The Future of Property Apr 24, 2009
Martin Shelton, General Manager Development, AMP Capital Investors
Something I do when I’m not working is go sailing – and sailors have all heard the phrase, the perfect storm. It originated from the 1997 book of the same name and refers to the simultaneous occurrence of weather events which, taken individually, would be far less powerful than the storm resulting from their chance combination.
It has struck me that the property sector is currently in the middle of a “near-perfect storm”. Not quite as dire as a perfect storm, but nevertheless there are a collection of commercial forces acting on each other in turn and, it appears, all working in a negative direction right now. The current lack of confidence on the demand side, ongoing construction cost inflation and most importantly the scarcity and cost of development capital, both debt and equity, are contributing to the challenges of the moment
People are of course quite right to be cautious, but we will come through this storm, particularly when you consider the fundamental demand side drivers- why organisations want to move. These are:
organisations want and need to become more effective to compete – to achieve large stepchange improvements in productivity. What it’s not about is minor efficiency gains, for example trying to get more people into a given space.
business leaders are creating new work spaces to achieve more effective organisations - using modern buildings with large floors, great vertical circulation, connections and ‘mixing spaces’. These new work spaces are designed to foster deeper collaboration and much better teamwork.
These new green buildings and collaborative work spaces will also appeal to, attract and hopefully retain the ‘mobile’ Gen-X and Gen-Y workforce, critical to many organisations.
At AMP Capital we have observed these emerging trends for quite a while. Organisations are now viewing modern sustainable buildings, and the new workplaces that these support, as a tool to achieve improved effectiveness. This is a powerful commercial catalyst for change – much more so than a simple property leasing deal.
The new developments that we’re progressing for AMP Capital’s property funds very much focus on delivering and supporting these modern work space environments - the new campus style developments, such as the 33,000m2 Vogel Centre (now under construction) and the 65,000m2 Bowen Integrated Campus, both in Wellington,being the most prominent. The proposed development to replace the Gen-i building in Wellington will also create one of the best officebuildings in the city.
The current uncertain environment is of course challenging for most property investors, developers and construction organisations. I do think however that there is a sound and strong underlying demand for modern buildings that assist organisational transformation. This demand will re-emerge once confidence returns – until then we all need to hunker down and weather the current storm.