Regions on the radar as Australia grows up
By Sam Tamblyn & SSB
Is it still all risk for no reward in regional real estate?
For the first time in 30 years, more people moved to the regions than the cities, and in a big way – 70,900 in the year to last June, according to the Australian Bureau of Statistics, compared to the eight metropolitan cities where population cumulatively decreased by 25,985.
From a residential planning perspective, this created bedlam at municipalities where demand is outstripping supply and house prices have surged, including Victoria’s Surf Coast and Bass Coast, Maitland in NSW and Weipa, Mapoon and the Sunshine Coast in Queensland.
But this generational “resettling” is also creating opportunities for commercial property investors – population growth will increase demand for retail, office and industrial accommodation, some of which is in low supply in the face of massive incoming investment.
Population fuels jobs
With some regions recording record population growth, employment is also set to rise, which is good for commercial property.
According to the latest National Skills Commission employment projections, over 250,000 more jobs are forecast for regional Australia for the five years to 2025.
The impact of the higher employment levels of the regions can be seen in the office markets of Newcastle and the Gold Coast. According to the Property Council, as of January, occupied levels of office space in Newcastle reached new heights and the vacancy rate in the Gold Coast office market fell to its lowest since 2008. In contrast, CBD office vacancies have increased to their highest rates since 1997.
Typically, the conversation about whether to invest in regional commercial property is short: it can have advantages, including high yields, but there are better opportunities and fewer risks in town.
Metropolitan areas also have the track record of population growth, essential for commercial (and residential) property sectors to thrive and, in some cycles, boom – something that happens less frequently in the regions.
An important factor all three levels of government overlook is the jobs for both/all adults in a family not just the primary bread winner. Often families, be it a couple or families with children, reluctantly leave regional areas because of the lack of meaningful and career building jobs for all family members. Having one family member happily working a good job and the other partner stuck at home in a new area not having friends or family to interact with is a recipe for family disharmony and loneliness.
Research into movement
But despite the focus on the cities, Australia is growing out – about 8.2 million people (or just under a third of the country’s 25.75 million residents) live outside the eight capitals.
If these ratios continue, about 13 million people could live regionally when Australia’s population reaches 40 million by 2055.
Early research of movements since the pandemic show that tree- and sea-changing Australians aren’t relocating far: a University of Melbourne study found on average it was within 125 kilometres from participants’ bases.
This is consistent with ABS research showing the country’s fastest-growing regions, like the Gold Coast, Wollongong and Ballarat, are within “peri-urban” councils, classified as being just beyond the metropolitan fringe, with significant economic and social relationships to the largest nearby capital city, from which it attracts the most residents.
About 60 towns have a population of more than 20,000, considered big enough to provide the amenity and infrastructure of a city, and where rent and capital values have risen consistently throughout the cycles. Many of these precincts also have long-term land-use strategies to cater for population growth and commercial real estate development.
Broadly, population growth across Australia’s regions will also generate increased demand for retail and hospitality. Locations offering high amenity and accessibility are likely to experience greater tenant demand, which will fuel rental growth.
Rising demand for commercial property has also resulted in increased investor activity, with sales volumes reaching record highs last year.
Usually the domain of private investors, the regions are increasingly attracting institutional appetite. Haben Property Fund and Hong Kong-based JY Group acquired a 100 per cent interest in Wollongong Central last December for $402 million in the largest regional shopping centre sale nationally in more than five years. Elsewhere, Charter Hall bought SPC’s facility in Shepparton, Victoria, for $66 million on an initial passing yield of 6.1 per cent.
There is no doubt Australia has the potential to contain more than 20 towns of more than 100,000 people (the size of Albury-Wodonga or Bendigo), and that, in the longer term, this would be advantageous if we were to consider a population of 100 million or more.
But for this to succeed – and to have more comfort investing in the regions – all levels of government would need to step in with a range of incentives and strategies, perhaps starting with area migration agreements or regional provisional visas.
With offshore immigration set to return to pre-COVID levels by 2024, now might be the chance to put the “big Australia” concept, with the help of regions, back on the agenda.
While dwelling price growth in metropolitan areas has slowed recently, the growing challenge of housing affordability, coupled with more staff seeking to incorporate an element of remote working, show that the tree or sea change is no blip but a long-term trend.
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