Jonathan Webster is a Director of Jameson Capital – an Australian funds management and advisory business. We sat down with Jonathan to discuss the capital markets in Australia and his take on macro real estate opportunities moving forward.
How have you viewed the state of the capital Australian markets thus far in 2016?
Generally, markets in the eastern cities have continue to perform relatively well, albeit at a slower rate of growth than what we have become accustom to in the past 2-3 years. Brisbane has maintained the slowest rate of growth due to supply concerns and a contraction in the resources sector of their economy, Melbourne has also slowed due to supply concerns but is supported by relatively high levels of net migration and jobs growth, and Sydney has maintained the highest rate of growth of all three cities with strong white collar employment growth and lower levels of supply. There are definitely sub markets in all three cities that are experiencing early stages of contraction and are starting to retract from their peak, but as we are seeing in almost all sectors globally, low interest rates are continuing to fuel asset prices generally.
In your opinion, does the Australian market continue to be an attractive destination for foreign investment, particularly from China & the Middle East?
Asset prices, and particularly residential property prices, are definitely being viewed as far less affordable on a relative basis with other major cities within the region. At the smaller end of the market, Australia is still viewed as a safe haven to park capital in a residential apartment, but for a variety of reasons this is becoming more difficult to do for individuals. At the larger end of the market, institutional investors are still seeking to acquire assets in non-residential sectors aggressively, but the residential sector is starting to look fully priced and offers less opportunity with the exception of those projects that are slightly smaller, supported by local buyers and are being developed by established and experienced counter parties.
In a nutshell, how do you assess the commercial viability of a development project?
We are looking for the same types of returns and risk mitigates that most fund managers are seeking. The differentiating features that create a stand out project for us beyond the purely financial attributes are the things like the developers’ track record, their vision and business plan for the project, the buyer segment that they are chasing, the key design features in the project that will make it stand out from competing projects and ultimately the deal that is being proposed.
What are the key criteria’s international investors are typically seeking within the Australian commercial real estate market?
Assuming the project is financially sound, the developer is experienced and the location is sound, the key features that we look for in a commercial project before taking it on are all primarily associated with the tenant and leasing market. Who are the target tenants, what are they looking for, what is their covenant like, what lease expiries and pre-commitments are coming up around the completion date of the new development and what alternatives do they have in that given location.
What do you consider are current or emerging market opportunities for commercial investors and developers seeking favorable returns in the short to medium term?
First and second mortgage commercial lending offers excellent risk adjusted returns to investors at this point in the cycle over the short to medium term (1-3 years). We have a significant amount of demand for this style of investing from both investors and the market.
What are some of the challenges facing the market over the next twelve months or so?
A significant risk facing the residential apartment markets in Sydney, Melbourne and Brisbane are the risks associated with completion and settlement. If we are able to get through this next 12 months without this becoming a significant problem it will give the market a lot of confidence.
Jonathan, thanks for sitting down with Development Ready – we wish you and the team the best for the remainder for the 2016 calendar year.
To get in touch with the Jameson Capital team, please visit http://www.jamesoncapital.com/