0:09

Hello and welcome to CBRE's Talking Property

0:12

podcast series. I'm Kathryn

0:14

House, CBRE's Australian Communications Director,

0:17

and I'm your host for this special outlook series

0:20

to kick off 2024. I'm

0:22

excited to be sitting down with eight of the country's

0:25

leading property players to get their thoughts

0:27

on where they see the best market opportunities

0:29

this year, as well as the biggest opportunities

0:32

for industry transformation. Last

0:34

week I spoke to Charter Hall’s, David Harrison, CBRE

0:37

Investment Management's Alex Crossing and

0:40

Lendlease’s Dale Connor. And today

0:42

I'm welcoming ISPT, Brookfield

0:44

and Investa. Make sure to

0:46

also tune in next week as we wrap up the

0:48

series with Aware Real Estate and Aliro.

0:51

I'm pleased to now be

0:53

joined by ISPT'S CEO, Chris Chapple.

0:55

From its establishment in

0:57

1994 by some of Australia's

0:59

leading industry superannuation funds ISPT

1:01

now oversees a $21.5

1:04

billion portfolio of 140

1:07

office, retail, industrial, education, health

1:09

and residential properties.

1:11

The group is also

1:13

committed to taking a leadership position within

1:15

the property industry to create a

1:18

more sustainable future. Chris, you took over

1:21

the CEO role in 2022 and have since

1:24

developed a transformation plan for ISPT. So,

1:26

I'm really looking forward to

1:28

finding out your views on where the best opportunities lie

1:30

in 2024.

1:33

Thanks Kathryn. Great to be joining you today.

1:37

So, talk me through it. Where are the opportunities

1:39

do you think?

1:40

Well, Kathryn, 2024 is actually shaping

1:42

up to be a year of opportunity. Yes,

1:44

there are challenges, and I think we hear

1:46

lots about that in the media. But certainly, what

1:49

we have is a number of high conviction thematics

1:51

on our radar, including health

1:53

and life sciences, living - specifically

1:56

build-to-sell - and also industrial. And

1:59

what's driving that? There are several mega-trends that underpin our

2:01

high conviction thematic but in particular

2:04

what we're watching is the demographic shifts

2:06

within Australia's population growth, particularly the

2:09

ageing population, which is obviously

2:11

a big trend we've seen

2:13

with that baby boomer part of our population. So, when you look

2:16

at the stats and you know,

2:18

Australia's population is due to grow by about 20% over the

2:21

next 13 or 14 years, and that's certainly

2:24

a big key driver for the property sector

2:27

and underpins a lot of demand in

2:29

those high conviction thematic sectors I mentioned. And

2:34

so, when you look at those three, and if we

2:36

kick off with health and life sciences perhaps, we're

2:39

actively investing in that sector, and we

2:41

believe there's more opportunity to come in

2:43

2024 and beyond. And when we talk

2:46

about healthcare and life sciences, what we talk

2:48

about is investment in assets like private hospitals,

2:50

medical precincts, innovation districts

2:53

and seniors living in care. And

2:55

the sector fundamentals are good, they're

2:58

actually really good. They're underpinned by, as I

3:00

said before, ageing demographics, population growth. And when

3:03

you also look at

3:05

the fact that 70% of the funding for health goods

3:08

and services come from both federal and

3:10

state governments, complemented by funding through private

3:13

means, there's such a stable base of income

3:15

that comes into that

3:17

sector. And so, given that healthcare

3:20

costs and expenditure are going

3:22

to continue to keep increasing, we also think

3:26

that the innovation around this and the

3:28

partnerships is where we see the huge

3:30

potential. And when

3:32

we look at the things and the opportunities

3:34

that we're investing in at ISPT, like

3:37

the Health Translation Hub at Randwick alongside

3:39

our investment partners and partnering

3:41

with University of New South Wales, we definitely

3:43

see more of those opportunities coming to light

3:46

next year and beyond. So, the outlook for

3:49

that sector is strong, the health care and life

3:51

sciences sector is strong. It's got defensive growth

3:53

characteristics that are unmatched

3:55

by other sectors of the economy.

