<a href="https://www.apartments.com.au/new-apartments/smith-by-valli-collingwood-224-228-smith-street-collingwood-vic-3066">Smith Collingwood</a> is a new boutique apartment development bringing a refined, design-led approach to one of Melbourne’s most established inner-city neighbourhoods.

Designed by <a href="https://www.apartments.com.au/architects/pandolfini-architects">Pandolfini Architects</a> with interiors by <a href="https://www.apartments.com.au/interior-designers/lisa-buxton-interiors">Lisa Buxton</a>, Smith by Valli sits on iconic Smith Street and comprises just 22 residences tailored toward owner-occupiers seeking a more considered style of apartment living.

[smartcode_project:default project_id=140747 project_image_fid=367540]

The design of Smith focuses on a north-facing orientation across all residences, a relatively uncommon feature in dense inner-Melbourne settings. Each apartment has been planned to maximise natural light and outlook, alongside a material palette defined by warm tones, custom joinery, and a full suite of Gaggenau appliances.

The development comprises a mix of one, two, and three-bedroom apartments, with pricing currently ranging from just under $1 million to around $4.85 million for the premium penthouse-level residences, reflecting growing demand for luxury owner-occupier product in Melbourne’s inner urban market.

Residents will also have access to a private rooftop garden designed as an elevated retreat above the city, &nbsp;featuring curated landscaping, veggie boxes, intimate seating areas and spaces for relaxed gatherings. Sustainability has also been integrated into the project through a 7-star energy rating and two secure bicycle facilities for every residence.

[smartcode_project:default project_id=140747 project_image_fid=367529]

Smith by Valli sits in the heart of one of Melbourne’s most established retail and hospitality strips, within walking distance of venues such as Falco Bakery, Carnation Canteen and Alimentari, alongside parks and everyday services. With a Walk Score of 99, the location reinforces the project’s positioning toward buyers prioritising walkability and access over car dependency.

With only a limited number of residences, Smith reflects growing demand for smaller, highly curated apartment developments that prioritise design quality, liveability, and connection to neighbourhood character.

[smartcode_project_cta:default project_id=140747]

Joel Robinson

Smith by Valli delivers design-led apartments to Melbourne’s inner north

<a href="https://www.urban.com.au/developers/far-east-consortium">Far East Consortium</a>’s 640 Bourke Street stands as a testament to&nbsp;<a href="https://www.urban.com.au/developments/melbourne-vic-3000">Melbourne</a>’s ability to bridge its storied past with a bold vision for the future.&nbsp;

Rising above the heritage-listed Eliza Tinsley building, the development reflects a broader shift toward adaptive reuse in the city, where historical assets are retained and reinterpreted as part of new residential development.

Designed by <a href="https://www.urban.com.au/architects/rothelowman">Rothelowman</a>, <a href="https://www.apartments.com.au/new-apartments/640-bourke-street-melbourne-640-bourke-street-melbourne-vic-3000">640 Bourke Street</a> incorporates the Eliza Tinsley building as its foundation, housing a grand gallery and lobby space that serve as both a functional and symbolic centrepiece. The heritage façade informs the tower’s design, creating a connection between Melbourne’s past and its contemporary skyline.

"It's a significant asset and wants to be celebrated and experienced by all residents every single time they go in and out of the building," Rothelowman Principal Stuart Marsland said.

[smartcode_project:default project_id=509 project_image_fid=365684]

Above this historic base, the 68-storey tower will deliver just over 600 residences, a notable reduction from earlier schemes, reflecting a deliberate move toward larger-format apartments and a stronger owner-occupier focus.

Unlike traditional CBD developments that prioritised investor stock, 640 Bourke Street has been repositioned to respond to changing buyer expectations.

"The discussion was all around making 640 Bourke Street the best residence to live in, to be much more focused on the people in the building rather than people looking at the building," Marsland explained.&nbsp;

This shift is evident in the development’s interiors, which emphasise practical luxury with spacious layouts, high ceilings, and floor-to-ceiling windows framing sweeping views of Melbourne and Port Phillip Bay.&nbsp;

“What it's meant for 640 Bourke is we've actually reduced the number of apartments. We've increased the overall size of the apartments. We don't have any studios in here, and what that does for a project is it elevates it," Lauren Sheldon, Far East Consortium’s Director of Sales and Marketing, said.&nbsp;

[smartcode_project:default project_id=509 project_image_fid=365687]

Rothelowman Associate Jun Chang added, "We were given the opportunity to be more generous. The apartments became bigger and squarer than any other apartments which had been designed in the CBD before that."&nbsp;

Amenities spanning more than 3,000 sqm across multiple levels further reinforce this focus on resident experience. These include a pool, gym, co-working areas, and a range of hospitality-inspired spaces such as a whisky lounge, library, and private dining rooms, many drawing reference from traditional bathhouses and Melbourne’s laneway culture.

"We wanted to make both the pool and the gym area to be absolutely destinational, and when you traverse across to these spaces, there is a gentle familiarity to the beautiful notions of the hammams and the Roman baths, a gentle nod to history," Chang noted.

At street level, the project contributes to the ongoing transformation of the western CBD, with upgrades to Langs Lane and the introduction of retail, hospitality, and gallery spaces designed to activate the precinct and strengthen its connection to the surrounding city fabric.

[smartcode_project:default project_id=509 project_image_fid=365689]

The location places residents within walking distance of Southern Cross Station, Flagstaff Gardens, Queen Victoria Market, and the Docklands waterfront, positioning the development within a rapidly evolving inner-city neighbourhood.

"We believe it's the best site left in the city of Melbourne," Craig Williams, Executive Director at Far East Consortium, said.&nbsp;

640 Bourke Street is Far East Consortium’s 14th building in Melbourne’s western CBD.

"A very elegant designed building. It's going to be a Melbourne statement for many, many years to come."

One-bedroom apartments are priced from around $640,000, with 640 Bourke Street targeting completion in 2029.

Renders shown are Artist's Impressions correct as of May 2026.

[smartcode_project_cta:default project_id=509]

Heritage-led design anchors Far East Consortium’s 640 Bourke St, Melbourne

<a href="https://www.apartments.com.au/developers/mayd-group">MAYD Group</a> has set a new residential price record in Queensland with the $30 million sale of the penthouse at its <a href="https://www.apartments.com.au/new-apartments/one-burleigh-88-the-esplanade-burleigh-heads-qld-4220">ONE Burleigh</a> development in Burleigh Heads.

The sale equates to around $37,500 per sqm.

The two-level, 800 sqm penthouse, featuring five bedrooms, five bathrooms, five car spaces, and a private infinity pool overlooking the Pacific Ocean, was acquired by a Gold Coast-based entrepreneur, highlighting continued demand for ultra-premium beachfront product.

