MSCI’s Ben Martin-Henry: Interesting Times

To put it mildly, it is an interesting time to be working in the property sector.

Work-from-home, sustained interest rate hikes, rising demand for green-credentialed buildings, chronic construction shortages and more—the industry today has more than its fair share of challenges.

In the thick of it is Ben Martin-Henry, MSCI head of Real Assets Research, Pacific, and one of the keynote speakers for Urbanity 23, The Urban Developer’s three-day event to be held on the Gold Coast on August 29-31.

Martin-Henry, who is among the 50-plus speakers taking part in Urbanity, spoke to The Urban Developer ahead of the event.

He said the biggest trend the sector was experiencing was a significant slowdown in the transactions space.

“Volumes are down over 60 per cent on last year, making for the worst half-yearly results since 2011,” he said.

“We have not seen year-on-year declines like this since the GFC, which is a concern.

“Restoring the market to long-term liquidity levels appears distant until valuations adjust and price expectations converge.”

He said overseas investment had been very low this year, accounting for only 23 per cent, which is below long-term averages of around 30 per cent.

“More worryingly is since a peak of 34 per cent in 2019, overseas investor market share has fallen each year,” Martin-Henry said.

“It is fair to say that Australian property values have not adjusted nearly as quickly as comparable global markets, which seems to have led to overseas buyers looking for better value outside of Australia.”

Martin-Henry said that although a flight to quality was a theme in all downturns, “in this downturn that has been exacerbated”.

“Tenants need to attract workers back into the office so need to provide quality space in order to do so,” he said.

“This leads to a higher demand from investors to acquire top-notch assets.

▲ A render of Home at 256-260 City Road—the first build-to-rent development in Melbourne.

“Perth and Brisbane are holding up better than Sydney and Melbourne because if you have multiple offices nationally but need to reduce space, you do it in expensive markets not cheaper ones.

“There is more of a ‘brown discount’ these days because the market has evolved quite a lot since the Building Disclosure Scheme, so highly sustainable buildings are so prevalent in the market that there has been a slight loss of the green premium and its slipped to more of a brown discount.”

He said MSCI was doing a lot of work in the “E” segment of ESG— environment, social, and governance.

“This has been centred on measuring the potential impact of climate change on the value of existing assets,” Martin-Henry told The Urban Developer.

“We measure the physical risk associated with climate change, broken up into a number a categories, such as an increase in the prevalence of tropical cyclones, coastal and fluvial flooding across several industry warming scenarios.

“We also measure the impact of Transition Risk—the risk from transition towards lower emissions. This is expressed as the net present value of the future costs.

“Costs are calculated for each year until the end of the century as the product of the yearly emission reduction requirement for the asset (as calculated by the model) and the yearly carbon price.”

And his tip for the hottest asset classes for the remainder of 2023? No big surprises but prudent picks…

“The industrial sector still accounts for the lion’s share of transactions in 2023, but we are seeing strong growth in the build-to-rent space as well as hotels,” he said.

“I’ve been banging on about build-to-rent for about seven years so it’s nice to see some significant traction in the market finally.

“When considering the current state of Australia’s private residential rental market, characterised by low national vacancy rates hovering around 1 per cent, surging rents and persistent undersupply, the demand for build-to-rent units is expected to be very robust everywhere in Australia.

“Cost factors have resulted in Melbourne leading the charge as its significantly cheaper to buy land and develop it there than in Sydney.

“Other markets like Brisbane and Perth are also forging ahead but the pressures on the private market haven’t been as acute until recently.

“Chronic undersupply of residential accommodation and stable returns in an unstable market are some of the leading reasons developers are jumping into the sector these days.”

Urbanity, Australia’s premier conference for the property industry, brought to you by The Urban Developer, will be held August on 29-31, 2023 at the Gold Coast

Highlights include:

• Three days of inspired learning and connection

• 50-plus speakers across multiple stages

• 700-plus industry leaders

• Interactive roundtables

• Curated networking events

• Immersive exhibits and site tours

Urbanity is a must-attend event for anyone that is involved in the development of cities and places.

>> Click here to purchase your ticket or learn more