Australia: The Pressure Cooker that is Australia’s Commercial Property Market

Development sites are scarcer and the risks are getting higher.

Today I'll make some observations on the current state of the commercial development property market. Half-jokingly, it's often said within the industry that it's relatively easy easier to assemble capital than it is to deploy capital. There is a scarcity of development sites currently available in the marketplace. Those development sites – particularly in the residential space – which become available, are obviously much sought after and you need to move very quickly indeed to get control of those sites.

I suppose you could put the participants in the development industry into three buckets, certainly in relation to those who are interested in development sites.

There are those who are relatively small - usually privately owned – who have the ability to move very quickly deploying expertise in a relatively informal manner. Certainly their hallmark is they're able to move very quickly.

The second bucket would be those who have significant balance sheets, but who have more formal due diligence and corporate processes. Their nirvana is to acquire the very large sites but there are even less of those than there are generally speaking of development sites.

The third bucket relates to those who are not really originators of sites or originators of development projects, but are those entities which wish to participate by joint venture in development projects.

The scarcity of development sites arises and partly because vendors are still holding out for higher prices, but it is more accentuated by the fact that given the range of development constraints that now apply in the modern marketplace it's very difficult indeed to move quickly and to assess the appropriate risk.

There are issues of contamination, planning, the mere risk assessment or risk allocation in the acquisition contract itself, joint venture and project finance. All these matters need to be assessed and then brought together to enable the acquisition to take place. Now more than ever development executives with experience are required in these development entities to move nimbly to acquire or achieve acquisition of sites.

It is in this context that the pressures on development executives are heightened. Their need to move quickly to acquire sites, to structure sites, to assess the suitability of sites is constantly being raised again and again. The need for experienced development executives and experienced industry generally to deal with this context is again and again being emphasised.

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