Insights from the Property Council of Australia’s Property Congress 2023 in Adelaide

The Property Council of Australia’s recent Property Congress in Adelaide featured three days of inspiring contributions from political leaders, industry advocates, and leading property professionals, providing valuable insights and perspectives on both the big picture issues affecting the industry and a broad array of its specific challenges.

The event took place just as the Housing Australia Future Fund was approved by the Senate, and served as a timely reminder of the importance of industry advocacy and collaboration in maintaining continuous progress towards shared goals.

Climate change; population pressures; the urgent demand for more diverse housing options; the need to deliver projects on time; and finding supply chain solutions and reliable sources of labour all emerged as paramount concerns. At the centre of these challenges is the battle for capital and funding, which plays a pivotal role.

Highlights of the congress also included a snapshot of the conditions in the office, retail and industrial sectors.

MRI Software joined industry peers as a supporting sponsor at the event, and came away brimming with ideas and enthusiasm. Here’s our overview of the key sessions below.

Keynote address: Malcolm Turnbull

“The built environment is the heart of our Australian economy and it is meeting challenges where people live, where people work.” – Malcolm Turnbull, former Prime Minister.

Australia’s former Prime Minister, Malcolm Turnbull, gave attendees some important national and international context for the issues they currently face as custodians of the property sector.

Having looked at housing affordability “at every angle” while in government, his firm conviction is that supply is the single most critical factor impacting housing accessibility for the vast majority of Australians, with things like negative gearing playing a distinctly secondary role.

“It is absolutely all about supply and if you want to make housing more affordable, you’ve got to have more houses,” he said.

Getting to a position where developers and builders are able to provide homes readily and affordably, to deliver more transport-oriented development and to effectively take on counter-productive “nimbyism” are all important parts of this.

He observed that Australians’ innate common sense, centrist politics and the checks and balances of our governmental system put us in a good place to get things right on the home front and to resist the democratic threats and geopolitical turbulence being experienced in other parts of the world.

“But nonetheless, events that occur in foreign capitals, whether they’re Washington or Beijing, can resonate as profoundly and as dangerously in our capitals, as they do everywhere else in the world,” he added. “Thank heavens you’re all here building the future because our built environment is our environment.”

Panel session: The view from the top

In a scene-setting opening panel session, presenter and journalist Jess Adamson moderated a discussion between Michael O’Brien, National President, Property Council of Australia and Managing Director, QIC Real Estate; Deborah Coakley, Executive General Manager, Funds Management, Dexus; Anouk Darling, Chief Executive Officer, Scape and Stuart Penklis, Chief Executive Officer, Development – Residential, Commercial & Mixed Use, Mirvac.

Jess asked the panelists what could be done to take advantage of current market opportunities and how regulatory constraints, investor sentiment, and construction challenges are shaping the current property environment.

“Governments at all levels have got some really severe financial challenges coming out of the pandemic. Budget deficits and debt levels have increased, revenues are under pressure because the economy’s softened, and we’re all dealing with a high cost environment.”  – Michael O’Brien, Property Council of Australia.

Together with the national housing affordability crisis, tax in all its forms is very much on the agenda for all governments from local through to the federal government Michael explained.

“I think governments, particularly the federal government, really understand that they need to provide the right sort of policy settings, the right investment settings to attract investment into the housing sector,” he added. At the moment it’s a “push-pull” situation, he explained. For every win, such as  reductions in withholding tax there’s a corresponding obstacle, like changes in fincap legislation.”

One of the Property Council’s guiding principles is to ultimately make Australia a truly attractive investment destination for real estate, both for domestic and foreign investors, he told attendees.

“There’s a huge economic benefit that comes from ensuring stability in the taxation system, or stability in the planning system. And the more we can do that, the greater trust and assurance we can give to investors that Australia and each of the states is a really great place to do business.” – Deb Coakley, Dexus.

While local investor interest is more stable and predictable, foreign investors approach Australian opportunities with a unique perspective, shaped by the distinct dynamics of their home markets, Deb suggested. Still, the majority of our CBDs are performing exceptionally well on a global scale and asset managers play a key role in articulating this to their industry peers in other countries.

Alternate asset classes like purpose-built student accommodation (PBSA), for example, are showing great potential.

“There aren’t many investments that you can make right now where rental growth is ahead of interest rates. Migration is at an all time high. We’ve got universities ranked globally in the top 50 for the first time ever, and (PBSA) is a very exciting place to be.” – Anouk Darling, Scape.

While we have to put ourselves in overseas investors’ shoes, we also have to control the narrative and get them to see the opportunities that are here to be taken, Anouk insisted.