Selling agent Freddie Tehle of PRD Burleigh Heads said the result reflects tightening supply of high-quality, large-format apartments in Burleigh.

“There’s very limited opportunity to secure this level of scale and absolute beachfront position in <a href="https://www.apartments.com.au/developments/burleigh-heads-qld-4220">Burleigh Heads</a>,” Tehle said.

“Buyers are increasingly seeking apartments that genuinely replace a standalone home, and this penthouse delivers that with its size, privacy, and direct ocean frontage.”

[smartcode_project:default project_id=146358 project_image_fid=323057]

The sale comes as construction progresses on ONE Burleigh, a boutique development of 17 full-floor residences at 88 The Esplanade, scheduled for completion in early 2027.

Developed by MAYD Group and designed by <a href="https://www.apartments.com.au/architects/mas-architecture-studio">MAS Architecture</a> with interiors by <a href="https://www.apartments.com.au/interior-designers/sici-design">Sici Design</a>, the project has been positioned as a collection of house-sized beachfront apartments, each occupying an entire floor with around 381 sqm of internal and external living space.

When construction commenced, MAYD director Todd Mould pointed to the long-term resilience of premium coastal real estate as a key driver behind the project.

“Real estate, particularly at the premium end, remains one of the most resilient and proven long-term investment avenues,” Mould said.

“Our ambition is that anyone who buys a MAYD-built product can genuinely feel the care, craftsmanship and commitment we bring to every detail.”

[smartcode_project:default project_id=146358 project_image_fid=323055]

Each residence has been configured with four bedrooms, multiple living zones, a private office, and expansive ocean-facing terraces. Interiors draw on a restrained material palette, including travertine stone, timber joinery, and integrated premium appliances.

Interior designer Sici Design said the approach was to reflect the project’s coastal setting through both materiality and spatial planning.

“ONE Burleigh is our vision of luxury living, designed to bring the essence of Burleigh Heads' vibrant coastal beauty into an unparalleled residential experience.”

Residents will have access to a suite of wellness-focused amenities, including pools, sauna facilities, and dedicated relaxation spaces, reflecting a broader shift toward lifestyle-driven apartment design on the Gold Coast.

[smartcode_project:default project_id=146358 project_image_fid=323052]

The project occupies a southern Esplanade site with uninterrupted beachfront frontage, an increasingly rare offering in Burleigh Heads, free from the Norfolk Pines that line much of the coastline and often limit direct ocean outlook.

Mould said the design intent was to balance that outlook with a sense of retreat.

“Living at ONE Burleigh is about how your day naturally unfolds, morning light across the ocean, coffee on the balcony, and being in Burleigh but elevated above the noise.”

The result further reinforces Burleigh Heads’ emergence as one of the Gold Coast’s most tightly held and supply-constrained beachfront markets, where boutique, owner-occupier-focused developments are increasingly setting new price benchmarks.

[smartcode_project_cta:default project_id=146358]

MAYD Group sets Queensland record with $30 million penthouse sale at ONE Burleigh in Burleigh Heads

Apartment developers in the Gold Coast are finding new, creative ways to differentiate themselves from competing projects, as new supply starts to flow through up and down the Coast.

Developer BIG Projects brought in the renowned Sydney-based design studio YSG Studio to craft the interiors for The Frederick, BIG Projects' new Mermaid Beach project and YSG Studio's first move into the multi-residential development space.

[smartcode_project:default project_id=110588 project_image_fid=5346]

It was a strategic move for BIG Projects to bring in a Sydney eye to the development.

“Our role is to give our design partners the space and freedom to explore,” says Matt Barrett, Director of BIG Projects.

“We wanted YSG Studio to capture the essence of Nobby’s, to design a building that embraces life, light and connection, while creating a genuine sense of place.”

There are only 39 apartments in The Frederick, including a striking beach house, just 100 metres from the booming Nobby Beach precinct.&nbsp;

[smartcode_project:default project_id=110588 project_image_fid=5347]

Yasmine Ghoniem, Director of YSG Studio, says their vision&nbsp;for The Frederick "reinvents coastal living."

“Nobby’s has such an iconic energy, it’s one of those rare pockets of the Gold Coast where the community, the beach, and the streets all feel connected,” Ghoniem says.

"Responding to the neighbouring coastline, soothing curves add a relaxing regional overlay, while unique detailing really sets it apart. It’s a place that feels lived in from the moment you step inside.”

A standout feature of The Frederick is its rooftop terrace, an uncommon inclusion for a boutique, low-rise building, where amenity is typically concentrated at ground level.

[smartcode_project:default project_id=110588 project_image_fid=5360]

Positioned to capture panoramic views from the hinterland to the ocean, the rooftop has been designed as a series of intimate zones. It includes a pool, sauna, sun decks, workspaces and dedicated entertaining areas.

“The rooftop was conceived as a collection of spaces where residents can unwind and connect, an extension of the Nobby’s lifestyle,” Barrett says.

Architecture for the project was led by Plus Studio, with landscape design by LDG Landscape Architecture.

SRQ Projects Director Nick Clydsdale, who is handling sales at The Frederick, says the majority of enquiry is coming from South East QLD and Victorian buyers who have been actively searching between Broadbeach and Mermaid Beach for some time.

"They’ve reviewed a number of projects, however this one has stood out for its unique detailing and compelling design,"&nbsp;Clydsdale says.

Site demolition is slated for this month, with construction commencing soon after. BIG Projects is targeting a late 2027 completion.

[smartcode_project_cta:default project_id=110588]

Sydney’s YSG Studio makes Gold Coast multi-residential debut with BIG Projects at The Frederick

Melbourne-based property developer ALTA Property has this week achieved planning approval for the adaptive re-use of a former commercial tower into a $200 million, 169-apartment project at 10 Queens Road, one of the last developable sites along the Albert Park Lake-fronting boulevard.&nbsp;

Set within one of Melbourne’s most sought-after precincts and designed by <a href="https://www.apartments.com.au/architects/fraser-partners-0">Fraser and Partners</a>, the illustrious building will offer unparalleled views across Albert Park Lake, Port Phillip Bay and Melbourne CBD.&nbsp;

The mix of 1, 2 and 3-bedroom residences will be complemented by a ground-floor amenity featuring private dining, a lounge bar, gym and wellness spaces, co-working, outdoor communal gardens, and retail.&nbsp;

The 17-storey building is a masterclass in adaptive re-use, with the existing commercial building’s façade, shell and internal structure to be retained, before high-end residences are built from the ground up in a newly built Albert Park facing addition to the building.&nbsp;

Sitting atop the building will be two 320+sqm penthouses with private rooftop terraces, which are expected to be priced between $9 - $11 million.&nbsp;

