opportunities of the e-commerce boom - Property Inc

[ Podcast Transcription ]

Inside Commercial Property with Rethink Investing. Australia’s largest and most comprehensive podcast covering all things commercial investing. You’re absolutely right, we’re superstars. The largest, most informative commercial property podcast and nothing to do with me, Phil Tarrant, co host. It’s all about Scott O’Neill, director of Rethink Investing, who’s the man of the moment. Mr. Popularity when it comes to commercial property.

How’s things, mate? Oh, good mate. Uh, don’t sell yourself short. You, uh, carry me through this. Thank you. You like that? You like that G up? You see what I did there right at the start? Make you, uh, make you feel good about, uh, your, your Tuesday morning? Not really good with compliments, mate.

So I don’t know what to say. Okay. Well, let’s revert back to the normal then, me giving you a hard time, which seems to be the way that, uh, we get the best results in this podcast. Here we are, mate, still locked down. And a month ago was saying, Oh, well, you know, hopefully we can get in the studio and do this.

This is now. uh, trifecta three in a row via the zoom rather than in person. It’s not good, is it? No, no, the time’s going, uh, pretty quick, but it’s, um, yeah, like, I don’t know, real life seems like a long time ago all of a sudden at the same time. So yeah, it’s a very interesting time. There’s a fair bit of, um, hurt with, with certain businesses and people’s livelihoods out there and others are doing okay.

It’s a really sort of unfair. market it seems and um, yeah, let’s all hope it just ends pretty quickly once these vaccination rates are high enough. Yeah, you vaxxed up yet? Yeah, we got, uh, we got done so um, see how we are. Hopefully, uh, that all sort of results in a bit of freedom down the track. We’ll find out.

You get this sort of, we’re recording this obviously for New South Wales, we can chat about that, which seems to be the epicentre of COVID now. At some point you’ve got the Premier saying, yes, everyone get vaccinated 70 percent and then there’s freedoms, but… Then another point you say, well, we’re not too sure yet what those freedoms going to look like.

So everyone’s accelerating towards this magical 70 percent double jab, 80 percent is the preference. But up until that point in time, we’re still on the upwards trajectory with, uh, COVID cases in New South Wales. Um, it was like 12 or 1300 yesterday. The modelers of this sort of stuff reckon. About the 2021st of September is when we’re going to cap out.

And we could be upwards of two, 3000 cases a day. So, um, anyway, everyone’s getting jabbed. Uh, one thing we’re doing well is, is getting the, uh, the vaccinations into people’s arms. And if you haven’t yet got vaxxed up on, I’m going to get political about this, uh, get the jab. Let’s move forward. But we’re here to talk about commercial property, but you know, commercial property is very much a story of.

COVID 19, like a whole bunch of industry sectors like aviation, in particular, hospitality, restauranting, the events business, which we’re in as well, all the story of COVID 19. And if you think back to COVID 1. 0, uh, March and April of last year, all the talk around, um, tenants getting sort of breaks on commercial leases.

There was no, nothing really mandated by the government. They just went, Hey, work with your landlord to try and work it out. Plenty of incentives around here. We are covert 2. 0, not as much noise around it. It would appear that a lot of people are trading through this environment with a degree of certainty, knowing what the end result is going to be.

There’s still a lot of businesses hurting. I was only Scott the other day, um, went up to crow’s nest, which is just up the road from where we are here. Crow’s nest is a suburb. For those of you who don’t know, probably about sort of three Ks from the city. It’s got like a classic high street plus a whole bunch of resi around it.

Now, big cows going up, new train stations going in really cool area. Wish I bought that 20 years ago, to be fair, but I reckon half, maybe a third to half of all the shops along the high street there had a full lease in there or they’re boarded up. And it looks like there’s no training happening there when things come back.

So I want to have a chat about what retail. In the new world is going to look like some other news that we want to go behind today, and in particular, a story that was in the Australian, um, talking about how you only need a couple hundred grand to actually get into property. We’ll stress test that, commercial property, we’ll have a stress test about that.

Brizzy property also, um, everyone’s talking about what the Olympic Games means for residential property, I want to get into commercial property. better. Let’s chat about COVID 19 straight off the bat, uh, Scott, and we don’t need to go into the health crisis that everyone’s familiar with. What does it mean for commercial property now?