3:58

Secondly, if we

4:00

look at the supply and demand fundamentals, we see

4:02

some really interesting opportunities in the living sector.

4:05

In particular, we're talking about the

4:07

build-to-sell sub-sector of living. As I mentioned at the outset, Australia's

4:09

population growth is really one of the

4:11

key macro trends that

4:14

we're looking at that underpin this high conviction thematic

4:16

for us. Our total population is forecast to

4:18

grow by over three and a

4:21

half million people over the next decade, which is a

4:23

huge increase on our existing population. And

4:28

that means that we need to deliver over one

4:30

and a half million new dwellings just

4:32

to house those new people coming into Australia.

4:34

So, we couple that long-term

4:37

demand growth story, which we're

4:39

seeing through the population growth. And we couple

4:41

that with the likelihood of supply shortages over

4:43

the next three to five years and it really represents

4:46

a great opportunity for us to deliver new

4:48

supply into the market. And in

4:51

addition, when we look at the nation's vacancy rate,

4:53

which is currently sitting around 1%,

4:55

we believe that's indicative of

4:58

the early phase of expected above average

5:00

annual rental growth. So, there's

5:02

really a perfect storm there at the moment of the

5:05

underlying demand with population growth. What

5:08

we're seeing is shortage of supply and then

5:10

also where we're seeing vacancy levels at

5:12

the moment. So, we really see that living

5:14

sector as an exciting area that we’ll look

5:16

to really invest more in through 2024 and

5:19

beyond. And then lastly,

5:21

the industrial and logistics sector, I mentioned

5:23

at the outset. Yes, that

5:25

sector is starting to come off a

5:27

little from unprecedented highs, from demand, from

5:29

cap rates, from rental growth.

5:31

But again, the underlying demand

5:34

fundamentals, we believe, will continue

5:36

to make that industrial and logistics sector

5:38

a strong performer. Online retail, e-commerce drivers,

5:41

the growth from 14%

5:43

currently to 20% is forecast. That

5:46

in itself is a huge

5:48

driver for demand. Also, population growth, the need for

5:51

more goods, more products, more services, the shipping

5:53

of those goods, the manufacturing, the onshoring of

5:56

manufacturing that we're now starting

5:58

to see here. And the implementation

6:00

of automation is definitely starting to enable more

6:02

advanced manufacturing process of being more

6:05

viable and economical being onshore.

6:07

We also see cold storage demand, the cold

6:10

storage facilities, particularly around the food

6:13

and the pharmaceutical areas of cold

6:15

storage. We're investing in that. We've got

6:18

three of those cold storage

6:20

facilities already under construction across the eastern seaboard. And so

6:22

we definitely see demand

6:24

for those kinds of uses in

6:26

the industrial space. So, all up, yes, 2024

6:28

will no doubt have some challenges and we've

6:31

heard lots about that across various

6:34

forms of media, but we definitely see some really

6:36

significant underlying demand fundamentals that will drive

6:38

health and life sciences, industrial and, also,

6:41

the living sector.

6:47

Yes. It's interesting you talk build-to-sell because we just

6:49

seem to see all the headlines about build-to-rent, but clearly

6:51

there are still a lot of opportunities

6:53

in the build-to-sell side of the market too.

6:56

Yes, there is a captive audience there. There's obviously a

6:58

growing proportion of the population that is looking

7:01

to rent and we're offering now a different

7:04

product in that build-to-rent product. We've seen lots of groups

7:06

in that space offering a range of different products that matches that demand

7:08

for the renters. But we also have a

7:11

growing cohort of people that want

7:13

to own their own homes still. And so,

7:15

it's about how do we offer that product diversity that does

7:17

cater for various requirements in that space.