<img alt="ALTA Property achieves permit approval for $200 million Queens Road tower" data-entity-type="file" data-entity-uuid="aa11211b-5581-43f9-940c-fc84d30a0e61" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/C_04.png?VersionId=Yhf5p_1EgGDu_zOIMFgvA8Ug8j3sTFQs" />

Architecturally, the building will feature a curved, geometric façade that celebrates and elevates the existing structure, with warm, muted tones which were selected to extend the materiality of the existing building rather than contrast it.&nbsp;

Interiors will bring together three metre high ceilings with waffle concrete in some spaces, natural timber, granite and Australian materials, culminating in crafted, generous and considered spaces that are defined by authenticity.&nbsp;

The adaptive re-use means that the Queens Road project will be a sustainability led, high-quality finished product, with a 62% saving in carbon emissions by re-using the existing structure rather than knocking it down and rebuilding.&nbsp;

ALTA Property was launched by Nigel Givoni in 2023, bringing over 25 years of experience in multi level residential delivery.&nbsp;

Melbourne’s property market growth is currently led by apartments. According to RPM VIC Apartments &amp; Townhomes Market Report (April 2026), units are outpacing houses, especially in the middle ring suburbs where median prices hit $757,500 – a four-year high that represents 2.9 percent growth quarter-on-quarter.&nbsp;

<img alt="ALTA Property achieves permit approval for $200 million Queens Road tower" data-entity-type="file" data-entity-uuid="647e13d7-b4bc-433a-9bc9-fe3c3dd4f2ec" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/V_06.png?VersionId=ou4NUCWUgA3NAy.6CQJlEdKX50j3dOk6" />

For ALTA Property Founder Nigel Givoni, this performance speaks to the confidence he has in the Melbourne market.&nbsp;

“Queens Road represents a rare opportunity to continue to shape our presence in the Melbourne market.,"&nbsp;Givoni says.

"With a considered project team and a premier site along one of the city’s most sought-after boulevards, we look forward to contributing to the fabric of this established address.

“Other Australian markets are getting a lot of attention, but I believe the depth of value in Melbourne is being overlooked. The fundamentals are strong, population growth is steady and, based on our preliminary conversations with a leading builder, construction costs are beginning to normalise, creating further opportunity."

Givoni says the project is a&nbsp;highly considered example of adaptive re-use, delivering quality, high-end residences, premium hotel-inspired amenities and an architecturally striking façade, all achieved without the need to remove the existing structure.

"We are really looking forward to the market’s response,” he said.&nbsp;

ALTA Property to deliver $200 million Queens Road apartment tower

Prominent New Zealand apartment and hotel operator, <a href="/developers/safari-group">Safari Group</a>, is offering up a prime investment opportunity for Australians to purchase off the plan in one of the world’s most popular ski destinations.

They recently took to market Mountain Oak Queenstown Apartments, in the growing precinct of Remarkables Park in Frankton, near the airport and at the foot of The Remarkables - the mountain range the locals like to call “The Remarks”.&nbsp;

Sydney investors have shown interest in the one, two and three-bedroom apartments that secure high-season occupancy six months over the year, primarily over summer and winter months.

They average 90 per cent occupancy across their portfolio over January, February, March, August, November and December, while shoulder season months of April, July, September and October are still occupied 70 per cent of the time, with the growing appeal of Queenstown becoming not just a hotspot for the snow, but a lifestyle destination.

Even in the low seasons of May and June, occupancy levels reach around 40 per cent.

<img alt="Safari Group’s Mountain Oak Apartments brings new investment potential to Queenstown" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/f_auto,c_limit,w_1440,q_auto/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/field/image/Ext_Cam15_Sunny.jpg?VersionId=SJAROUM_1s.Tr5ciMk4EEj5oAt_Vewmv" />

Safari’s Safari Hotels arm can also manage the holiday letting for an investor, from the listing on holiday accommodation websites such as Airbnb and Booking.com to the cleaning and maintenance of the investment. They’ve been in the short stay management business for 15 years and offer 24/7 support for investors, an important convenience benefit for any overseas investor

Another major drawcard for Australians is that New Zealand doesn’t have a stamp duty policy - so the entry price of NZ$639,000 (AU$586,000), is all that is payable on completion.

<img alt="Safari Group’s Mountain Oak Apartments brings new investment potential to Queenstown" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,dpr_2.0,q_auto:good/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/313_Livingv2_WEB.jpg?VersionId=nV229fM0ZeYpoxOrX372HyGjfwY_LR8c" />

Safari is starting construction of the 141 apartments in Q2 this year, with a two-year build estimated to complete in mid-to-late 2027.<img alt="" data-entity-type="" data-entity-uuid="" height="15" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXczFpFAb7WuA6f4f9TtKWcqXyNwR8qqtakWv352ERkpqNlP3KwIo8YKxw67jZNHfpjEGIZGv5MQTbnvLZwNt8iu9IVdOrswOjCvBZ4zhSoOOLrpt6etVEZTN1gkBho0r_R72zdHNA?key=yq3daOanqHSb88QFd8jGYKdb" title="Click and drag to move" width="15" />​

The apartments will feature modern amenities and contemporary designs with expansive windows capturing sweeping views of The Remarkables mountain range.&nbsp;

Interiors are equipped with modern finishes, premium appliances, and secure electronic key-locked doors, ensuring a comfortable living experience for residents and guests alike.

With its strategic location near Coronet Peak and Cardrona Alpine Resort, as well as key retail and dining precincts such as Market Street, Five Mile Shopping Centre, and Remarkables Market, Mountain Oak offers a strong proposition for investors seeking high rental yields and capital appreciation in one of New Zealand’s most sought-after locations.&nbsp;

Queenstown’s sustained demand for visitor accommodation and rental properties is underpinned by a shortage of housing options, attracting both local and international buyers.

Safari Group offers low-touch investment proposition in Queenstown’s popular ski fields district