At the same time, without the right sort of government support underpinning the property sector, the challenges can make it prohibitive for investors of all stripes.

“The recent commitments from government show how far we’ve come – we’ve been calling for housing supply targets with incentives for state and local governments for a long time. Now we need to see the funding flow through to deliver the new homes we need around the country.” – Stuart Penklis, Mirvac.

All forms of housing – middle, inner and outer ring, social and affordable and build-to-rent – must be a part of the solution, Stuart added. And as an industry, we need to demonstrate development and design excellence in order to unlock opportunities to deliver on the agreed supply targets.

Australia’s economic outlook

Kylee Anastasi, Partner, Commercial Advisory & Transactions – KPMG Australia gave an overview of the evolving global and local economic landscape. She highlighted shifts in growth, inflation, labour markets, and interest rates, while ultimately emphasising the resilience of property investment in Australia.

“For this quarter and next quarter, the global economy despite all of the divergences and nuances (across US, the UK, Europe and China) is actually going to grow at trend for the rest of this year,” she said.

According to Kylee, an unexpected pattern has been seen in the services and manufacturing sectors with predictions that the services would cool and manufacturing would start to lift. “Instead what’s actually happened is that services has come down, but we haven’t had any sort of meaningful uptick in manufacturing,” she said.

While inflation has up until this year been above central bank targets, leading them to deliver aggressive tightening cycles, “2023 has been a far more positive period for inflation, where we’ve seen inflation in pretty much every economy peak around the end of last year and start to come down.”

That said, “Central banks will not be able to relax until they have greater confidence that inflation is well and truly on a trajectory towards the 2% target in most countries,” she added.

Looking at inflation on a sectoral level, “We’re seeing quite a strong theme in many countries of goods disinflation. This has been driven by improvement in supply chains, but also China exporting lower prices for many of its goods exports.”

“But the one that’s going to be problematic, I think, particularly for Australia, not necessarily so much in the US, is services inflation. Core services inflation is running somewhere between 6 and 7%.”

According to Kylee, those figures are too high and are compounded by the stickier nature of services inflation, much of which is domestically generated.

The biggest part of this type of inflation, of course, is wage costs. And while “wages pressure has probably peaked for the cycle, but it remains quite elevated.”

Kylee finished by looking at the picture for property investors, who have enjoyed a “structural bull market” from the mid 80s, all the way through to the pandemic. That trend has broken for many real assets, property, equities and infrastructure and, in her view, fixed income at the moment is the most attractive asset class from a risk adjusted basis.

Nevertheless, Australia’s strong projected population growth, GDP and underlying economic stability is good news for the property sector.

“While it might be difficult at the moment for property investors because, in a across asset sense, there are some cyclical headwinds, the message that I will leave you with is that fundamentally here in Australia, there are some pretty impressive structural tailwinds for the asset class,” Kylee said in finishing.

Designing for country

“When you want to create great things and you want to work with Aboriginal Torres Strait Islander people, you must absolutely give your time. We did things like having an open door policy so if anybody from the community wanted to walk in and see how the project was developing in our studio, they were absolutely welcome.” – Rosina di Maria, Woods Bagot.

Rosina Di Maria, Principal, Adelaide Studio Chair, Woods Bagot, gave an overview of the global architecture studio’s spectacular work in progress – Tarrkarri, a Centre for First Nations Cultures.

“It’s the first time in Australian history that one project, one building, one centre will be telling the stories of all Aboriginal language groups,” she said.

To create the groundbreaking design, the team at Woods Bagot drew inspiration from temporary shelters created by Aboriginal peoples across Australia.

“Tarrkarri offers diverse exhibition spaces – ranging in size, height and light quality, each offering views of the natural surroundings – seamlessly blending inside with outside, natural with built.”

The centre is being developed on Kaurna land in Adelaide and represents a new approach that showcases the past, present and future of Aboriginal cultures while supporting contemporary art practices and events across disciplines.

Rosina explained in detail how the project has brought the idea of “designing for country” into focus.

The first step, as she put it, was to look at the site and its significance with an open heart and an open mind, taking the time to understand its history and the stories of its inhabitants. Only then was it possible to honour the past and create something meaningful and relevant to the present.

The firm has engaged with first nations people since the outset to help to peel back the layers and weave past voices into the project’s development. This has involved undertaking an indepth cultural survey, consulting with elders and practicing “deep listening” – especially when dissenting opinions are given.

According to Rosina, designing for country involves putting a specific lens on all the work we, as a community, do in our built environment. “(Our work) must give back to the community and must nourish the environments that we build in,” she said. “Working with first nations people, in particular, involves deepening that thinking, tapping into your your belief system and translating that into the environment.”

