The Development Digest | 12.8.23 | JLL Development Site Services

We are pleased to provide you with our weekly?JLL Development Site Services Market Update -?The Development Digest.

Please contact me on 0402 085 702 / [email protected] if you would like to receive our more detailed weekly updates via email each Friday morning.

This update will cover:

• Observations of the week
• JLL Handling Three Exceptional Suburban Sites
• JLL Asia Pacific Debt Monitor – 4 August 2023
• Headlines of the Week

Observations of the Week

• There is no shortage of demand in the market for high quality development opportunities. We are about to formally launch a marketing campaign for a prime corner site in Prahran, and the initial feedback to the offering tells us clearly that there is a lot of confidence in delivering projects in Melbourne’s higher quality residential locations, despite prevailing delivery challenges.

Further fuelling the developer confidence, is anecdotal evidence/feedback from some of the most active project marketing firms in Melbourne, who are telling us that enquiry levels are picking up, but more importantly buyer engagement and intent is strengthening, with a greater sense of urgency to progress acquisition plans if the right product is presented to them.

• At the larger end of town, the Victorian Government’s proposed rental caps have caused quite a bit of unrest in the BTR sector and with global capital sources, given the BTR model is built around aggressive rental growth projections, particularly over the coming 2-5 years when Melbourne’s supply and demand dynamics are expected to significantly further exacerbate Melbourne’s rental crisis and housing shortage.

JLL Handling Three Exceptional Suburban Sites

In what has been a sector of the market starved for opportunities over the past 12 months, the JLL Development Site Services team is delighted to be presenting three outstanding inner eastern/south-eastern landholdings in premium locations – Prahran, Glen Iris and Hawthorn East. Being offered by two private owners as well as a not-for-profit health organisation, two of the sites are offered with planning approvals in place.

Please contact the JLL team if you would like further information on any of the below opportunities.

Prahran

• Circa 2,200sqm corner landholding
• High end residential precinct
• Quality existing improvements

Glen Iris

• Circa 1,850sqm corner landholding
• Approval for 5-level residential project
• Wide, tree lined street

Hawthorn East

• Circa 1,300sqm landholding
• Approval for 6-level project
• Vibrant lifestyle precinct

JLL Asia Pacific Debt Monitor – 4 August 2023

Last week, global bond markets were a mixed bag with yields moves unsynchronized with each other. However, many long maturity yields such as 10 year UK, SK, and AU government bonds were under an upward pressure as the US 10 year treasury yield reached the near peak level over this time frame. Earlier in the week, the news that the BOJ lifted its YCC bandwidth from 0.5% to 1% had a ripple effect on global bond markets, sending global long term yields higher. Especially, the US 10 year treasury tussled with the BOJ shock as normalization on Japanese government yields may mean less incentives for Japanese investors to continue to buy the US long term government bonds – Japanese capital related purchases currently account for 3% of the US bond purchase. Another news which dealt a heavy blow to the US 10 year treasury was Fitch’s downgrade of the US credit rating to AA+ from AAA amid the US fiscal deterioration. Furthermore, the US treasury department also surprised the bond market with the department boosting its planned bond issuance by 274 bil USD to $1 trillion for 3Q2023, way above what many estimated-??JPMorgan pencilled in $796 billion only for example. As a result, the 10 year treasury yield climbed to 4.17%, nearing the record high of 4.24% in the current monetary tightening cycle.

However, the US 10 year yield ticked down to 4.03% last Friday with the US bond market taking great comfort in the US July job report which showed a sign of abating. The July job gains came in at only 187K job slower than the market consensus of 200K. Also the previous months’ gains were revised down to 185K with a 24K cut in June and 281K with a 25K cut in May respectively. As previously discussed in our earlier editions, anything above 200K gains in the US job report signifies the Fed will keep on hiking, anything below 200K, then slow the hike pace, in order for the Fed to stop, should be below 100K. Thus, alongside the encouraging June US inflation print, the latest slowing job report could give some assurance to the Fed, nudging its members toward a pause for the September meeting.

US 10 year treasury yield nearing its peak level since 2022?

Our weekly Debt Monitor update is provided by Sungmin Park (Director, Asia Pacific Capital Markets Research).

Headlines of the Week

The AFR – Lowy-backed fund to target real estate debt

• Assembly Funds Management, the investment house backed by the billionaire Lowy family, has begun raising finance for a second property fund, reflecting growing appetite for nonbank real estate debt.
• Assembly Funds Management was set up in 2019 with $75 million from Frank Lowy – who has a personal fortune of $9.33 billion, according to the Financial Review Rich List – and the Lowy Family Group in partnership with private equity firm Alceon. It attracts money from local and foreign high-net-worth family offices as well as institutional investors.

The AFR – Point of no return: Builders warn over delays

• The construction industry is calling for urgent reforms as troubled projects and cost pressures mount up, writes Michael Bleby.
• Permanent cost increases, bad weather and labour shortages have slowed construction on sites around the country, pushing the industry’s total pipeline of work out to a record $224 billion.

The AFR – Monark rules with $40m fundraising

• Wealthy investors and family offices seeking ‘‘equity-like’’ returns on property debt have piled into the latest raising by Liberman family backed nonbank lender Monark Property Partners.
• The near $40 million raising for Monark’s high-yield debt fund is above the non-bank’s initial target of about $35 million and takes the total equity raised for this fund – which aims to achieve total annual returns of 15 per cent on loans to property developers – to more than $100 million.

The AFR – Workspace profit for The Commons

• After not paying themselves a wage for a year and cancelling luxuries such as Netflix to stay afloat during the pandemic, the co-founders of flexible workspace provider The Commons say they are now among the few operators turning a healthy profit – thanks in part to downsizing corporates.
• With occupancy rates above 90 per cent and tenants including Volvo, PayPal and Spotify, co-founders Cliff Ho and Tom Ye expect annual revenues across The Commons’ 11 hubs to hit $44.6 million over 2023, an increase of 83 per cent on last year, and to deliver profits of $8.9 million.

The AFR – Daiwa House seeks Lendlease help to expand

• Daiwa House, which has teamed up with Lendlease to develop a 45-level build-to-rent tower in Melbourne, wants to further tap the relationship to explore urban developments globally as it works towards its goal of 10 trillion yen ($107 billion) in offshore sales.
• The head of Japan’s largest home builder, founded in 1955 and which started its first overseas joint venture – in Thailand – just nine years later, said he was keen to tap ASX-listed Lendlease’s experience in developing and selling urban regeneration projects around the world.

The AFR – Aware Super shift to residential, logistics pays off

• The $160 billion Aware Super is eyeing off investment into serviced apartments in Australia and cold storage in Europe as it steps up its exposure to logistics and residential real estate.
• Those initiatives advance a dramatic shift in Aware’s property strategy that has paid off handsomely over the past eight or so years.
• The super fund returned 10.7 cent in its default option last financial year, outstripping the rest of the sector. The result was made possible by its higher global equities holdings and a real estate strategy that has progressively taken it out of traditional staples of office and retail.

The AFR – New $150m hotel planned to boost Southbank appeal

• Busy Melbourne developer Time & Place has joined forces with real estate financier MaxCap and Rich Listers the Vidor family on plans to open a $150 million boutique hotel on Melbourne’s Southbank in September 2025.
• The 188-room hotel will sit within the podium of a 62-level skyscraper under construction at 90 Queens Bridge Road, behind the Crown Melbourne casino. Above the hotel there will be 367 apartments, taking the tower’s total end value to $410 million.

We hope you have enjoyed another edition of The Development Digest. Please reach out to our team if there is anything we can assist you with.??

Jesse