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EXPERT OBSERVER
<div id="post-body-36613851729109642" class="post-body entry-content">
<div>In May 2018, I noted that I didn't think we'd end up with a major housing crunch.</div>
<div> </div>
<div>Part of my reasoning was that 'lenders gonna lend'.</div>
<div> </div>
<div>In other words, just as we've used a knife and fork for more than 800 years, Australia's financial system has been deregulated for decades, and we still have four major banks, all of which need to lend money to make money.</div>
<div> </div>
<div>I felt this would insulate the housing downturn, despite the heavy macroprudential changes.</div>
<div> </div>
<div>What wasn't so clear at that time, at least to me, was the full impact that the Royal Commission would have on the appetite of lenders. </div>
<div> </div>
<div>In the event, a full seven rounds of public hearings was played out in front the media throng, and the final report wasn't delivered until last month.</div>
<div> </div>
<div>Accordingly there have been some nervous operators over the past year or so, and there was a very noticeable impact on mortgage processing and practices. </div>
<div> </div>
<div>Policy moves</div>
<div> </div>
<div>The RC final report being submitted only in February 2019, this is all very much fresh in the memory, so any loosening of the credit taps is likely to be gradual.</div>
<div> </div>
<div>But still, with a smaller mortgage pie to be shared around - lending volumes are down by a fifth from a year earlier - and major banks having lost market share in recent years, I believe there will be some policy moves to win business and get mortgage book growth back into positive territory.</div>
<div> </div>
<div>It's only March, bear in mind, the month after the final RC report, but today we saw the first interesting move of any note, from ANZ Bank:</div>
<div> </div>
<div class="separator"><a href="https://3.bp.blogspot.com/-RLHPrcZuxFk/XIn45vh_1pI/AAAAAAAAu98/uLIiYyi0OloMf308ZHbLqUL6TF8JDBlrwCLcBGAs/s1600/Wemyss.jpg"><img src="https://3.bp.blogspot.com/-RLHPrcZuxFk/XIn45vh_1pI/AAAAAAAAu98/uLIiYyi0OloMf308ZHbLqUL6TF8JDBlrwCLcBGAs/s640/Wemyss.jpg" width="640" height="233" data-original-height="274" data-original-width="745"></a></div>
<div> </div>
<div>90 per cent LVR investment mortgages with a 10-year interest-only term should generate a bit of welcome business for ANZ (not to mention profit, since rates and have tended to be higher on IO mortgages). </div>
<div>
 And ANZ has generally been one of the more proactive lenders of late.</div>
<div> </div>
<div>Some context is due.</div>
<div> </div>
<div>Borrowers taking this option on a 10-year IO mortgage will see sundry borrowing capacity hampered, due to the way in which this mortgage debt is assessed.</div>
<div> </div>
<div>And, indeed, most IO loans don't run for 10 years. </div>
<div> </div>
<div>But it's a nice cushion for borrowers seeking IO certainty, and moreover it's the first positive signal of competition returning for investor borrowers. </div>
<div> </div>
<div>
PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>. 
</div>
</div>
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pwargent-M4siyDbqQY

Credit to loosen a little: Pete Wargent

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EXPERT OBSERVATION
When I was in my early 20s I thought socialism might be the way to go. Two things happened. One I studied economics which led me to the conclusion that socialism/heavy state intervention doesn’t lead to the best outcome in terms of living standards for most. Second, I had the benefit of a trip to the USSR before it and the eastern bloc disintegrated. It must have been Paul McCartney’s faux Beach Boys’, “Back in the USSR” that got me interested! Sure the history and scenery were fantastic and I like the fact that I saw it before the wall came down – but economically it was a mess. And trying to spend excess roubles before we left the USSR was a struggle (nothing but off chocolate to spend them on). “Socialism” seemed to work a bit better in the Deutsche Democratic Republic - but not really and it was a relief to come through Checkpoint Charlie knowing decent food (McDonald’s) was waiting.
So I ended up gravitating to the centre with the view that the best approach is to allow a market economy with the government providing a good safety net, education and intervening where there are market failures. But a wise man told me when I was young that it’s best to start off on the left when you are young otherwise you will end being like Attila the Hun, as you move to the right as you age. Given the tendency for the young to start off on the left its no surprise to see younger generations favour a bigger role for government in what The Economist magazine has dubbed “millennial socialism”.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/3/14/role%20for%20government%20.jpg" alt="">
If the millennials and Gen Z follow the normal pattern they will shift to the right as they age like their forebears. So nothing new! Well maybe but there is a big difference now compared to the 1980s. Back in the 1980s the political pendulum (or technically the median voter) was moving to the right. So my ageing was in tune with a big picture political cycle. Now the pendulum is swinging left. We first looked at this three years ago. Since then it’s become more evident. This note looks at what’s driving it and what it means for investors.
Political cycles beyond elections
Just as the weather, economies and financial markets go in cycles so it is with politics, even beyond standard electoral cycles. This has been clearly evident over the last century:
1930s-1970s - the Great Depression gave rise to a fear of deflation and high unemployment and a scepticism of free markets. The political pendulum swung to the left and culminated in the economic disaster of the high tax, protectionism, growing state intervention and the welfare state of the late 1960s and 1970s that gave rise to stagflation.
1980s-2000s – stagflation and the failure of heavy government intervention gave rise to popular support for the economic rationalist/right of centre policies of the 1980s. Thatcher, Reagan and Hawke and Keating ushered in a period of deregulation, freer trade, privatisation, lower marginal tax rates, tougher restrictions on access to welfare, measures to reign in budget deficits and other supply side economic reforms designed to boost productivity. The middle class didn’t support higher taxes on the rich because they aspired to be rich. This was all helped along by the collapse of communism and the integration of the old USSR and China into global trade. The political pendulum swung to the right and there was talk of “The End of History” with general agreement that free market democracies were the way to go.
2010 - ? – but post the global financial crisis (GFC) it seems the pendulum is swinging to the left again and support for economic rationalist policies seems to be fading if not reversing.
What’s pushing the political pendulum to the left?
This reflects a range of factors, in particular:
<ul>
<li>the feeling that the GFC indicated financial de-regulation had gone too far;</li>
<li>constrained and fragile economic growth in recent years;</li>
<li>stagnant real wages and incomes for median households;</li>
<li>high household debt levels preventing individuals from</li>
<li>taking on more debt as a way to boost living standards;</li>
<li>rising levels of inequality and perceptions that “it’s unfair”;</li>
<li>the perceived failure of the baby boomer generation of political leaders to do much about climate change;</li>
<li>examples of big business doing the wrong thing;</li>
<li>a backlash against immigration in some countries; and </li>
<li>a backlash against globalisation.</li>
</ul>
Of course, it’s being aided by a dimming of memories of stagflation of the 1970s and its causes and the failures of socialism as highlighted by the USSR (although Venezuela provides a current example). So government related solutions or socialism seem more attractive. Allied to this are economic theories like Modern Monetary Theory (or rather, Magic Mushroom Theory) that contends governments can borrow and spend freely in the current environment of spare capacity globally spurred along by the crazy argument that quantitative easing did not cause hyper inflation and higher interest rates so why should bigger budget deficits.
Of these rising inequality and perceptions of stagnant living standards are the big ones. The next chart shows the Gini coefficient, which is about the best measure of income inequality, calculated on incomes after taxes and transfers. It ranges from zero or perfect equality to one indicating perfect inequality with one household/individual, receiving all income.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/3/14/inequality%20.jpg" alt="">
The key point is that there has been a general trend higher in inequality during the past 30 years. This is particularly evident in the emerging world but also the US, UK and Australia. Rising levels of income inequality also appears to have come with increase in wealth inequality. Rising inequality may have been more bearable or “masked” in the 1990s and 2000s as nominal income was rising faster and households took on debt to boost their living standards. But in recent times this has become harder and so rising inequality is leading to a backlash.
The political response
In this environment (often populist) politicians have been able to easily tap into voter anger and argue the case for greater public sector involvement in the economy.
This was evident in support for self-declared socialist Bernie Sanders and Donald Trump in the US in 2016 (although Trump’s focus on deregulation and tax cuts look like a temporary deviation right). It’s now even more evident in the Democrats with the Green New Deal (that plans to rid the US of carbon emissions – and planes &amp; cows – in a decade) and 2020 Democrat presidential aspirants adopting variations of Bernie Sanders’ policies, with proposals for wealth taxes and a 70% tax rate for income above $10 million (which is supported by 59% of Americans). It’s also evident in less US public concern about rising public debt.
It’s been evident in the Brexit vote in the UK which represented a backlash against globalisation and the left wing turn in the British Labour Party under Jeremy Corbyn.
In Australia, we are seeing an intensification of theleft right divide not seen since1970s. The ALP is far from the economic rationalist policies of Hawke and Keating. Policies of higher taxes for the “big end of town” (bringing back the Budget Repair Levy and winding back various tax concessions), significantly increased spending on health and education, some reregulation of the labour market and talk of raising the minimum wage to become a “living wage” all suggest a populist focus reflecting a change in voter preferences. The same pressures are also evident in some ways in proposed intervention in the energy sector.
Qualifications
Of course, there are various qualifications to this leftward shift. First, it’s most evident in Anglo countries because it's here that the swing to the right and economic rationalism was most pronounced in the 1980s and 90s and where inequality is more of an issue. Europe never fully bought into the supply side revolution of Thatcher and Reagan and inequality has not risen much. In fact, France under Macron looks to be embarking on its own version of Thatcherism (with the yellow jacket protests proving nothing more than that Macron is actually doing something) which should augur well for its long-term prospects if Macron stays the course. Second, it’s arguable that if the Democrats are to win the US presidential election next year they have to win the mid-west and a socialist presidential candidate may not cut it there. Third, even many on the left are sceptical of ever larger budget deficits – eg in Australia the ALP has been talking of a stronger budgetary position. Finally, there is an argument that a modest move left is necessary to curb the rise in inequality and so save capitalism – much as Keynesian economics “saved” it after the Great Depression.
But what does it all mean for investors?
The risk over time is that a more left leaning electorate will mean a tendency towards bigger government, bigger budget deficits, more regulation, higher effective top marginal tax rates, less globalisation and tougher rules on immigration in some countries. Or it may just mean a stalling in economic reforms. The risk is that it will act as another constraint on productivity and economic growth and eventually see higher inflation if the supply side of the economy suffers.
It's worth putting this in context. The swing in the political pendulum to the right and the economic rationalist/supply side policies – of deregulation, privatisation, smaller government, tax cuts, low inflation, globalisation - that followed along with the peace dividend from the collapse of communism and attractively high starting point dividend yields and bond yields created a powerful tail wind that drove strong returns in shares and bonds starting in the early 1980s.
Now the environment is very different. Starting point investment yields are ultra-low for most assets and a reversal of economic rationalist policies in favour re-regulation, higher taxes and more government risk slowing productivity growth and eventually resulting in higher inflation.
The key point is that the powerful tailwind from the economic rationalist policies (deregulation, smaller government and globalisation) is now behind us and is contributing along with a range of other factors to a much more constrained return environment for investors. Our medium-term projection for the investment return from a balanced mix of assets have been steadily declining in recent years and is now running around 6.4% pa, which is down from over 10% a decade ago.
In this environment, there is a strong case to focus on investment strategies targeting the achievement over time of goals defined in terms of returns, investment income or whatever is required and using a flexible approach to do so as opposed to relying solely on set and forget strategies that depend heavily on market-based returns. There is also a case to look out for assets that may buck the trend of constrained returns as support for economic rationalist policies recede. French shares may be worth looking at!
DR SHANE OLIVER is the Head of Investment Strategy and Chief Economist for AMP Capital
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soliver-smf6LQXgW9