Already people are thinking about Christmas, things opening up. And if you haven’t done your online shopping yet, you’re probably not going to be able to get presents from Santa for the kids. And this is again, a commercial property story. What’s your thoughts? Yeah, look, this is a big story circling around at the moment that the supply chains across the world are just so stressed at the moment because of all this surge in purchasing things from your lounge room.

And, uh, you know, obviously this is causing a lot of stress and there’s a lot of political tensions around the world and it’s basically making it harder to get stuff from overseas now. And on top of that, there has been a boom in shipping costs. So 2019, the average container from China to Europe or China to the US, uh, was circa 2, 000 for the container.

It’s now jumped up to 12, 000. So just to put it on a boat to get it there. Yep. So think about that. What that does is it increases the cost. And one of the Reasons you buy from overseas is to make a cheaper purchase than it is to manufacture it and purchase it in your own country. So that’s going to close the gap and close the competitive advantage of places like China and, um, and, and all those other countries that can produce goods for low costs, and it’s going to put more focus back on local manufacturing.

So. I actually think this, this decentralization of manufacturing could be a good thing for places like Australia and its workers in here that have, uh, you know, we’ve obviously lost all our car manufacturing capabilities over the years because we can’t compete with overseas. And then they introduced things like luxury car taxes to try and close the gap, but then they closed the, uh, manufacturing down and kept the tax there.

So there’s all sorts of, uh, Issues that we face in Australia and we don’t have much of a competitive advantage in that space. But I think that’s going to come back a little bit. There’s also government support going into manufacturing as well. And, um, yeah, look, it’s just going to give us, you know, Australians more, there’s going to be more entrepreneurship into that space because, uh, yeah, there’s a demand for it.

And if supply chains are taking months to get products like. Like they are at the moment, then, you know, there’s gaps in this market that are forming and COVID is a potentially a good reset of economy, you know, people have seen their current industry slow down or vanish and you know, there’s going to be voids and people’s ideas will hopefully come into it.

fill these voids. And, you know, this, you’ll see a lot of new businesses forming out of the, uh, the rubble that this has left. Yeah. I agree with you. And I don’t want to sort of sound like, uh, Mr. Australia with a Southern cross tattooed on my, uh, on my shoulder, but, you know, to put that in the context, Scott, um, I think COVID and some call it COVID clarity.

I think a lot of Australians who had an eye towards, um, building a career outside of Australia, whether it was in Europe or America now. want to call Australia home. Uh, so this sort of inverse brain drain, we’re going to be able to keep very talented people in Australia, I think for the longterm, that’s good.

Aussie manufacturing, I think, uh, we have huge capabilities in manufacturing often overlooked. And if you look at, you know, some of the issues we’ve had in the past around price competitiveness, that’s going to be eroded on the basis that It’s just as expensive to buy internationally. And I think we should all be buying Australian.

We’ve got great manufacturing capabilities here, right across the spectrum of how we do it. Advanced manufacturing, I don’t need to think about in the defense and the space sector right now. You’ve got people building rockets and, and parts for airplanes. And we’re actually building here in Australia, for those of you that don’t know, I think called the loyal wingman, which is an autonomous, uh, Uh, piece of kit.

It’s a plane, a drone, a UAV for, uh, the Australian Air Force, which is world class and world leading. We’ve got manufacturing here in Australia, staying on the defense side, um, down in, uh, South Australia, um, continuous naval shipbuilding. So we’re building submarines here. We’re building… Frigates here, we’re building all the things associated with it.

So this is good for Australia. We are sort of a lifestyle superpower. We’ve spoken about this before, but we can maintain that degree of diversification, how we create businesses and craft those businesses. It’s good for those people who invest in commercial property that surround it. So how should you be looking at this, Scott?

Where should you be? Is this a dart sort of thrown on the wall going, Oh, I have a punt in buying manufacturing spaces. Is this a. You know, that’s, that’s pretty big bananas and it’s probably left to the big boys to create those big industrial warehousing units. But is it the subsidiary stuff that sits around it?

The people involved in the supply chain around manufacturing or, or local manufacturing and how you get that out to Australia. So we can. Actually get presents for Christmas because it’s Australian made. Yeah. Look, it’s, it is a bit of a general industrial kind of benefit there because, uh, you know, you manufacture things under a tin roof normally.

