Australia

20 January 2016, by Tony Crabb

The devaluation of the Australian dollar over the past five years means the country is in a prime position for investment, with demographic change creating opportunities.

 
 

Australia is known as the lucky country as it is endowed with a great deal of natural beauty, resources and all the amenity the developed world has to offer. With these great endowments come great opportunities.

The Australian dollar has devalued against the US dollar over the last five years which means real estate looks 36% cheaper to overseas buyers. This means that cross border investment is now inward rather than outward and Australia is well-placed to attract overseas currency.

FIGURE 1

Australian USD Exchange Rate ($) January 2014 – October 2015

 
Figure 1

Source: ABS, Savills Research

Demographic change is one of Australia’s opportunities. Over the next 30 years, Australia’s over 65 population is forecast to grow from three million people to nine million. There is a very strong real estate story in this with the opportunities for residential downsizing, lifestyle and leisure property, retirement living, care homes and the evolution of shopping centres. Demand is increasing and the big opportunities come with getting the timing and location right.

At the other end of the age scale, higher female workforce participation means the institutionalisation of childcare is growing dramatically. Demand for premises exceeds supply so returns look compelling. Government regulation of the sector should mean secure tenants and a relatively low-risk property play. The right buildings, locations, operators and service pricing should reap rewards.

Core plus tip: Australian Cities – short, medium and long term

Australia’s population growth is amongst the strongest in the world and is the strongest in its history. The vast majority of immigrants are under 35 years of age and have skills that are either in shortage or going to become scarce due to retirement of older workers. This creates ongoing demand for residential property, retail goods and services which feeds into logistics, warehousing and manufacturing and demand to occupy office property. The two cities set to benefit the most from this trend is Melbourne and Sydney. As the population of these two cities is set to double over the next 35 years, long term and short term property opportunities abound. Perth, Brisbane, Adelaide and Canberra will also see benefits from this trend.

FIGURE 2

Major City Populations and Growth Forecasts 2015 to 2025

 
Figure 2

Source: ABS, Savills Research

Value add tip: Student Housing – short and long term

Another sector related to demographics, but with implications less explored, is that of student accommodation. Australia is the fourth largest international student market in the world behind the UK, the USA and France. Not only does Australia have a very strong and well developed tertiary education sector servicing Australians but also the marketing of university places overseas is well-developed. However, the provision of accommodation for international students doesn’t match this and is grossly undersupplied.

Demand for tertiary education is growing globally and is a trend that is not expected to abate for decades to come. So the opportunities in this sector are both short term and long term. When the Australian dollar was at parity with the US dollar, international students would show a preference for universities in the United States but now a change in the exchange rate has essentially put a “36% off sale” tag on tertiary education in Australia. With Australian Universities consistently ranked highly in the world, demand has begun to skyrocket. The amount of student accommodation provided is currently estimated to be enough to cater for 10% of total demand. Melbourne is the third largest international student city in the world behind London and New York.

Opportunistic tip: Resorts and hospitality – short and long term

Currency movements and visitor volumes are also a theme for my final tip:tourism. Tourism property takes the form of resorts and hotels and can be found in locations right across Australia.

In the short term, with the currency not purchasing as much foreign currency as it used to, Australians are more likely to holiday at home. That trip to Hawaii, Las Vegas or New York or skiing in the Rockies is now 36% more expensive so revisiting an old favourite in Australia starts to look more appealing. The resorts of Queensland, northern New South Wales as well as the state capital cities have much to offer and ought to expect to see greater occupancy from locals.

The other compelling element of the exchange rate is that Australia just got 36% cheaper for overseas visitors. Whilst the tail end of the GFC is still having an impact on tourism numbers worldwide, Australia has gone from being an expensive place to visit to reasonably priced, even good value. We would expect to see more international visitor numbers in the near term too.

In the long term we would expect to see incredible numbers of Chinese visitors and this encourages us to recommend long term plays for Australian tourism assets. Starting in first-visit destinations like Sydney and Melbourne, we envisage Asia Pac visitors will later branch out into other pursuits on a second or third visit. This is where the forecasting risk increases as Chinese tourism is still in extreme infancy. A new-found penchant for sunshine and ocean pursuits might bode well for the Gold Coast, growth in snow pursuits would bode well for ski resorts while a search for wilderness and outdoor sports might make the right real estate in the Northern Territory look good value. The development of real estate to cater for these huge potential markets will require cutting edge intelligence on these target markets and a highly tuned responsiveness to this entirely new and fast-growing sector of Asian tourism.

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Yolande Barnes

Yolande Barnes

Director
World Research

Savills Margaret Street

+44 (0) 20 7409 8899

 

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