7:25

And industrial and logistics, it's obviously been

7:27

the real powerhouse in 2023

7:29

and we've just done the numbers on rentals

7:31

for the second half and what's happening with vacancies,

7:34

and while vacancies are starting to edge up,

7:36

we still have some of the lowest industrial vacancy rates

7:39

in the world. So, I think a

7:41

lot of strength still in that particular sector.

7:44

Yes, when you look at the vacancy rates that historically

7:46

we've never seen before, you know vacancy rates sub

7:49

1% in some of the markets, year-on-year rental

7:51

growth over 44%. I mean they're

7:53

unbelievable numbers. And so yes, we are

7:56

starting to see some of that, as your research is also showing

7:58

Kathryn, but you know, what we are

8:00

coming back to is more normalised, more stabilised levels in

8:02

those key fundamental metrics. But ultimately

8:05

the demand will

8:07

be there and what we're going to see is continued

8:09

interest from capital in that space.

8:13

Chris, I know ISPT is focused on

8:15

being one of the most progressive players in the

8:17

market, so keen to also hear your

8:19

views on the best opportunities for industry transformation.

8:24

Kathryn, so firstly we think there is

8:26

a really big opportunity to look at the use

8:28

of technology in our space. I think

8:31

that property traditionally has been tagged with

8:33

a bit of a laggard reputation in the technology

8:35

space. And then we've come a

8:38

long way in property, particularly in the commercial sector,

8:40

but I think there is, particularly

8:42

in some parts of the property sector, a lot more

8:44

catching up to do. When we look historically, in the

8:47

property space we've had a tendency to rely

8:49

on our expertise to lead us to a solution

8:51

as opposed to really being led by

8:54

what's possible. And so, the conversations we’re having here

8:56

internally is, let's be curious about what's

8:58

possible. So, when I sit down

9:00

with our Chief Technology Officer to talk

9:03

about what that possibility looks like, what we've established

9:05

and what we realise is there's actually

9:07

a significant cultural component that's associated with

9:09

getting people to think differently and be more innovative

9:12

in the way they work.

9:19

And so, it involves a shift in mindset and

9:21

a recognition that the risk appetite and

9:23

how we think about innovation needs

9:26

to be fundamentally different to the risk

9:28

appetite that we apply to normal business operations.

9:31

And so, when we look at technology companies,

9:33

they have a very different approach to that. So it's about

9:35

how do we actually adopt that mindset in

9:38

the areas that are safe and able to be

9:40

managed within the broader landscape of the business,

9:42

but also then take a different mindset into normal business

9:44

operations. We definitely realise that we

9:46

don't have all the answers. And so, for us as

9:49

an organisation, we've formed a key

9:51

strategic partnership with Google who are

9:53

working with us on our current innovations, and

9:56

we've also partnered with a number

9:58

of other technology firms as we've required their support

10:00

to enable and roll out various

10:02

innovations across our business.

10:06

I think that partnership piece is so important because

10:08

there's so much that's changing and it's changing

10:10

so rapidly so getting those right

10:12

partners on board. And I guess

10:15

too, looking at what's happening overseas, looking at best

10:17

practice, are you seeing things that are

10:19

happening overseas that are a little different to what we're seeing

10:21

here?

10:23

I think we often underestimate our own ability

10:25

here in Australia. I think we always look offshore in terms

10:27

of what everyone else is doing. And yes, there's lots of

10:29

work that's being done in different markets, whether it

10:31

be Asia, the UK, Europe or the

10:34

US, where we are definitely seeing different

10:36

innovation technology coming to our market, but we're also seeing a

10:38

lot of ideas being generated out of our

10:40

local market here. And so we are,

10:43

through various partnerships as I mentioned

10:45

before, looking to incubators and

10:48

startup companies that are domiciled here in Australia,

10:50

but also offshore. And also our

10:52

key strategic partnership with Google not only

10:54

enables us to understand the research that's

10:56

happening here at an Australia level, but also that they

10:59

can tap into offshore. So, it's using both the domestic

11:01

knowledge base and expertise and skills here

11:03

to understand our market, and the nuances of

11:05

our market here in Australia, but also then drawing

11:08

across the global sector.