And, um, also storing these products as well. And yeah, look, there’s going to be, it’ll be an interesting thing because there still is a gap in many products, which, you know, it is a lot more expensive in Australia to produce than, uh, The likes of Asia and, uh, and other countries, but it’s definitely the gap is closing and how well it will affect.

We’re not too sure yet, but, um, another thing that is worth considering as well as the introduction of robotics and things like that into the manufacturing process. So we all know this has been around for many years, but, um, I know the German DHL companies have, you know, they’ve invested in about a thousand autonomous.

robots that are going to replace workers in their postal services over there. So like, this could have an effect on the labor market, potentially, if this trend continues. And it’s very interesting and, you know, potentially worrying space for many workers. But, uh, you know, I think COVID is going to speed up the need for this because if people are.

Getting sick or getting locked in their homes and businesses can’t operate. Well, what’s a pretty old, you know, replacing people is a very quick way of fixing that problem. But you know, that leads down the ethical path. Like how far do we keep replacing people? Like there’s technology out there to run cars without people already.

You know, at what point do we allow this to continue on? And that will have implications on the commercial markets too, because it’s just going to put more people under, under roofs, but less workers. And then that might sort of mean there’s less investment from individual investors long term, but then there might be more very high.

You know, maybe the top 1 percent will get a lot richer. Like it’s, it’s almost a can of worms that you and I will never be able to cover in a short podcast. But, uh, yeah. You need to look through histories at these inflection points of how people have worked or do work of, um, change. There’s been the same discussion as in, it’s going to replace people.

There’s less, uh, need for people. Yeah. And they go back to the industrial revolution from people in cottage industries, into large factories, you know, automation. Oh, it’s going to replace people. Well, people have always found a new way to work. So there is going to be utility moving forward. How we work is different.

The funny thing is, is that we’ve actually gone back to cottage industries where now people build stuff in their front room of their home. It’s called work from home. Right. But anyway, we won’t go into that. The interesting point though, is that commercial property. So. Where business takes place as a definition, so where you don’t live, it’s bit where business takes place.

It’s got to keep in lockstep with this. So, uh, the most effective commercial investors are thinking about what those trends are going to be into the future. Now we’ve spoken at length around logistics type business, as in if people are, uh, you know, buying more stuff from home, you know, if you’re in a cardboard box manufacturing game, I reckon you’re doing pretty well at the moment, but where all those cardboard boxes are stored, we’re talking logistics centers, big bananas.

Now, What I’ve seen here and sort of going behind some of the news, Scott, a lot of people don’t, or maybe not aware of this and like your views on it. Australia is, is world class and world leading in the usage of drones for the delivery of, of goods, whether it’s roast chickens and, um, and coffees all the way through to the stuff that you buy from your Amazons and a Google wing.

It’s hugely effective up in the Logan Shire at the moment. So people up in Logan probably used to seeing drones flying around. Now we’re going to see a real shift to how people build. Commercial premises moving forward, you’re just going to end up with big industrial centers, which is going to have a hot chicken shop, a coffee shop, you know, an Indian shop, you know, all these, um, what they call them black restaurants, where there’s no shop front.

They’re just a place where food gets created. Drones picking them up and moving them forward. What sort of trends you see now? Do you see any investability in that? Where should you be as a commercial investor looking to capitalize on that? Um, so yeah, look, commercial kitchens is one where you, like you said, there’s almost, uh, Well, I think they’re, they’re trialing some, you know, basically there’s no employees and, uh, and they basically robots making you food.

Exactly. And, uh, and that gets droned out to you or potentially drive throughs where you, it’s literally like a vending machine. So, you know, you might see some of the big fast food outlets adopt this. I know KFC already has, it’s inevitable that they’ll all follow suit and. Investors like they, yeah, these will be products you can invest in and, um, just like you can buy a KFC or a Hungry Jacks or, you know, a, you know, Red Rooster already.

These, um, food industries have proven very successful throughout COVID as well. Restaurants haven’t, of course, because that’s face to face. So the fast food model is, is growing and it’s been very resilient. And most retail outlets in the fast food industry have had record years. In the last 12 months, so that convenience type nature is, it’s COVID friendly and, um, you’re going to see probably a bit of a reversal, you know, when, you know, I’ve sort of seen some numbers out of the US saying that, you know, as they’ve opened up, they’re actually spending about 20 to 30 percent more on consumable products, uh, than they were this time last year, and they’re actually four to 7 percent higher than they were in 2019.

