- 2021 saw soaring demand for development sites
- Working from home has fundamentally changed the real estate landscape
- However, there are barriers to further development growth
Real estate industry valuations may need a rethink following soaring development site transactions in 2021, says commercial real estate agency LAWD.
Land, Agribusiness, Water and Development (LAWD) senior director, Peter Sagar, said economic and behavioural factors have driven demand for new retail, residential, industrial and commercial property in peri-urban corridors, along with both coastal and regional areas.
This has arguably resulted in the market’s fastest upswing on record, thus activating a potential rewrite of how property values are conceived.
Mr Sagar argued that working from home has fundamentally changed the real estate market.
“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,” he said.
“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.”
Such demand, Mr Sagar added, has gone beyond residential development now including outer suburb retail strips, childcare and freight and logistics sites performing well.
LAWD, which was only established two years, sold 50 development sites in 2021 which included smaller and medium-0density, along with an englobo – an undeveloped site zoned for subdivision – with values ranging between $3 million to $10 million.
“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.
Barriers to growth
Due to various factors such as the effective pause on significant migration, along with supply chain issues impacting materials and labour, there are some barriers to the growth of the property development market.
However, he expects to witness strong demand 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.
“Australia is considered a safe location for investment, from a sovereign risk perspective, and from a lifestyle perspective.
“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.”