11:10

Yes, it's going to be really exciting to see what

11:12

happens with technology, and I think that is one

11:14

of the key enablers for our industry.

11:16

So, really exciting to see

11:18

what plays out in 2024. And thanks so

11:20

much for joining me today, Chris.

11:24

It’s been a pleasure Kathryn, thanks for having me.

11:26

I'm now joined by Brookfield Senior Vice

11:28

President Leoni Wilkinson. Leoni,

11:31

you’re responsible for working with Brookfield's local and

11:33

global teams in overseeing portfolio management

11:36

for Brookfield's Australian core and

11:38

core plus real estate investment strategies,

11:40

including fund and asset

11:42

performance return profile and

11:45

the pursuit of acquisition and disposition opportunities.

11:47

So, having

11:49

a look at all of that, where do you see the

11:52

best opportunities in 2024?

11:55

Thank you, Kathryn. We are seeing a lot of really good investment opportunities in 2024 and really the main reason you alluded to during the introduction is that I have the privilege of being part of a global team. So, Brookfield is a large asset manager. We have over $850 billion of assets under management globally and that includes over $270 billion of real estate across 30 countries and 30,000 people. So, we get to see a lot of what's going on around the world. And what we're seeing globally is that real estate fundamentals are in quite good shape all around the world, particularly for high quality assets. But on the other hand, what we're seeing is capital markets that are quite disrupted. And so, for us that equals very good investment opportunities and we think that 2024 is going to be a good vintage for us in terms of the specific sectors that we're looking at in the real estate industry. We've

12:54

got a couple of themes that we really like that are

12:56

secular and apply across all sub-sectors

12:59

of real estate. So that's changing demographics

13:02

globally. We also really

13:04

think deeply about the new normal and the way that

13:07

people are using real estate now

13:09

that we've come through a period of enormous disruption.

13:12

And also deglobalisation are

13:14

some of the themes that we're thinking about that apply to real

13:17

estate all around the world. And so

13:19

here in Asia Pacific

13:21

and in Australia specifically, we're seeing

13:23

some of the disruption but not quite

13:26

as severe as other parts of the world. So that gives us

13:28

very good opportunities to enter

13:30

into a time when there's less capital coming

13:33

in and less certainty around investment

13:35

returns. And what we like about that

13:38

is, because we have a large operating

13:40

capability, we can underwrite

13:42

the returns always predicated

13:45

on what we can deliver at an operational

13:47

level. So, our business plans and the way that we

13:49

intend to generate returns are always from

13:52

the ground up. Certainly, looking

13:54

at those big secular themes but coupling

13:56

that with how we can drive value on

13:58

the ground. So here in

14:00

Australia we really like the

14:02

living sector, we like logistics

14:05

and we like office, and so I'll just talk

14:07

to each of those in turn and what we like

14:09

about each of them. So, in living generally

14:11

all around the world we're seeing housing

14:13

shortage and a lot of housing affordability

14:15

issues. So, we

14:17

want to be a part of that. And here

14:20

in Australia we can see the supply and

14:22

demand fundamentals are very, very strong in favour

14:24

of people that can get access into the living

14:27

sector. So, we're seeing a

14:29

lot of activity in what Australians refer

14:31

to as build-to-rent and globally

14:33

it's referred to as multi-family. So,

14:37

we think that that will be a very good sector

14:39

in time and a good place for an institutional

14:41

investor to get exposure into growing

14:44

rental income streams. We think

14:46

right at this moment in Australia it's quite crowded.

