2021 Has Disrupted The CBD Model

MEDIA RELEASE

21 December 2021

2021 has disrupted the CBD model

THE theory underscoring real estate industry valuation may need to be rewritten as a result of soaring development site transactions in 2021, as Australians look to change the way they live following the global COVID-19 pandemic.

Land, Agribusiness, Water and Development (LAWD) Senior Director, Peter Sagar, said a combination of behavioural and economic factors had driven demand for new residential, retail, industrial and commercial property in peri-urban corridors, regional and coastal areas, resulting in perhaps the market’s fastest upswing on record, and a potential rethink of the way property values are formulated.

“The ‘work from home’ phenomenon has fundamentally changed the real estate market forever,” Mr Sagar said.

“Whereas once proximity to a CBD was the most important metric from which demand and values were determined, the new post-COVID model assesses how close a property is to a lifestyle alternative, with reasonable commute time secondary to that.

“The best performers were those areas within a one-hour train ride or two-and-a-half-hour drive to a major employment node. On average, these locations experienced a price rise of more than 20 per cent over the past 12-months, to be above or in line with all the major cities for the same period.

“This shows there has been a massive structural change that has fuelled the performance of the growth corridors surrounding metropolitan areas and regional centres across the country.”

Demand has proven to extend beyond residential development, with outer suburban retail strips, childcare, and freight and logistic sites all performing exceptionally well.

LAWD, a leading real estate agency and advisory firm established two years ago, sold approximately 50 development sites in 2021, including some smaller and medium-density, and englobo (an undeveloped site that is zoned for significant subdivision) holdings ranging from $3 million to $10 million in value.

“We have also been involved in another six sales worth $10 million to $50 million and a handful of $100 to $150 million-plus transactions in the residential, retail and industrial space,” Mr Sagar said.

Mr Sagar advised that there are some barriers to the growth of Australia’s property development market, namely the current pause on migration, and supply chain issues impacting the supply of materials and labour, however he sees strong demand continuing overall.

“Access to materials and labour is driving up construction costs and could cause some headwinds in the coming months and years – but these issues are impacting cost and supply of new buildings, rather than underlying demand,” he said.

Mr Sagar said the “very, very strong” demand for development sites would continue in 2022, especially given the impending opening of international borders.

“Australia is considered a safe location for investment, from a sovereign risk perspective, and from a lifestyle perspective,” he said.

“Globally, it will continue to be a haven for educated, skilled or wealthy migrants and will be a destination of choice for people looking for a secure place to live, which we expect will underpin

demand for property in the next few years.”

 

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