So. Okay. Once all the borders and all this lockdown stuff ends, there is going to be pent up demand and you’ll probably see everything do pretty well for a little while. Whether or not the, you know, the habits and trends that we’ve seen sit or fix, that’ll be interesting. And, and I think they will, like a lot of these trends we’ve seen with COVID have to stay, you know, cause um, these variants that, What are we up to?

I think we’re up to the Gamma variant. Some, there’s a new Gamma. Something out of South Africa now, I think, and it doesn’t look very good. So they’re gonna, they’re gonna keep circling around forever, you would assume. And you know, unless, yeah, I think there’s going to be some things businesses need to adopt to survive moving forward.

And if they don’t, they’ll perish. And that’s where this. It’s just a need for, you know, a lot of entrepreneurism to find solutions because people are still here and want to spend money. And yes, some have suffered, but some, there’s opportunity in adapting to these changes. Well, it’s Australia’s time to shine and, and you sort of, you know, we’re smack bang in the middle of this lockdown and, you know, a lot of people are doing it really tough at the moment, particularly those in those highly impacted areas.

There’s other people who are doing extremely well. You mentioned fast food type people are doing excellent at the moment, but um, You know, you spoke about America now opened up and some of the trends you’re seeing a flight back to spending some money and Australians have more money in the bank now than what they ever have before.

They’re, they’re actually been saving. So they’re ready to roll. What are we seeing in Europe? Any trends there that you think that, which we may see emulated here in Australia and any implications there for commercial property and commercial businesses? There’s little things like there’s, there’s a flight away from cash.

So, you know, the cashless society is, is. It’s going to change. Like, um, I saw there was a report that the Nordic countries, that’s your Scandinavia, Norway, Sweden, they’ve actually closed 60 percent of their banks. So, you know, the bank branches models, so it’s going to be more businesses move online, less pressure on, I guess, the flexible work arrangements are considerable.

The Nordic countries are interesting because they sort of give you a bit of a, an idea into the future and, uh, and they are going cashless and they are. reducing shop front pressures, but there’s, um, yeah, there’s all these niche businesses popping up. And, you know, we’re seeing some examples in Australia, like the micro breweries where they got a, you know, a warehouse and they’re sort of, now there’s a bar in the warehouse and there’s more space there.

And think about square meter rates or the, what is it? The four square meter rule that we’re going to have, that’s going to hurt potentially the nightclub model. And that might move. People into different types of drinking situations and because that’s not all going to die on the spot. No one’s going to sit on a zoom meeting for the rest of their life, catching up with their mates over.

You can’t wait to get out to the discotheques of the Eastern suburbs. Can you? Yeah, I don’t even know where they are anymore. But, um, I think that’s going to be a, that’ll be a trend. You know, you’re going to see lots of these little random businesses pop up and, um, yeah, others will just die and like, who knows what’s going to happen to.

You know, the discotheques of the world, if they got restrictions or who knows, and it’s funny, you say that, um, I went to a bucks party. It was at one of those sort of micro breweries. I was out at, um, uh, sort of South Sydney way, um, out, uh, the back end of, um, I don’t know, like back of Alexandria top way.

And I was sitting there at this micro brewery, which was just a brewery. And then they. It was just a big industrial space and they put some tables out the back and everyone was drinking beer and eating fried chicken. And the guys were saying, yeah, we’re just going to go on a micro brewery crawl. They said there’s about 10 of them just around this particular area, just an industrial area.

So that’s how now people are doing their, their drinking good. If you sort of invested in that property 20 years ago and now sort of aluminium type sort of manufacturing places, now they’re all turning to the new retail. This is going to be a trend for how the utility space. Changes and involves, uh, over time, um, you look at Scandinavia and that’s a good clue for, for how things are going to, um, sort of translate into the future.

You know, Denmark, for example, Norway, they always rank sort of really high on the best places to live, different types of economies, very sort of socialist leaning, um, and they have very different attitudes. Actually when university in Norway. Scott, if you, you probably didn’t know that little tidbit of information, so quite familiar with, with how they operate and there’s a lot of clues there, but, you know, I tried to go to the bank the other day here, um, in North Sydney, uh, Commonwealth Bank closed down, signs up saying we’ve closed through the COVID, it’s been like that now for 18 months, never to open again, I would say.