14:48

We're not overcommitting into that particular sub-sector

14:51

of living, but we are going to

14:53

be active across other sub-sectors of living and

14:55

you'll see us investing in places like seniors housing

14:58

and student accommodation. Turning to

15:00

logistics, the fundamentals again are

15:03

very, very strong and a lot of that's underpinned by

15:05

e-commerce demand. A little

15:08

bit more onshoring of manufacturing into Australia

15:11

given the supply chain disruption

15:13

that we saw during Covid, but

15:16

very strong fundamentals and we've

15:18

seen tremendous rental growth which we

15:20

don't think will continue forever. And we're already

15:22

starting to see some bifurcation between demand

15:25

and rents that will

15:27

be paid for the best quality assets and lower quality

15:29

assets. So that flight to quality

15:32

is already starting to play out in the

15:34

logistics space despite the supply demand

15:36

fundamentals still being very, very favourable

15:39

to asset owners. So what

15:41

we're going to be focusing on there is making sure that

15:43

we have exposure to the very best

15:46

quality assets and

15:48

then curating them in the way that we can tap

15:50

into a flexible way of offering

15:52

the logistics accommodation to users

15:55

in the future as they have an opportunity

15:57

to become a little bit more selective about what

15:59

they would like to do. And the

16:01

last sector that I'll talk to in terms of our

16:04

particular area of focus for 2024

16:06

is office, and specifically premium

16:09

office. And I'm not saying that

16:11

to be deliberately contrarian. It's

16:14

when we're perceived sometimes as contrarian

16:16

at Brookfield it's not that we deliberately want to

16:19

do something that's different to headlines,

16:21

it's that we are seeing something in the

16:23

data by virtue of the scale of the platform

16:25

that I referenced earlier. And

16:28

so, what we're seeing in our operating platform

16:30

around the world is that the flight to quality, we've

16:33

seen, has played out very strongly in

16:35

the office sector. We're seeing demand

16:37

for premium office increasing

16:39

all the time. But the interesting dynamic at this

16:41

moment from 2024 and

16:44

then over the next couple of years is that

16:46

the supply coming into premium office

16:49

will start to become more muted we think. And

16:51

that's a combination of

16:54

the uncertainty in the sector at this

16:56

moment, and also rising construction

16:58

costs. So, what we think that's going to

17:00

mean in the next say two,

17:03

three, four years is that there'll be continuing demand

17:05

for the very best office assets but

17:07

less new office assets available for

17:10

workers to come and enjoy as they're doing the

17:12

work during the day. So, they're the sectors of real

17:14

estate that we're focused on in Australia for

17:16

2024, Kathryn.

17:18

Yes, that's really interesting you say that, it's

17:20

really coming through in our research

17:22

as well that flight to quality. And I know people have

17:24

been talking about that for a long time, but we

17:26

are seeing it really come through in

17:28

the rental numbers that we're seeing, people still

17:30

prepared to pay a higher rent to relocate

17:33

to better quality accommodation. And I think,

17:35

in the order of 10%

17:37

given some of the numbers that we've done. So that

17:39

bifurcation is really something that I think a lot of

17:41

people are focused on. And living

17:43

is obviously such an exciting sector, there's so much happening

17:46

in that space, but I think we

17:48

just need more stock is one

17:50

of the big issues. So, looking at all

17:52

of that, I'm really interested to talk to

17:54

people on this podcast about

17:56

areas for transformation and I guess where

17:59

are the areas that we're most ripe for

18:01

that in the sector. I'd love

18:03

to get your thoughts.

18:08

Oh, thank you Kathryn. It's, I feel

18:11

an area where you can become very

18:14

passionate, and forgive me if I start to

18:16

sound evangelical, but I really believe that

18:19

our sector can play a huge part

18:21

in reducing carbon emissions and

18:25

decarbonising our total economy.

18:27

So real estate as an industry, people

18:30

will be familiar that as an

18:33

emitter we play a very, very large role. We're around

18:36

40% of global emissions. So

18:38

that's a challenge and an opportunity for our sector. What's

18:42

exciting to me about this is that we've had

18:44

a lot of focus on Scope 1 and Scope 2 emissions,

18:47

but to really solve this, we need to be working

18:50

into Scope 3 and thinking about embodied

18:53

carbon. And what we believe that is

18:56

genuinely going to require is for

18:58

all of us to come together as an

19:01

industry and combine and conquer,

19:03

because none of us are going to be able to do this on

19:06

our own. Each of us has

19:09

responsibility in certain areas of

19:12

expertise and we can control things to a

19:14

certain point, but to work through managing

19:17

our Scope 3 emissions, we are all reliant

19:19

on each other. So, what I'm

19:22

personally really excited about is being

19:24

able to come together as an industry and

19:27

help solve these very complex issues

19:29

together and really take a leading position globally,

19:32

as an industry.

