Australia tips

25 January 2017, by Tony Crabb

Australia has been relying on strong levels of immigration to defuse a demographic time bomb

 
 

© 4Corners – Bondi Beach, Sydney

Australia, like many countries in the world, is faced with an ageing population. Left unchanged, the population would have only two workers for every retired person by 2050, down from six workers for every retiree now. These rather sobering demographic statistics make a strong case for action. Unfortunately, the choices – more taxes, fewer entitlements and more immigration – are generally considered politically unpalatable, although the future looks likely to hold some combination of all three.

Australia has so far been relying on strong levels of immigration to defuse the demographic time bomb. This policy and demographic change provide the opportunities for real estate now and in the future.

FIGURE 1

Australian Net Population Growth

 
Australian Net Population Growth

Source: ABS, Australian Government, Savills Research

Skilled migrants have a choice of countries to which they may be attracted, so hitherto attractive countries will face competition from others in the form of financial inducements like free education, free healthcare, low taxes, high wages and interesting jobs. Others will compete on lifestyle, liveability, safety, security and cleanliness.

According to the Economist Intelligence Unit, Australia is home to three of the world’s top ten most liveable cities. Many academic studies point to the preference among knowledge workers for ‘liveability’ over financial rewards and we expect knowledge workers to be doubly attracted to places where they can achieve both. In an increasingly mobile world, ‘liveability’ may be expected to result in higher real estate and living costs as occupier demand increases.

In 1973, universal access to tertiary education at a low cost became available in Australia. So the number of workers with tertiary qualifications has been growing steadily. In 1972, only 3 in 100 had higher education, now it is 25 in 100, and the forecast is that this will rise to more than 40 in 100. Countless studies show the value of ’knowledge workers’ to an economy and the increasing economic dependence that countries have on them. Attracting and retaining these workers will therefore determine the economic future of nations.

A 2016 study by Savills, ‘What Workers Want’, found they want their life contained within a half-hour radius. Work, rest and play accessible in 30 minutes by car, public transport, walking, cycling, etc. was their aspiration. It is little surprise, therefore, that skilled workers in the Millennial generation seek higher density, mixed use, urban environments rather than rural or suburban ones. This appears to us to be at the core of ‘liveability’ and is a theme to follow in assessing investment opportunities. Traditional, core assets, especially out of town business parks and retail warehouses, may need to be reassessed.

Transport infrastructure, in all its forms, provides the backbone of investment opportunities and it is generally around such infrastructure that industries agglomerate. To this end, rail, light rail, tram, bus, cycling and street networks point us to resilient locations in an age where technology allows us to be virtually mobile at a global level but the quality of local neighbourhoods has rarely mattered more.

Public infrastructure, from parliaments, law courts, council offices and hospitals to schools, universities, childcare and aged care are great attractors of people. This presents opportunities in the built environment. As the population ages, hospitals, respite care, aged care, retirement living, medical centres and allied health industries provide anchors for other real estate.

Core assets: Melbourne and Sydney

These cities are forecast to grow to populations of 8-10 million people. Infrastructure investments have been made, with more to follow, so property opportunities abound. As the cities grow, mini-CBDs (central business districts) are expected to form where industries agglomerate around transport infrastructure and increasingly dense living arrangements. The existing CBDs continue to be anchored by public infrastructure.

Value add: Hospitals are the new ‘mega-mall’

Hospitals are a large piece of public infrastructure and generally do not close down. As demand for hospital services increases, the land around them becomes more valuable for ancillary services. Short-term accommodation, entertainment, retail, offices, consulting suites, services and parking are just some of the value-add opportunities.

Opportunistic: Childcare

Increasingly, a double-income family is required to afford housing in big cities. As female workforce participation increases, demand for childcare services can be expected to increase. This offers opportunities for investors and developers in both neighbourhood and near-workplace crèches, nursery schools and day care.

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