The Development Digest | 31 August 2024

We are pleased to provide you with another edition of The Development Digest.

This update will cover:

• Local: Residential x JLL Kensington BTR Tour
• JLL Debt & Structured Finance Market Update
• JLL Apartment Market Overview (Q2 2024) – Demand
• Headlines of the Week
• Current & Forthcoming JLL Development Site Opportunities

Local: Residential x JLL Kensington BTR Tour

During the week, the JLL Development Site Services and Living Sectors Teams had the pleasure of touring Local’s Kensington BTR project. It was fantastic to see Stage 1 of the project in completed form, following Local’s acquisition of the site from JLL back in 2021.

The project comprises high-quality features and finishes as well as the first-class amenity offering from the large gym, swimming pool, movie theatre and more, and the Local team have seen an strong take-up in rentals since releasing the first apartments to the market in recent months.?

JLL Apartment Market Overview (Q2 2024) – Demand??

In this week’s edition of JLL’s Research – Q2 2024 National and State Apartment Market Overview and Reports, we are pleased to provide below our next overview and summary of the report with a national demand focus:

Migration reached a record 528,400 over 2022-23. For 2019-20 to 2027-28, current forecasts are now around 90,000 more than strong pre-COVID estimates.

• Annual apartment sales across the six capitals have continued to increase steadily in 2024 to be 20% higher over the year to Jun-24. Nevertheless, sales are still around 21% below early-2022 peaks.
• Residential Foreign Investment Review Board (FIRB) approvals have steadily risen over the past few years and this continued through 2023, albeit the level is still low.

JLL Debt & Structured Finance Market Update

During the week, Josh Erez from our Debt and Finance Team (who are a 100% independent, specialist team that assists discerning investors to source, structure, negotiate and execute their finance facilities) released their monthly market update and we are pleased to provide a summary below:

Commentary:

The RBA’s August meeting minutes again reinforced the Board’s well telegraphed views on the economy. In short, there is “less spare capacity than previously assumed” given stronger momentum in demand and a weaker assessment of potential supply. The Board also noted that financial conditions appeared to have “eased modestly” over recent months, as house prices and credit growth had picked up. Alongside the uncertainty over the timing of inflation’s sustainable return to target, these judgments were central to the debate over whether to raise or maintain the cash rate at the July meeting.

While the case to leave the cash rate unchanged was deemed stronger, the decision was paired with a need to remain vigilant of inflation risks and guidance that “it was unlikely that the cash rate target would be reduced in the short term”, with the Board of the view that “holding the cash rate target steady at its current level for a longer period than currently implied by market pricing may be sufficient to return inflation to target in a reasonable time frame”.

Markets are now pricing in one full RBA rate cut by the end of 2024, and a further 75 basis points of cuts over 2025. Interest-rate markets are pricing in around 100 basis points of cuts by the US Fed over the remainder of 2024.

If you would like to register to receive these monthly debt and finance updates, please reach-out to the JLL team.

Headlines of the Week

The AFR – Auction clearances hold steady ahead of spring flood

• Sydney and Melbourne's auction clearance rates are steady at 74.9% and 68.7% respectively, with over 2000 auctions held each week leading into spring.
• Rising interest rates are expected to reduce clearance rates, presenting potential opportunities for buyers.

The AFR – Australia has a ‘thousand levers’ to build homes

• Mirvac's Stuart Penklis advocates increasing the migration of skilled tradespeople among other measures to boost productivity and housing delivery in Australia.
• Despite some easing in home building pressures, the industry still faces significant challenges, including labour shortages and high costs.

The AFR – Construction insolvencies come racing out of the blocks in FY25

• The construction sector accounts for 26% of all insolvencies in the early financial year, with 415 insolvencies reported from July 1 to August 11, 2024.
• Factors such as labour shortages and high costs continue to strain the industry, with Lendlease noting a $50 million impact from subcontractor insolvencies last year.

The AFR – Early spring surge in home sale listings

• Fresh home listings in Sydney and Melbourne's affluent suburbs have surged, with some areas doubling their new stock in the past four weeks.
• CoreLogic data indicates an early spring selling rush, driven by expectations of falling house prices and mortgage stress in higher-priced markets like Melbourne.?

The AFR – Leading unis smashed by about-face

• The Australian government's new caps on international student enrolments will reduce the numbers by 30%, significantly impacting prestigious universities, some of which will lose 22,000 enrolments next year.
• This policy change has led to a 5.5% increase in IDP Education shares, despite predictions of reduced student numbers.

The AFR – Builders, and consumers, pay for subbie fails

• Big builders are pushing for reforms to the Fair Entitlements Guarantee scheme, which last year paid $62.3 million to construction sector employees, due to delays and pressures from the CFMEU to cover subcontractors' entitlements.
• Lendlease reported a $50 million cost from subcontractor insolvencies last year, reflecting wider industry challenges.?

The Australian – HMC Capital goes the extra mile for Melbourne centre

• HMC Capital's Last Mile Logistics Fund acquired the Brandon Park Shopping Centre in Melbourne for $107.5 million and plans to reposition it as a retail and e-commerce hub.
• The site offers significant redevelopment potential, including mixed-use opportunities subject to planning approvals.

Current & Forthcoming JLL Development Site Opportunities?

We are proud to be handling some of the most exciting development offerings in the market.

Should you wish to receive additional information or if you have a specific requirement or mandate you would like to discuss, please contact any member of the JLL team for a confidential discussion.

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

Jesse