout plans are over. The dynamics at play all require sophisticated analysis, planning and implementation to ensure optimized results.

 
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Current trends benefit the Sydney Child Care Market
According to figures produced by the Australian Bureau of Statistics, four of the top ten fastest growing local government areas in NSW are located in the Inner Sydney region (City of Sydney, Auburn, Canada Bay and Strathfield). Another three of the top ten fastest growing local government areas are located in the Greater Sydney Region. While the proportion of children aged 0-14 in the Greater Sydney Region has declined from 19.2% in 2006 down to 18.6% in 2010, population growth has seen the overall number of children in this age bracket increase by about 30,000 over this time period according to the ABS National Regional Profile data.

The growth that has taken place in these regions has resulted in increased strain on infrastructure and community services, such as child care. In addition, latest unemployment figures show a drop in the unemployment rate, placing further pressure on existing child care facilities.

Anecdotal evidence shows waiting lists are becoming longer and daily rates are increasing due to the short supply of childcare places, particularly in inner city Sydney, with local newspaper the ‘Inner West Courier’ reporting waiting lists of over two years in February, 2012. Waiting lists could potentially blow out further in the medium term, as legislated child to staff ratios drop from one staff member for every eight children aged under 36 months to one staff member for every five children by 2016. In the short term as child care centres struggle to increase staff numbers in line with this legislation, the number of child care places may decline.

In order to increase the affordability of child care, the Federal Government spends approximately $4 billion in the form of the child care rebate in an effort to support access to services. As per the 2012-13 Federal Budget, the Federal Government subsidises child care costs by 50%, to a maximum of $7,500 per year. This so called child care rebate is not means tested in any way. Local Governments in the Inner Sydney region such as the City of Sydney are also proposing extra funding to ensure extra child care places are created.

The shortage of places in Inner Sydney and the government child care rebate present an opportunity for long day care centre operators. Current NSW zoning regulations allow for child care centres to be placed in most mixed use, business and residentially zoned areas. However, site selection is of utmost importance in order to satisfy strict open and covered space guidelines, privacy and access requirements, together with securing an appropriate site at a viable price.

 
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Typical offices no longer work


Post GFC, the office has become more of an unknown quantity. The established working environment of the 80’s and 90’s are now dinosaurs, equivalent to the old deep 19 inch monitors that have disappeared as an antiquated form of technology, so prevalent as an office  device only five years ago.

Even the office environments created five years ago, already feel clunky, come with inflexible commercial terms, cost fortunes to re-structure, and carry a styling that is clearly ‘yesterday’. So where do we go from here?

People want more flexible working conditions. With a highly mobile and dynamic workforce, corporates have to manage their working environments in a completely different way. Office environments need to be easily restructured. They will have to allow employees to move around to different work stations, and a smartness in the built technologies that caters for ease of reconfiguration. Variety, flexibility, reconfigurable and sustainability are the current benchmarks.

Sustainability is placed as the number one social concern,  this trend is yet to become a mid tier corporate priority. This is however poised to change. No longer will ‘green’ be the agenda of only global corporates with large marketing budgets. Employees want to see evidence that they are part of a corporation that has integrity and demonstrates ‘taking care’. The demand for green space will increase, and the supply chain of ‘fitout’ is increasingly offering ‘green’ products as a standard, or at only 15% price differentials.

Energy consumption is now an issue that needs continual management. The days of just paying the bills are a flawed strategy. Consumption needs to be monitored continually and strategies to reduce consumption need to be undertaken. Energy costs will be an ongoing focus for companies.

The stress on leasing arrangement is greater than ever before, as  companies need to be able to cater for change in shorter time cycles. Serviced offices and activity based workplaces are becoming prevalent. They offer a company flexibility and reduce the scale of long term fixed leases. Serviced offices potentially reduce restructuring costs and activity based workplaces reduce the total area required. The risk of reduced productivity accompanies non-fixed environments, yet they are an ideal solution to capital cost reduction.

The office has to be approached with the clarity that business needs will change, technology will change, environmental sustainability is part of daily management (not simply a ‘nice to have’), and flexible structures to leasing are required. Creative and specialized approaches are needed to manage the property cost center in a very different way. Property will need to rise to similar advances as the computer monitor: adjustable, compact, expansive and sensitive to touch.

There is a complexity that needs to be acknowledged and acted on in order to make offices work. Palladium is well versed in strategising property solutions, consolidating accommodation financial obligations and optimizing workspace performance.

 
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Pierre Hattingh joins Palladium to head Workspace & Property Optimisation
Pierre Hattingh has joined Palladium Property as a director to head the Workspace & Property Optimisation Services, providing significant expertise and experience to the firm.

Optimisation services reviews the use of corporate and workspace by organizations, analysing optimum strategies for property use to increase company returns, whilst managing the entire process from inception to completion to deliver target solutions.

Pierre has over 20 years experience in the property industry managing numerous teams and delivering commercial, health and residential projects. As a qualified architect with extensive project and development management experience, He has focused over the past 10 years on corporate work space, ‘adaptive re-use’ of commercial buildings and high density residential developments.

Pierre has delivered strategic work space planning projects and value driven outcomes for large corporations. He has extensive knowledge of corporate space delivering projects internationally for SAI Global, Ericsson and MTN, and amongst others.

Planning and property development skills make Pierre a key resource when managing developments for our clients. His broad skills prove invaluable when multiple inputs are filtered to deliver ideal outcomes to a development. He has successfully delivered numerous strategic development models for councils, ranging from parks to museums, and has planned for and built over 500 residential units.

Pierre’s skills are further complimented with his commitment to sustainability, being a registered Green star accredited professional.

 
Contact
For further information regarding current trends and opportunities, contact Phillip Hoare (Director) on 02 9432 7888

Disclaimer
The information contained in this newsletter is understood to be accurate and is based on sources deemed reliable. Any comment and analysis is of a general nature only and should not be interpreted to provide any form of guarantee or project financial returns as regards the potential of any property asset class, geographical region or particular project. Investors should rely on their own investigations and due diligence prior to making any acquisition, divestment or development decisions.
 
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