The political pendulum swings back to the left - what it means for investors: Shane Oliver

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Plans for a new resort-style water park in Melbourne’s south-eastern suburb of Dingley Village have been unveiled.
Upon completion, the $100 million project will be the largest indoor water park in the southern hemisphere.
The project is a venture between diversified property group Pellicano and hospitality group Zagame along with Canadian-based leading water park professionals WhiteWater West and local architectural practice Peddle Thorp.
To be known as Zagame’s Wild Water Park, the facility will provide 18,200 square metres of indoor and 20,000 square metres of outdoor water attractions.
The park will include a 180-degree semi-circular stand-up surf pool, a tunnel-like wave ski-slide complete with video controls and an indoor-outdoor ‘lazy river’.
The park will utilise an eWater system, solar power technology, systems for the collection and reuse of rainwater, extensive plantation of indigenous wetland vegetation and a concentration on composting, recycling and biodegradable processes. 
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/3/5/Pellicano_Water%20park_Render%201.jpg" alt="">
Pellicano managing director Nando Pellicano said it will provide visitors and the wider community with both fun and education. 
“Pellicano has owned this site for over 30 years and is thrilled to reveal our plans to inject much-needed, year-round, all-weather fun into Melbourne’s family entertainment landscape,” he said.
“At Pellicano we consistently aim to deliver high-quality, dynamic projects and we  have made every effort to incorporate this ideology of excellence in the planning stages of this project.” 
Pellicano and Zagame previously collaborated on the regeneration of Paradise Resort on the Gold Coast.
Zagame Corporation’s director Robert Zagame says partnering with Pellicano for this project was an exciting opportunity for the company.
“This partnership was a natural fit for Zagame’s; as a well-established family-owned business, Pellicano’s values align closely with our own and we both continue to maintain a benchmark of excellence in all our business dealings,” Zagame said.
“With both companies established in Victoria, we embrace any opportunity to position our home state as the place to be, and we’re excited to witness the economic benefits a major tourism project such as this will deliver to our home.” 
“Upon completion we will not only be opening our doors to leisure and fun seekers but to primary, secondary and tertiary students who will benefit from behind-the-scenes exposure to the best-practice engineering and technology which will be on display.” 
WhiteWater West’ s President and CEO, Geoff Chutter, said it was thrilled to be part of the project.
“We’re proud that our local branch, WhiteWater West Australia will be partnering with Australian companies to build this ground-breaking water park that features some of our most iconic rides and will provide huge entertainment value for families,” Chutter said.
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j.ballantyne1990-6AQqhLzZaK

Plans for largest indoor water park in the southern hemisphere in Dingley Village revealed 