19:34

Yes, it's interesting on that embodied carbon front, I

19:37

was talking to an architect the other day and they said,

19:39

I guess one of the issues when you're looking at repurposing

19:42

existing office buildings is there's no real sort

19:45

of established value for embodied carbon and

19:47

that if we can actually nail that, that

19:50

that could be one of the real incentivisation pieces.

19:53

Yes, architects are a great place to start because

19:56

smart design is a really big part of it.

19:59

So we can't at this moment see an immediate

20:01

compensation for investing the money into

20:04

reducing carbon from an

20:06

asset during the building, during the operations, but we

20:08

can already see it playing out very clearly in the data

20:10

and part of the flight to quality that we were talking about

20:13

earlier is absolutely a

20:15

flight to low carbon emitting

20:18

buildings, high ESG standards across the entire

20:21

building. And we’re seeing that demand

20:23

come from our tenants, from our capital

20:25

partners, both debt and equity, and from

20:27

ourselves as an asset manager. So, the

20:29

good thing is everybody's ultimately

20:31

looking to achieve the same thing. So

20:34

even if you can't point to monetisation right

20:36

at this moment, it seems to me there’s

20:38

going to be quite clearly a discount if you’re

20:40

not there within a reasonable amount of time or

20:42

have some pathway to get there. And the

20:44

big opportunity for transformation to your

20:47

point is to be able to come together

20:49

and solve these things so that we're all taking each

20:51

other on the journey that genuinely everybody wants to

20:53

be on over the next couple of years.

20:57

Yes, it's going to be a great journey and the property

20:59

industry certainly has a huge role to

21:01

play. Thank you so much for joining me

21:04

Leoni, I really, really appreciate it and

21:06

good luck with 2024.

21:08

Thank you so much Kathryn.

21:10

Joining now is Pete Menegazzo, a

21:13

17-year Investa veteran who took on

21:15

the CEO role in 2021. Investa is

21:18

a $16 billion real estate investment manager, developer

21:20

and industry innovator with

21:23

a focus on creating spaces

21:25

that help shape our future cities. Pete,

21:27

I've been reading some interesting

21:29

articles about Investa’s future strategies, including your

21:32

plans in the BTR sector and for

21:34

repurposing ESG obsolete assets. So,

21:37

I'm really pleased that you could join Talking

21:39

Property to share your outlook on where

21:41

you see the best property market opportunities in 2024.

21:46

Hi Kathryn, it's great to be with

21:48

you today so thanks very much for having me along.

21:51

Look, I think the Australian real estate market

21:53

has been a tale of different directional

21:55

headwinds over the last few years, which

21:57

have continued to shift around to

21:59

make life pretty interesting. Some

22:01

sectors like living have experienced mostly

22:04

tailwinds but other sectors such as office

22:06

have experienced significant headwinds.

22:09

In 2024 we expect to see

22:12

a further evolution in those underlying conditions

22:14

led by interest rates peaking and inflation

22:17

continuing to moderate, which we

22:19

expect will open up some compelling opportunities

22:21

in different sectors. If I start

22:24

in the living sector, I think we’re pretty excited about what's

22:26

happening there, namely build-to-rent and

22:29

the co-living sector, which is

22:31

a bit of an adjacency. The living theme

22:33

is a really attractive theme for investors

22:36

right now, right around the world,

22:38

and with investors really focused

22:40

on strong and growing underlying cash

22:42

flows given the higher interest rate environment. The fundamentals of low

22:45

vacancy, low supply and strong population growth

22:48

are really supporting a positive

22:50

outlook in that regard.