And this is, um, down on, uh, Walker Street, St. George Bank close, you know, they’re closing down these bank branches. We’ve got to get used to it. So what’s going to happen to this space moving forward? What’s the future for retail shop front assets? Um, is it going to die and they’re going to turn into?

Something else, or is it going to be a new breed of retail shops, which are going to excel because at the moment, let’s talk about Walker street, there’s still a Kodak film place there knocking out photo frames. And, uh, we always walk past and go, look at that. There’s a, there’s a museum, right? It’s a bit of a joke.

You know, there’s a news agent still there. There’s a couple of people knocking out sushi and tie, uh, there’s two chemists on the same street. looking into each other. What’s that going to look like in 10 years time? Give me a sense. Well, I think that’s the interesting thing. No one knows. Cause yeah, look, this COVID reset they’ve had is going to knock out a lot of those businesses.

Like, you know, I’m sure you’re the, you’re the same. You walk down the street. I have the same things in my head. I look at that business and go, how on earth are you making money? Like there’s one not far from where I live. Optus insurance or something like that. I’m thinking, what do you need a showroom to sell that specific insurance?

Like it’s a little, yeah, it doesn’t, doesn’t make any sense. Like this is online already. Like you don’t need this shopfront for this, but it’s just going to knock out those crazy businesses and it’s going to open up opportunity for other businesses to come in. Because I think based on what you’re seeing around the world and, you know, I talk to people in Europe all the time and there’s, There’s an enthusiasm to get out and about at the moment.

Like, you know, if you look back in the, you know, you see the videos of the old 1919 plague or 1918 plague, the Roaring Twenties happened after that. It was the one of the most, uh, you know, biggest growth periods you’ve ever seen in human history. And people were out and about. There was a lot of free money in the market.

There was. You know, this, I’m not saying that it’s the same thing that’s going to happen, but history tends to repeat itself. And if our spending is up 30 percent and there’s still a Delta variant going crazy through the U. S., then, you know, it’s looking like the people are making up for lost time and Some people have lost jobs.

That means it’s going to be brain power, sitting, idling, thinking what to do with my time. And I think that’s the really interesting thing we’re going to see over the next decade. It’s going to, you’re going to see all sorts of new businesses and shop fronts and think food and. just entertainment’s going to be huge.

Uh, we’ll see what it all looks like. But, uh, yeah, I think you’ll see some businesses struggle, like the old news agency model, like, you know, how can you run a business model off scratchies or, you know, it might continue on, but, um, you know, all those sports, but oh no, the tab stores, you know, you’ve got an app for that now.

Do you need to go in there and, yeah, I don’t know. There’s many. Well, it’s probably going to be more experience based businesses now. I think people like to go to the tab to sit, but the problem is you can’t drink or smoke in a tab, right? You go to the bar, you go to the pub to do that. So there’s still a lot of old punters still sitting there with their form guide, you know, it’s probably giving them something to do, but.

That’s the experience. And I think businesses connected with experience will be those which will become front and center moving forward. And that also applies to the shop front. Um, you know, everyone talks about sort of, you know, we’re talking about logistics and the base of logistics type commercial assets is the support, the supply chain to get stuff from a warehouse to people’s front doors.

Everyone is connected in with that. I’m not a big internet shopper. I can’t think of the last thing I bought on online shopping. My wife does a fair bit of it, but um, I’m not a big internet shopper. I like to actually walk into places. If I’m going to buy something, when I want to buy something, I want to walk in and go, I want that.

I want it right now. And if it’s not available, like I do it all the time with J. B. Hyfe, I go, I need a computer. What do you have in stock right this second? And I want to, I don’t want to wait around for it. And I think that’s more experience based shopping moving forward. And, and commercial property is going to have to keep up with that, the different habits and behaviors.

Some things you’re always going to want to buy. I think, um, in person, like if you’re going to buy a new bike, you actually want to go and see it and sit on it, make sure it fits right. But again, there’s going to be this sort of hybrid experience, logistics based businesses. And we’re seeing that right now where there’s a showroom, you choose it, then it arrives by.