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EXPERT OBSERVATION 
The deepening market downturn is starting to weigh more heavily on consumer sentiment towards housing. Both the complexion of this impact and the extent to which market weakening has outstripped weakness in housing-related sentiment provide important clues about some of the dynamics at play.
Consumers’ housing-related sentiment has deteriorated since November with negatives around price expectations and elevated risk aversion more than offsetting the boost from improving affordability. While sentiment overall is downbeat, the market performance has been markedly weaker than sentiment over the last year, suggesting that other factors are impacting. In particular, a tightening in loan standards from some lenders may have compounded what were already negative market dynamics following a drop in investor activity and initial price correction.
Nationally, the Westpac Melbourne Institute ‘time to buy a dwelling’ index has slipped 1.8% since November but is still up 8.6% year on year. Improving affordability continues to see a lift in NSW and Vic, the latter reaching a five year high in Feb. However buyer sentiment is still sub-par in these states while it has become a little more unsettled in other states.
Price expectations have been the big mover. The Westpac–MI Consumer House Price Expectations Index posted a sharp 11% drop over the three months to February, hitting a new historical low since we began compiling the index in May 2009. Weakness remains more pronounced in NSW and Vic, with just over half of consumers in these states expecting prices to be lower in a year’s time. That said, the more positive views in other states are also starting to show signs of softening with notable pull backs in Qld and WA.
These two aspects of housing-related sentiment highlight the ‘dynamics’ of the housing cycle. Price declines are currently dominating with negative expectations around prices likely to continue feeding into investor weakness and encourage buyers to delay purchases. At some point though, improving affordability should generate a bigger lift in buyer sentiment and a pick-up in demand that stabilises the market – exactly where that point is and how we get there remain more open questions.
<img src="https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/image/Housing_Pulse/Housing_Pulse_Bites/2019-02/Housing-pulse-bite-2019-02-1.jpg" alt="">
Matthew Hassan is senior economist at Westpac. 
Read the full report: <a href="https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/file/Australia/2019/February/WestpacHousingPulseFebruary2019.pdf" target="_blank">Westpac Housing Pulse</a>. 
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Matthew_Hassan-HHWHptmrw4

What consumer sentiment is telling us about the housing downturn: Westpac's Matthew Hassan

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Dexus, Australia's biggest office landlord, has taken full control over the MLC Centre in Martin Place.
The ASX-listed group already owned half of the building, and have implemented a purchase right over the remaining half that was <a href="/expert-insights/investing/half-of-harry-seidlers-mlc-centre-to-be-sold-by-gpt">first listed in January</a>.
It is believed Dexus have paid $800 million.
Just last week Savills Australia’s Ian Hetherington, Simon Fenn and Ben Azar, and Cushman &amp; Wakefield’s Josh Cullen and Mark Hansen were been appointed to market the landmark asset.
The 50% stake, which was owned by the GPT Group, has a book value of $725 million.
The proceeds will be directed to new office and residential towers GPT at Melbourne Central shopping centre and at Parramatta.
GPT chief Bob Johnston said the group’s investment in the MLC centre had delivered investors an “exceptional” return.
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jrobinson-rf4aSBido9

Dexus take full control of MLC Centre

How climate change could affect the economy and monetary policy: RBA's Guy Debelle

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Housing affordability supposedly ranks as a top-three Federal election issue, after the cost of living and healthcare and ageing, according to a survey by the Housing Industry Association.
Affordability ranked ahead of immigration and the environment, concluded the JWS Research survey of 1500 people.
"The importance of home ownership to Australians couldn't be clearer. Now more than ever, home ownership matters," the Housing Industry Association chief economist Tim Reardon noted.
It comes as first home buyers have been more active in the market with Sydney housing around 10% more affordable than this time last year.
A typical Sydney dwelling now costs $789,000, below the $884,000 it was early last year, according to CoreLogic. The biggest Sydney declines have been in the municipalities of Ryde and Canterbury-Bankstown.
Of course, it is not just those aspiring to first home ownership that worry about affordability, as separate polling research in Tony Abbott's seat of Warringah on Sydney's Northern beaches indicated.
The concerns of Warringah voters focused around infrastructure, especially roads and traffic congestion, population growth, environmental concerns, but also housing affordability for their children.
The focus groups, sponsored by the University of Canberra’s Democracy 2025 project and conducted by Landscape Research, suggested older Warringah voters were more engaged, more readily able to discuss issues in federal politics, while younger voters have largely tuned out, feeling powerless.
Reardon said the Australian dream of owning a home was "still embedded in the psyche of Australians". He adds with a federal election imminent, it was important to recognise that 71% of people believe governments have an important role in helping Australians achieve their dream.
Interestingly, the HIA research found that home ownership was viewed as especially important to achieving financial stability in retirement.
This comes as there's continuing debate about whether first home buyers should be allowed to access their superannuation.
It flared again recently after a key recommendation from Kenneth Hayne's Financial Services Inquiry.
Hayne says superannuation should be solely to look after Australians in retirement, not first home purchases.
Any incoming Federal Labor Government will accordingly phase out the Coalition government's First Home Super Saver Scheme that allows first timers to access their super accounts.
The scheme, which enables first time buyers to access extra savings put into their superannuation account, was introduced in the 2017 budget by then treasurer Scott Morrison. He argued it would help young people accelerate their savings to buy into markets.
Between the start of the program on July 1 last year and February this year, around 2400 people have made requests to access their super top-up.
That equated to around 4% of the first home buyers who'd secured a home loan over the period.
They have sought the release equating to a helpful $12,000 per person.
Labor voted against the scheme when it was created, but assures current users of the scheme they will not be affected by their policy. 
It is one of many housing schemes ditched by governments in recent times as they come and go.
We have seen off the National Rental Affordability Scheme and the First Home Saver Account schemes too.
I'd suggest one reason for the young voter feeling powerless was this constant changing tides with policy.
Navigating the housing market with confidence, for any age, requires policy consistency from our federal leaders.
This article first appeared in The Daily Telegraph. 
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jchancellor-FAypfDUnLy

Navigating the housing market with confidence requires policy consistency from our federal leaders