22:52

There are really some headwinds as well,

22:54

which I will acknowledge, such as the

22:57

cost of construction and funding, but being disciplined on underwriting

22:59

and getting early builder coverage

23:02

on building costs and ensuring we've

23:04

got plenty of contingency in the

23:06

underwriting are ways we’re mitigating those risks. And

23:09

you know, importantly the sector continues to mature.

23:12

More assets are scheduled to be operating

23:14

in the next 12

23:16

months, including our project Indi Sydney here

23:18

in Sydney. So, a combination

23:21

of the maturing market, investor interest

23:24

and increased flow of investment opportunities

23:27

all bode well for the

23:29

sector outlook.

23:33

Yes and co-living that's an interesting area.

23:35

It's one that's probably not as evolved as BTR

23:37

as yet, but I think a lot of opportunities

23:39

there.

23:41

It is. We've been doing work on

23:43

that sub-sector for about 18

23:45

months and what we're finding is it's

23:47

very difficult to find compelling

23:50

BTR opportunities, particularly

23:53

in Sydney. And what we're finding

23:55

is the different planning regimes

23:57

that the co-living sector operate under

24:00

are really helping drive returns to an

24:03

acceptable level for investors.

24:05

Yes. And I guess another sector

24:07

that's really been on people's minds in

24:09

the last 12 months has been office. It's

24:12

been one of the more challenging markets, but

24:15

how are you seeing office going into this year?

24:17

Yes, thank you for that question. I knew it

24:19

was coming. We're feeling pretty optimistic about

24:21

opportunities in the office market and we

24:24

do expect 2024 to be a

24:26

turning point. It has been a

24:28

rough few years for the sector coming off the highs

24:30

of late last decade where we saw a

24:32

strong period of net absorption and low

24:34

vacancy and low cap rates.

24:37

So obviously the structural changes

24:39

to the way people work, which are

24:41

really still playing out I might add, with

24:43

the dust I think really not yet fully settled,

24:46

impacting on demand and vacancy

24:48

along with valuation impacts and the

24:50

changed interest rate environment have seen

24:53

the sector face some pretty significant headwinds. It's

24:55

obviously impacted investor confidence

24:57

and with valuation uncertainty there's

24:59

also been a significant

25:01

reduction in liquidity in the sector over

25:04

the last couple of years. Having

25:08

set that scene, I will say though that we

25:10

firmly believe the worst of the sentiment is behind

25:12

us, particularly in the prime grade

25:14

space. You know, as an office landlord I would say it's

25:17

been really pleasing over the last,

25:19

particularly 12 months, to see the

25:21

significant push from corporate Australia to get their

25:23

people back in the office more regularly.

25:26

And you know, we feel that and see that every day as we're

25:28

walking through our CBDs. And I

25:30

think this momentum combined with the expectation that

25:33

interest rates will peak, will continue

25:36

to support improving sentiment and

25:38

provide some stability for investors’ confidence.

25:40

So, I guess when

25:43

it comes to opportunities, we really see

25:45

themes emerge in two

25:47

areas. One is in the prime office

25:49

area, where the need for liquidity

25:52

will drive some compelling risk-adjusted

25:54

opportunities, for early movers in particular. And

25:57

I liken that to what we saw in the

25:59

couple of years post GFC where some

26:01

of the best buying opportunities really emerged and

26:04

it really required a strong level

26:06

of investor conviction to

26:08

move with confidence. And

26:11

the other area we see is pretty

26:13

compelling is this brown to green theme via

26:16

adaptive reuse. And what that

26:18

means is buying ageing or obsolete

26:20

buildings and seeking to reposition them

26:22

into boutique, high quality office

26:25

buildings with leading ESG credentials.

26:28

You know, for us this is a win-win situation.