Panel session: Return of growth in retail

Andrew Borger, Chief Investments & Operations Officer, Quintessential, moderated a panel of retail experts who discussed how the sector is tracking in the light of post-COVID adjustments, rising inflation and cost of living worries.

Nicole Lazarou, General Manager Property, Retail Apparel Group, said that stock and inventory management has been a huge challenge for the business in recent times, and that the pandemic has bought about the need for diversification and risk management. Developing a greater geographical spread and international footprint has called for new management skills and approaches to relationship building.

She also observed how the digitalisation of retail has led to new opportunities, such as the growing demand for an omni-channel experience.

Ralph Kemmler, Managing Director, Woolworths Property, spoke about the huge uptick in digital transactions resulting in ecommerce growth of about 40% over the last four years, and said that the mobile phone had become the new store front. “The opportunity for us has been the integration between bricks and mortar and an online business,” he said.

In terms of property, “We’ve seen the construction of neighborhood shopping centres increase in costs by about 40%, just in the last two years. And what we used to build in 12 months now takes 15 months.”

“So we’ve seen productivity decline and just getting through the planning approval system is taking a lot longer than it has been historically, which means you’ve got more money tied up for for longer.”

Michelle Abbey, Executive General Manager, Town Centres Commercial Property, Stockland, said that she is seeing retailers within the Stockland network also moving to capitalise on omni-channel. Looking at how to make things more convenient for those tenants and their customers is an important priority, along with better placemaking and meeting ESG expectations.

“People are social creatures, they want a place to gather, a place to meet.” – Michelle Abbey, Stockland.

Michelle said that placemaking’s impact depends very much on the social issues that apply in a given community. Stockland works closely with each community to ensure that its developments are appropriate to their unique context.

According to Ralph, smaller, neighbourhood shopping centres are just as important in placemaking and community as larger central and CBD-based retail developments.

Big data was also identified as a key driver in the future of retail. Ralph spoke about how Woolworths is using data and said it’s about helping the business understand customers better and adapt to suit them. “When we look at new stores, we use data population forecasts, and demographic insights to shape our network going forward. The data helps us work out where we’ve got gaps in our network … and also helps us understand where the gaps are going to be in the future.”

Overlaying the data with experience, is key, something which Michelle agreed wholeheartedly with from Stockland’s perspective.

“I’ve seen a lot of data, but without the experience, you can actually make wrong decisions. So I think the combination of the two is actually where the gold is.” – Ralph Kemmler, Woolworths.

When asked about what one big change the retail sector will see in the next 24 months, Michelle identified immigration and labour shortages. “Some of our tenants can’t actually trade because they don’t have enough workers,” She said.

“Cost of living pressures are the top of mind for our customers and it’s up to us as retailers to work out how we can improve their lives,” Ralph said.

Nicole predicts that sustainability and circularity will be among the top issues for retailers and will require big changes in the way they do business.

Panel Session: A critical lens on residential

In this session, Amy Menere, Chief Stakeholder Relations & Customer Officer, Mirvac, moderated a panel of leading Australian property developers and landlords. Together, they discussed reasons for the industry’s negative reputation, despite its contribution to improving Australians’ quality of life.

They also talked about what’s being done to counter this and how the industry is collectively building a social license to operate.

Amy acknowledged the loss of brand value suffered by some operators in the recent past and opened with Warren Buffet’s famous quote: “It takes twenty years to build a reputation and only five minutes to ruin it”.

Part of the problem, said Trevor Cooke, Chief Executive Officer, Commercial & General is that “We’re all lumped into a single class in an unregulated industry where anyone can put up their hand as a developer and have entrance into that marketplace.”

Tony Randello, Chief Executive Officer, Aveo Group spoke from a retirement living perspective and acknowledged the “bumpy ride” and “bad rap” the sector has experienced over the last few years.

“(As we) headed into 2020 and COVID, our most vulnerable people in Australia were impacted. But what it also did (was to provide) an opportunity to give something back to the community. And that’s exactly what we did.” – Tony Randello, Aveo Group.

Tony pointed out that retirement living residents (as opposed to those in aged care) often cook, clean, and care for themselves – things which COVID took away much of their capacity to do. Aveo maintained its strong reputation by supporting them through this and is now reaping the benefits as occupancy levels rise to an all time high.

Further improvements have been made by implementing a code of conduct, revising the exit fee model and having more transparent buying options for retirement living.

Delivering on ESG has been another way for developers to garner trust and build positive reputations according to Nicholle Sparkes, General Manager, Delivery & Operations, Frasers Property Australia.