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Joel Cann has resigned from Aspen Group to pursue another opportunity.
His resignation will take effect on Friday 12 April 2019.
Clive Appleton, chairman of Aspen Group, has thanked Cann for his efforts over the past two and a half years.
The listed property minnow Aspen Group appointed the property veteran in September 2016.
Cann joined Aspen from AMB Capital Partners, where he was the founding managing director.
Last month Aspen Group announced its financial results for the year ended 31 December 2018 recording a statutory profit of $0.4 million, the significant components of which include:
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<li>
Operating profit after tax of $1.5 million
Offset by:
</li>
<li>
Revaluation decrement of $0.7 million;
</li>
<li>
Acquisition costs incurred of $0.2 million; and
</li>
<li>
Professional fees of $0.2 million.
</li>
</ul>
Cann said 1H FY19 continued the significant steps taken towards a goal of being a major owner and operator in the Australian affordable accommodation sector.
It acquired its sixth tourism park, Highway 1 in Adelaide SA, which was settled in Q2 FY19.
The acquisition was valued at $23 million.
He noted headwinds at a number of assets including Darwin FreeSpirit where corporate accommodation demand fell in line with reduced major project activity, Adelaide came off of a strong FY18 period that include Ashes and major event activity whilst Tomago reduced available inventory pending the redevelopment work to be undertaken in that business.
Development activity significantly advanced during the half with the majority of civil works completed at Four Lanterns in Leppington NSW.
There are 11 residences on site with sales activity resulting in five confirmed sales.
It has also commenced initial works at Tomago in preparation for stage 1 of the 52-site expansion.
The sale of its final non-core asset at Midland WA was completed during 1H FY19, bringing to a conclusion the restructure of the group to an affordable accommodation provider.
The business finished in a net debt position of $16.3 million at the end of the year, post the Highway 1 acquisition, and has $25 million of capacity to deploy towards future acquisitions and investments.
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Joel Cann resigns as listed accommodation firm Aspen Group's chief executive

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A fully leased Circular Quay restaurant space has been offered to the market.
Cushman &amp; Wakefield hold the listing for Lot 17 overlooking Sydney Harbour.
Situated at <a href="https://www.realcommercial.com.au/property-retail-nsw-sydney-503106778" target="_blank">17/1A Macquarie Street</a> in Opera Quays, the space is currently leased to Buckley's Craft Beer Bar where it forms a part of the bar/restaurant.
It is a long term lease, 2010 to 2024, with a net income of $294,801 pa.
<img src="https://www.urban.com.au/images/2019/3/12/Buckleys%202.JPG" alt="">
The gross rent is set to increase to $410,000 from 1 April 2020.
Set on 60 sqm the property is strata titled.
The property is for sale by expressions of interest closing March 26 2019.
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jonathanchancellor-7SQnKwU6yx