26:30

Obviously great for the environment because

26:32

you're not knocking down existing buildings, so

26:35

great for embedded carbon. You're

26:37

repositioning it to be a really strong, ESG

26:39

performing asset, and equally too you're

26:42

delivering a compelling return to

26:44

investors. And I think the last

26:46

point I'd make is that both of these

26:48

opportunities play into what we've seen over

26:50

the last couple of years. And I know it's

26:52

been spoken to death, but this flight to

26:55

quality by tenants is real. We are

26:57

seeing it through our portfolio, we're seeing

26:59

it through our development assets, and you know,

27:02

importantly as I say those play into that.

27:05

Yes, we've been seeing that through our data as well.

27:07

So, there definitely is that ongoing bifurcation

27:09

I think, which will make it

27:12

a really interesting year next year. So, I'll

27:14

look forward to seeing what comes out from the

27:16

brown to green strategy. I know Investa’s

27:19

always had a focus on innovation, so

27:21

the other thing I'd really love

27:23

to hear your thoughts about is where you see the

27:25

best opportunities for innovation in our industry.

27:29

What I would say is innovation has been an

27:32

area that Investa has been particularly focused

27:34

on across our portfolio for a number

27:37

of years now and it's one of our

27:39

strategic pillars of our business strategy. And I

27:42

think it's within our DNA, we've continually looked at

27:44

ways to innovate to help drive operational

27:47

and investment performance. A couple

27:50

of areas that are probably worth noting and

27:52

you know, the first I think has been spoken about quite a

27:54

bit, and that is leveraging data for decision making. So

27:57

really helping enhance decision making across

27:59

many areas such as leasing, cap

28:02

trans, budgeting and building maintenance. So,

28:04

providing better insights. But I think

28:07

what's significant is the impact is now

28:09

being really significantly driven by the improvement

28:12

in both the quantity and quality

28:14

of data sources and also the strong

28:17

emergence of AI that

28:19

is allowing us to better

28:22

synthesise and take on and review

28:25

that data that is available to

28:27

us. The

28:30

second area is a really interesting one we've been

28:32

working on over the last 12 months, and that is

28:35

investigating opportunities for adaptive use of

28:37

space within existing buildings. You

28:40

know, we hear a lot

28:42

about things like, once we move to autonomous cars,

28:44

what's going to happen to our car park? So

28:46

this is an area that is definitely playing on our mind and

28:49

one of the areas we've been working on is, we've been

28:51

working with an Australian cloud

28:54

services provider on a testing simulation facility for

28:56

a space efficient, immersion cooling data

28:59

centre unit within the

29:02

basement of one of our buildings, which is really

29:04

quite interesting as we continue to operate in

29:07

this high data capture environment. And so, it's being used

29:09

in ancillary space, really some unused

29:12

space. So, it's helping us drive returns,

29:14

but we're also interestingly looking at how we

29:16

can potentially scale it up and make

29:19

that a portfolio-wide initiative or even, you

29:21

know, if you take it to its fullest extent, the

29:24

broader adaptive reuse of whole buildings around different uses. So,

29:26

probably just a couple of areas

29:29

that we've been actively working on.

29:37

Yes, the tech aspect is really interesting. I

29:39

know the recent Property Council Tech conference,

29:41

I think there was a really interesting panel

29:44

that had an Investa speaker on it talking about

29:46

what you were doing in that area. So, I think

29:48

that's where there's going to be a huge amount of focus this

29:51

year.

29:52

Absolutely.

29:53

Pete, thanks so much for joining. It was great to

29:56

have you on the show and I really look forward

29:58

to seeing what Investa does this year.

30:00

Thanks so much Kathryn. Thanks for having me.

30:03

So that's part two of our Outlook series

30:05

to kick off 2024. If

30:07

you like the show and want to check out more,

30:10

visit cbre.com au/talking-property or

30:13

subscribe through Spotify, Apple Podcasts or

30:15

your favourite podcast hosting platform. And

30:18

make sure to tune in next week to hear from

30:20

Aware Real Estate and Aliro. Until next time.