“(ESG) aspirations that companies had 15 or 20 years ago, they’re actually no longer aspirations. They’re the changes that are happening. Decarbonisation of the grid is occurring and it’s a regular part of the conversation.” – Nicholle Sparkes, Frasers Property Australia.

Accelerating the supply of social and lower-cost housing is also key to gaining community trust and ensuring that developers play a key role in meeting housing supply and affordability challenges head on.

One solution is mixed-tenure housing schemes that consist of a combination of traditional residential properties together with build-to-rent and other affordable models.

Ranisha Clarke, Managing Director, Lendlease Communities told the panel about the company’s groundbreaking project in the UK which will provide 3000 tenure-blind homes with a guarantee of 25% affordable housing at a guaranteed maximum market rent of 50%. She said that projects such as these, where the investment approach depends on collaboration between governments, councils and the community, are the way of the future.

Panel session: The road ahead for industrial and logistics

“The industrial and logistics sector is rapidly becoming one of the most in demand sectors globally, from both the occupier and investor point of view. This paradigm shift was supercharged by COVID-19 when the increased take up of ecommerce created demand for more warehousing, (and) supply chain disruptions bought the sector into (sharp focus).” – Toni Ryan, Realterm.

Moderator Toni Ryan, Fund Manager, Realterm likened the industrial and logistics sector to an ugly duckling turned into a swan. Having gone through a period of transformation and growth over the past few years, it’s now being seen as a key asset class for investors.

Industrial is going from “strength to strength” on the back of Australia’s strong macro economic conditions and continued GDP growth, low unemployment, population growth and increased onshoring and government investment in infrastructure.

Despite these factors, the panelists acknowledged that challenges remain.

Julie Drago, Chief Executive Officer, Realside Ovest said having services ready to go to in areas that tenants want to be in, specifically in Australia’s eastern corridor, is the number one challenge.

Construction pricing is an issue and having the appropriate infrastructure available to service new facilities – in the form of electricity, gas, water and roads – is also key. State agencies need to rise to the challenge and help provide these services in a more timely manner for projects to succeed.

Richard Stacker, Chief Executive Officer, Industrial & Logistics, Charter Hall said that the level of land supply needed to service tenant demand was an issue, as was the number of taxes, levies and imposts, both for investors and tenants.

“For foreigners coming in and looking to invest … having those additional taxes and imposts is something that is playing on their mind,” he said. Similarly, tenants who are already paying payroll tax as employers undoubtedly feel the pinch by additional taxes and levies.

Valuations and the economic feasibility of projects were things the panellists agreed were difficult to reconcile in the current environment, especially in the light of increased construction costs and knowing that continued high rental returns can’t be guaranteed.

As is the case in many other sectors, getting up to speed with ESG obligations has become an ongoing challenge for industrial and logistics developers.

Richard said it was difficult to be at the forefront of sustainability as things move so quickly, and implementing both cost saving and environmental initiatives requires a tough balancing act. That said, much progress is being made, and things like EV charging, smart monitoring and metering, and addressing transport emissions are all contributing to environmental goals in the sector.

Julie said that in addition to future-proofing new buildings, Realside Ovest is assessing existing buildings to evaluate their carbon footprint and bring them up to standard.

Diversity in leadership and challenging inequality

Former South Australian senator Natasha Stott Despoja AO, shared her thoughts with congress attendees about life in politics, diversity in leadership and how we can go about challenging inequality.

As former Chair of “Our Watch”, the national foundation to prevent violence against women and children, and her membership of a top-level UN committee fighting for womens equality, she observes that we still have much work to do to secure diversity and equality, despite the advances we’ve made.

“No one country in the world has achieved gender equality, including our own. And yet no community or country regardless of its skills can actually achieve its full potential by drawing on only half of its population. It’s not women’s business, it’s everyone’s business.” – Natasha Stott Despoja, AO.

“Of course Australia is doing comparatively well but the enduring comment I get from so many colleagues is that we can do better,” she said. “Increasingly, our effectiveness, or the appeal of our workplaces or our productivity will be affected by the sort of diversity and inclusion you reflect and represent in your sector, as well as in leadership roles.”

“Only three percent of CEOs and five percent of overall senior executives are from non-European or Aboriginal or Torres Strait Islander backgrounds,” she told the congress. And the bamboo ceiling that affects Asian Australians is almost as pervasive as the glass ceiling.

For women, lower pay, having primary responsibility for caregiving, retiring with less super and being faced with homelessness in old age are all major issues.

Women working in construction earn 29% less pay than their male peers, for example, something that the Property Council is seeking to address. Estimates are that it will take 50 years to close the CEO gender pay gap.

