17 January 2013On outlooks, firestorms and structural changes

So how’s the New Year shaping up? Happy? Certainly, if you look at the death defying fiscal cliff dance that the US executed without falling off…for now. Certainly if you look at the tads of bright sparkling news that pop up to brighten the gloom (the new normal?): A faster than expected US recovery, housing sector not crashing, even Europe looking like stabilising.

And certainly if you look at logic that things can’t stay down for ever, just as they don’t stay up for ever.

It’s not such a happy new year for the people who’ve lost their jobs at AECOM or Boral in recent times, or with the big real estate investment trusts, nor for the architectural practices who went to four day weeks (then again…) and not for those builders who failed en masse last year.

Let’s say 2012 was a year of backburning after the financial firestorm that’s still smouldering throughout the western world and keeps flaring up.

With any luck this will be a year for reconstruction. With even more luck the reconstruction won’t look like the thing that brought us undone.

Let’s see what the analysts say.

Boral’s announcement that it would sack 700 people this week was seen as the result of “very tough”, largely because of tight financial conditions and “permanent structural change” as the residential market shifted increasingly to apartments and away from new stand- alone houses, the analysts said.

Note the words “structural change”. It could be an overreaction to the GFC, but it’s increasingly popping up in many areas.

Retail property owners are tipping structural change in their industry. Some are looking at the trend to local farmers and community markets and wondering how they can tap into the action.

As for the growth of online retail, GPT recently said it would start providing secure locker space in its properties for customers to pick up online purchases.

And it gave a nod to emerging collaborative consumption with this week’s announcement it had bought a share of a US company that deals in short term office accommodation and meeting rooms. This is not just for start ups or lone consultants – it’s an online platform that will help big property owners and businesses with too much space on their hands.

One interesting aside in the reports was that GPT had promised to find alternative revenue sources, which says a lot for traditional models of property investment.

Other major trends in 2013 will be big growth in organic farming, online shopping and apartments and townhouses according to IbisWorld.

Industries to flyRevenue 2012($million)Revenue 2013($million)Growth (%)
Oil and Gas Production38,314.144,422.915.9
Organic Farming548.8617.112.5
Online Education5,048.55,577.610.5
Online Shopping10,790.211,771.79.1
Multi-Unit Apartment and Townhouse Construction15,225.016,600.09.0
Industries to fallRevenue 2012($million)Revenue 2013($million)Decline (%)
Gaming and Vending Machines Manufacturing434.5406.5-6.4
Wired Telecommunications Carriers10,215.59,655.0-5.5
Mineral Exploration3,936.43,736.7-5.1
Newspaper Printing or Publishing6,673.96,407.0-4.0
Recorded Media Manufacturingand Publishing888.9863.9-2.8

Source: IbisWorld

Note the rise of organic farming.

“Consumers are becoming increasingly eco and health conscious. This means they are more willing to pay a premium price to prevent environmental degradation caused by conventional farming methods and to ensure the products they consume are free from added chemicals and hormones,” IbisWorld says.

“Major retailers, such as Coles and Woolworths, continue to respond to this trend, increasing the convenience in which these foods are purchased.”

Do yourself a favour and spend an entertaining few minutes having a look at this site promoting a weekend of back-to-the farm style activities in April. This is no hippy dippy scene, it looks like a serious (and fun) operation and, with the location near Mudgee, close enough to Sydney to draw day trippers, and again feed this “structural change” under way in the cities.

IbisWorld also noted the apartment trend. Who wants to live out in the distant car dependent burbs if they can possibly help it these days? (our comments.)

Sadly, only those who can’t afford the pricey apartments close to town.

Developers have a big challenge and it’s good to see that some of them are taking it up instead of running away to easy urban sprawl.

Top end of town

At the top end of town IPD managing director De Francesco whose company developed a green property index for Australia and now New Zealand, says he doesn’t expect much change from last year.

“I think it will be more like it was last year, to be honest. If the US goes into recovery it will be much more positive.”

But De Francesco is sceptical about calls that the European disaster is close to over.

“It can’t be true that Europe is recovering. [The problems] can’t be structural last year and not structural this year.

“You might see some recovery, some upside because of the recovery in the equity markets. But that doesn’t mean recovery in the underlying fundamentals.”

De Francesco says there are far too many inferences based on “quick information that comes out…I think its’ going to be a slightly better year but at the end of the day,

In the green space De Francesco says the demand from the analysis will increasingly be to space utilisation. In other words can green space increase productivity and therefore lower staffing costs?

“They know that green building get better returns; now they’re trying to understand space utilisation and the productivity  of buildings.

“There are increasing focus on that upside  affect… the amount of people you can fit in. And if you work in a better environment, is there more productivity? You may not need as many people.”

What of the prospects for the green property index after now that the IPD London based parent company was bought by global analyst MCSI for US$125 million lat last year?

“I don’t think there will be a dilution if anything get resources to enhance the index,” De Francesco told The Fifth Estate this week.

“They’re looking to bring the two element (of conventional and green index tracking) together if anything. They’re trying to integrate some of the hard core green into the ESG report,”

A Webinar in March will explain more he said.

Facilities Management

This could be the year that the relatively new profession of facilities management finally hits its stride.

Certainly that’s the way Craig Ryan, Johnson Controls’ Regional Director, Global Energy Solutions Australia and New Zealand sees it.

In property, says Ryan, business is about relationships. And FM providers generally have good long term relationships with client/owners – perfect for advising on upgrade or energy efficiency upgrades.

Ryan’s company is keen on Environmental Upgrade Agreements, which it blends with energy performance contracts and says there’s a good chance for a major deal in Melbourne, driven by the tenant in this case.

The potential uplift in FM work drove the merger late last year of Johnson Controls’ Global Workplace Solutions and Brookfield Multiplex Services, mirroring a similar collaboration in Canada that Ryan says is very successful.

The new team will be second biggest in Australia after United Group Ltd which merged with DTZ in 2011 and late last year rebranded its FM offering under the DTZ logo.

Trigen

The trigeneration debate continues to create controversy and you feel for the City of Sydney that has put so much effort into producing a system that will diminish greenhouse gasses.

The sad part is more information keeps emerging as to why it’s not such a good thing. For instance Cundall’s Simon Wild says new research shows that fugitive emissions from gas make the final gas about as greenhouse gas intensive as coal fired energy. Gas escapes at the source where it’s captured in the processing and right down the chain, he says.

Wild says it was always a transition fuel but the 10-15 year ticking clock on that window is now almost closed.

“If you went back 4-5 years it was quite easy to say lets’ put trigen  in to put trigen to give us some carbon credits and now that they’re being installed and operated  more and more information becomes available from this ­–  where it works and where it doesn’t.”

More from Wild on this next issue.

Meanwhile see our stories on what Jonathan Prendergast says, and a response from Chris Waggett, now based in the US and a former Lend Lease executive and founding director of the Green Building Council.

editorial@thefifthestate.com.au