Leased Circular Quay restaurant space for sale

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EXPERT OBSERVER
We expect industrial assets to outperform Australia's (Aaa stable) broader commercial property market over the next several years. This expectation, in large part, reflects our view that the sector will benefit from a combination of accelerated growth in e-commerce activity and technological innovation that create a wider range of applications for industrial assets, making them more resilient than in previous property cycles. State governments' large infrastructure spending will also improve connectivity and drive valuation growth.
We believe that these trends most benefit A-REITs with large, diversified, well-located industrial portfolios, particularly with large exposure to the tightly held Sydney market, including Goodman Group (Baa1 stable) and its largest fund Goodman Australia Industrial Partnership (GAIP, Baa1 stable) and Charter Hall Group's (Baa1 stable) Charter Hall Prime Industrial Fund (CPIF, Baa1 stable). We also expect that diversified A-REITs, such as Mirvac Group (A3 stable), Stockland Group (A3 stable), Dexus (A3 stable), and GPT Group (A2 stable), will continue to increase their industrial exposure to take advantage of these trends.
Demand for industrial assets will continue to grow
. This is driven by a combination of factors, mainly: (1) the growth in e-commerce and related industries as a result of the increasing popularity of online shopping; (2) technological advances that offer supply-chain efficiencies and create demand for industrial space outside traditional warehousing/storage; (3) large investment programs in public infrastructure that improve transport efficiency and connectivity; and (4) the strong underlying fundamentals of the Australian economy with 26 years of uninterrupted economic growth, rising private consumption and solid labor market fundamentals.
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Total current demand for industrial space exceeds both the supply and long-term demand averages. Major metropolitan areas continue to suffer from a shortage of available industrial zoned land, especially in densely populated areas and around key transport nodes. Industrial transaction volumes continued to trend lower in fiscal year 2018, ended 30 June 2018, (Exhibit 2), reflecting the diminishing availability of quality industrial assets as well as a limited land-supply pipeline. The shortage has been further exacerbated by the active rezoning of industrial land towards alternative uses, particularly residential.
The high demand for industrial assets has benefited A-REITs with industrial exposure as land values appreciated across major metropolitan areas. Sydney values increased by around 50% over the last three years, followed by Melbourne and Brisbane at around 35% and 25%, respectively (Exhibit 3). Higher land prices have put downward pressure on A-REIT cap rates (Exhibit 2). We expect cap rates will likely compress further over the next 6-12 months, as rising rents support asset values.
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Occupancy levels continued to rise for rated A-REITs as tenants rushed to secure lease space before rents increase materially. Occupancy levels were at around 98% for the 12 months ended 30 June 2018 - an all-time high for the industrial sector. We expect occupancy levels to remain at around 97%-98% over the next 12-18 months.
We believe the elevated demand for industrial assets will continue over the next 2-3 years with land prices and rents to rise faster in locations where there is higher population density and higher competition for alternative uses. We expect A-REITs with exposure to the Eastern Seaboard assets, where around 80% of Australia's population is located, to outperform others. This includes companies such as GAIP (100% portfolio), Mirvac (100%), Dexus (99%), Stockland (94%) and CPIF (86%).
Of this group, A-REITs with overweight exposure to Sydney, such as GAIP (84% portfolio), Mirvac (100%) and Stockland (69%), are best positioned to derive above-average levels of rental growth due to the city's superior economic fundamentals, higher take-up levels, and lack of available high quality industrial land relative to other major metropolitan areas. We consider South Sydney to be the most resilient among sub-markets, as the region is supported by major strategic transport gateways (Sydney Airport Finance Company Pty Ltd (Baa1 stable) and Port Botany) and the close proximity to Sydney's wealthy inner-metro region.
At the same time, as major ports on the Eastern Seaboard (Port of Melbourne, Lonsdale Finance Pty Limited, Baa2 stable), Port Botany, Port of Brisbane continue to expand due to the pick-up in the freight activity, we expect higher demand for industrial assets located close to these infrastructure assets.
As large blocks of land become harder to secure in the Sydney area, failing to accommodate the full footprint of international players, we expect tenants to increasingly look for comparable and cheaper options in Melbourne and Brisbane, servicing Sydney out of these cities.
Population growth and solid economic fundamentals will support an acceleration in demand growth for industrial assets over the next several years. Meanwhile, increasing diversification of industrial asset usage and tenants, reflecting e-commerce penetration and technology advancements, will drive underlying demand.
Increased e-commerce activity will remain a major driver of demand for industrial property -- and will reshape the portfolios of A-REITs We consider the growth in e-commerce as one of the major drivers of the significant level of investor demand for industrial assets in Australia, particularly as industries associated with residential construction enter a slowdown. We expect the growth in online shopping to accelerate over the next 2-3 years, which should have a positive spillover effect on demand for industrial space.
We see large untapped potential for the e-commerce sector as the penetration rate in Australia lags those of other developed nations like the US and UK (Exhibit 4). Online as a percentage of total sales in Australia was around 9% in 2018, which lags the US by around four years and the UK by seven years. The US and UK penetration rates are now around 13% and 17%, respectively.
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The growth of online retail in Canada also provides evidence for increasing online penetration in Australia. Both Australia and Canada have similar logistical challenges of servicing densely populated urban areas with large distances between cities. Canada's e-commerce sales as a percentage of total sales was much less than Australia's in 2012, however, it has caught up with Australia since then.
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Demand for space will be driven by the expanding needs of online players such as Amazon.com, Inc. (A3 positive) and Alibaba Group Holding Limited (A1 Stable). A-REIT issuer feedback suggests that e-commerce retailers usually require more space than traditional retailers as they need to stock a greater range of readily available products. Further, we expect supporting industries such as transportation, warehousing, logistics, postal and third-party logistics (3PL) to expand to address the growth in e-commerce.
As consumers continue shifting their purchases online and demand faster delivery at minimized costs, we expect to see an increase in demand for smaller fulfillment centres that are located closer to end-consumers. These centres are used for last-mile delivery and are supported by larger distribution centres located in outer locations. We also believe that increasing land scarcity and surging land prices in densely populated urban areas will increase the usage of multi-storey warehouses, helping to ease the pressure of delivering items to consumers as quickly as possible. Therefore, we expect assets in densely populated areas or with proximity or access to key transport nodes to continue to rise in value.
Demand will also come from brick-and-mortar retailers that will require new distribution space and capabilities as they continue to invest in digital and expand their online offerings. At the same time, as store sales growth lags online growth, we expect physical retailers to continue rationalizing their existing retail footprints, putting pressure on the retail assets of A-REITs.
To capitalise on strong demand, diversified landlords with industrial exposure will likely leverage off their relationships with retail tenants to accommodate the tenants' needs in industrial space. We expect companies like Charter Hall, Stockland, Mirvac, and GPT to benefit the most due to their large exposure to big retail groups like Wesfarmers Limited (A3 stable), Coles Group Limited (Baa1 stable) and Woolworths Group Limited (Baa2 stable).
The growth in e-commerce will most benefit large pure-play industrial A-REITs such as GAIP and CPIF and those diversified players with large industrial exposures such as Stockland and Dexus. Further, we expect other A-REITs to rebalance their portfolios towards the industrial sector over the next 2-3 years, by shifting away from retail as negative sentiment impacts this property segment. We have already seen A-REITs announcing this shift in focus, with Mirvac, Stockland and GPT planning to increase the allocation to the sector. Dexus is partnering with Singaporean sovereign wealth fund GIC to create an AUD2 billion unlisted logistics property trust, seeded with assets from Dexus' portfolio with an active development and acquisition mandate.
Technology and innovation will continue to create additional opportunities for landlords and tenants
We believe that advances in technology are creating additional opportunities for both tenants as well as industrial landlords. Tenants will benefit from utilizing technology, such as big data, cloud software, machine learning, predictive analytics, artificial intelligence, drones, robotics, and autonomous driving, to optimize their operations and create more efficient distribution networks.
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At the same time, technological advancements provide a range of benefits for the industrial A-REITs. Increasingly sophisticated industrial assets can accommodate a wider range of uses, such as e-commerce, data centres, high-tech logistics, health care, “dark stores”,1 etc. Increasing applications of industrial space will improve demand beyond the historical tenant base and provide greater tenant sector diversity, reducing the risk of a correlated downturn among A-REITs' customer base, increasing the pool of potential future tenants to fill vacant space.
This also means the sector is less reliant on traditional “blue-collar” manufacturing industries that face structural decline in Australia, primarily due to high domestic labor costs. We view this diversification as a significant credit positive for industrial A-REITs, providing resilience to the cash flows and earnings through the property cycle.
Large investments in technology by tenants mean longer payback periods for these investments. We view this as positive for landlords as this will make moving facilities less attractive and will translate into longer weighted average lease expiry (WALE) through longer new leases, better retention and reduced vacancy risk. For example, some of the largest Australian retailers like Woolworths and Coles have signed 20-year leases for their respective distribution centres, putting extensive amounts of capital in internal fitouts and automation systems.
This trend for longer leases might moderate the recent declines in WALE across rated REITs, which, in part, was caused by the large amount of leases signed by 3PL companies that sign leases with an average duration of 3-5 years.
We expect A-REITs to also benefit from technological advancements in building and construction as properties now can be constructed more quickly and cheaply, offsetting the rising costs of land. Moreover, the increased application of green technologies such as solar panels should provide A-REITs with an additional source of income from selling energy to the tenants as well as lower their own cost base in an environment of rising energy expenses.
Solid economic conditions and large infrastructure investment on the Eastern Seaboard will support the long-term demand for logistics We expect Australian economic growth, increased trade flows in Asia and large public infrastructure investment on the Eastern Seaboard to support long-term demand for logistics.
Robust economic conditions in Australia with over 26 years of uninterrupted growth will continue to be underpinned by (1) the current outlook for global economy, and particularly Asia, where a lot of Australia's key trade partners are located; (2) solid labor market and wage growth stabilizing; (3) relatively low Australian dollar boosting net exports, and; (4) strong rates of population growth.
Increased trade flows are expected to have a positive impact on industrial property demand, especially for assets that are located close to key infrastructure such as ports, motorways, airports and intermodal terminals.
Public infrastructure spending is expected to accelerate over the next 2-3 years with the value of announced projects at a record high (Exhibit 5). The state governments of New South Wales (Aaa stable), Queensland (Aa1 stable) and Victoria (Aaa stable) plan to increase their respective infrastructure spending programs the most, although we believe the major benefits of this spending for industrial assets will be in the longer term. This will be further supported by the Australian Government's (Aaa stable) commitment to spend more than AUD75 billion over the next 10 years on transport infrastructure across Australia under the National Infrastructure Plan.
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<a href="https://www.propertyobserver.com.au/images/2019/2/21/exhibit%206.jpg" target="_blank">Click here</a> to enlarge: 
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/2/21/exhibit%206.jpg" alt="">
We expect A-REITs which focus on NSW and particularly Western Sydney to benefit the most as this is where the largest investments will be made over the forecast period. Spending includes large projects, such as the Western Sydney Airport project (set to open 2026) and Western Sydney Rail. Melbourne will also see some benefits from projects like Fisherman's Bend urban renewal project.
Overall, we think that infrastructure improvements will benefit both the tenants, through improved transport efficiency, connectivity and productivity, as well as the industrial A-REITs that will see valuation uplift for properties located next to the upgraded networks. Further, industrial landlords will see continued demand from industries that are supporting these infrastructure projects.
Moody's provides credit ratings, research, tools and in-depth analysis on the widest possible range of debt market topics.
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