In all of this, the reality is that “we can’t be what we can’t see” and we more need strong role models to pave the way to a better future. What does that future look like and what are some of the benefits to be had?

As the Property Council makes clear through its initiatives, diverse teams are more innovative, productive and creative. “It’s good for business, and we know that businesses with inclusive organisational cultures are three times more likely to increase effectiveness and five times more likely to have more innovation,” she observed.

“More women in leadership leads to improved distribution of resources, better management of natural resources, and even makes a positive difference right down to simple measures, like profit and loss.”

“One of my favourite statistics is if you reduce the number of women in parliament by 5%, that country is five times more likely to use military intervention to resolve international disputes.”

Having women leaders also changes the perspectives and the aspirations of young women, and Natasha commended the work the Property Council has done in relation to teaching girls about the pathways available to them in the property sector.

Despite the property sector as a whole having some great diversity statistics, Natasha pointed out that culture is just as important as numbers. Continued progress depends on a whole range of practical measures such as fully flexible parental leave through to more symbolic ones like ensuring that professional delegations and events include a diversity of representation.

Nedd Brockmann: Get comfortable being uncomfortable

In 2022, Nedd Brockmann, a 24 year old electrician from western NSW, became the fastest Australian to run across the country and raised $2.5 million for the homeless in the process. Nedd took the stage with Adrian Byrt, VIC/TAS Event Manager, Property Council of Australia to speak about his colossal feat of endurance and how he inspired the nation.

Compared to athletes who train for decades to achieve major feats of endurance, Nedd has only been running three years. His motivation was simple: to change up his life and make things happen.

In 2020, feeling overweight and unfit, and covered in concrete dust after “a day on the tools” he went for a 3K run. Then, he decided he could do a whole lot more. He trained every day and in August of that year ran his first 100K. “You could not have ever told me I could do that, but I had an epiphany at that point that I had to make the most of every day,” he said.

After focusing on a goal he set for himself, the idea snowballed, and “giving back” became the major driving force. And in what would seem like an unthinkable idea for most of us, Nedd believed that the “natural progression” would be to run all the way across Australia.

Deciding to voice his dream and “tell the world” was a big part of this. “If you dream it, the stars will align and it becomes pretty special,” he said. After having a hard time raising support initially, sixteen sponsors gradually came on board to help him reach his goal of raising money for Australia’s homeless and the “Mobilise” charity.

Being oblivious and naive about what running across Australia actually meant was probably a good thing, according to Nedd. Among the challenges were the massive stretches of country, relentless passing freight trains, extreme calorie loading, grinding sleeplessness and the “joys” of encountering road kill.

Extreme stress, strain and injuries took their toll and a tough decision had to be made about whether to continue. With the help of running aids and medication, he pushed on. Momentum built up and he made it to the end at Bondi, with helicopters above and huge crowds buzzing around. “It was hectic and hard to process,” Nedd reflected.

Nedd’s ongoing message is that homelessness is the big issue. “One of the great tragedies is that we live in a world where there’s privilege and there’s a difference because of your circumstance,” he said. He believes that gambling, drugs and alcohol are a small part of the equation and that housing affordability and dometic violence play a much bigger role.

When asked about what should be our main takeaway he said, “When it comes to the homeless, don’t look the other way. “Go out into the street and talk to someone. Make that your uncomfortable challenge. And help, just help.”

Closing keynote: Peter Garrett

In the congress’s closing address, iconic Australian singer, musician, and political activist, Peter Garrett, provided the audience with some sobering food for thought and a call to action on activism, the environment and reconciliation.

“With eight billion humans on this planet,” he said, “humans are well and truly the dominant global species.”

“And the uncomfortable truth is that our accumulated endeavour is at risk of being destroyed by war or by turbo-charged climate chaos.”

Reflecting on history, Garrett observed that activism has often played the most important role in securing change. It has rarely been politicians that have taken the first steps on landmark environmental campaigns or on saving our most valuable world heritage areas, he noted.

“The activist is the annoying bell ringer who makes us feel uncomfortable with the facts … Who often sounds the alert on an issue … Who demands that governments act.” – Peter Garrett, musician and activist.

Garrett pointed out that direct action, campaigning and applying pressure on particular issues can only take place where democracy is present. While Australia is still “the lucky country” in this regard, we need to guard our freedoms vigilantly.

From a property industry point of view, while efforts to curtail carbon emissions and mitigate environmental damage are underway with initiatives like NABERS and Green Buildings, “we (still) lack of a whole of systems response to the climate crisis.” In Garrett’s view, the PCA and its members, along with Australians at large, must consider this with critical urgency.