You know, uh, a courier or whatever, but are you excited about sort of retail shopfronts? Would you be dabbling? Would you be investing in that right now? Yeah. There is a big unknown. Yeah. Look, I, like my last two commercial properties I bought were retail and I’ve seen an uptick in inquiries from tenants, uh, you know, from pull shops to.

Got a psychologist wanting to sort of occupy the space so they are versatile and I don’t really buy into all this drastic media talk about the office market’s dead or you know the apocalypse of retail like this is this is all bullshit at the end of the day like people are going to go back to their habits?

And yes, there’s going to be collateral when you’ve got big changes like this, but you don’t just see prime real estate in the middle of the city all sit vacant for the next decade because, uh, because we’re in a lockdown right now. Of course, it looks bad right now, but this is a time where you’ve got to think, all right, well, you know, I think long term, you know, in 10 years, are there going to be more people are living in this area?

Are incomes growing? Is, uh, And need to, uh, you know, occupy this convenient space or is the spot too hidden and there’s too much like you got to weigh up the risks, not buy into the emotion of it. Just like, you know, we talk about residential emotion can get you in times like this, but, um, but use it to get a better deal.

But, um, yeah, I’m, I’m excited because there is a bit of an unknown and I know when borders open and these lockdown restrictions lift, there is going to be a good feeling. And, uh, you know, it might be hard to say, especially if you’ve lost your job or you’ve seen your business vanish at the moment because you know, your customers can’t get there, but this isn’t forever.

And the restrictions will lift and there’s, uh, you know, there’ll be new limits and rules we’ve got to abide by. But, um, I guess that’s where, uh, like you said, people are smart and they’ll maneuver around and work out, you know, what’s in need for this economy. Yeah. And like this whole idea of the, uh, the death of, of office space, Yeah, you know, I remember back at the original pandemic when everyone was like really jittery thinking on everyone, everyone’s got to be worried about this thing forever.

I can tell you what, um, you know, right now we’re, we’re in probably more draconian lockdown than what we were first time around before COVID 19. A lot of our staff were like, why can’t we work from home? Why can’t we work from home? And we’re like, well, we try to keep it off as environment, et cetera, et cetera.

I would be more productive working at home, et cetera, et cetera. COVID happens. And then organically we’ve had to shift to a hybrid. Uh, model where we have, you know, we think sort of four months ago when it was back to sort of some sense of normal people in the office, people out of the office, I’ll tell you right now, the key thing I’m getting from our team is that we want to come back to the office.

We don’t want to work from home anymore. Working from home all the time is soul destroying. There’s a whole bunch of complications which can manifest into. You know, anxiety and mental health challenges, et cetera, et cetera. People want to be connected and people now are demanding to come back to the office as quickly as possible and asking what our COVID safe policy is going to be around, around vaccination stuff, another debate, but offices aren’t dead.

I’ll tell you that if anything, they’re going to become even more important and more engaged over time as you know, people realize the importance of activity based working. And to that point, you know, investing in office space. Maybe not a great return right now, but I think the longevity of office space, it’s going to be key.

Maybe the way people do it is differently. Maybe it’s not going to be solely CBD based. It’s going to be more satellite orientated, where every sort of sub satellite CBD is going to have its own office market where people want to work within that area. But yeah, I’m pretty bullish on office. Um, what’s the reports coming out of, you know, Jones Lang the sale and stuff.

We ran through some of these, uh, a couple of months ago. They were pretty bullish as well. Right. Yeah, look, square meter rates are going up still. So I’ve heard, oh, look, I know there’s many projects in the city, you know, over half, you know, half a billion dollars in terms of, uh, individual jobs building. And like, you know, I was talking to a mate and he was doing an architectural design for some US firm that’s about to sort of do a 600 million build in the middle of the city.

These guys know what they’re doing. You know, they’re, they’re obviously, and especially they’re on the other side of the planet and they’ve come to Australia to build. So they must see returns. And, and, uh, I spoke to him about this company. They don’t sell, they build and hold. So why would a company invest 600 million if they thought the office market was dead?

There is going to be some hybrid buildings. So some repurposing of older ones. put a bit more residential in them. Um, because the residential unit market right now, we all know is not popular, especially in Sydney. There is almost a two speed residential market on offer at the moment where people want the backyard, but they don’t want the units and particularly units near the city and in tall towers.

Will this change? Probably as soon as borders are open because, uh, you know, three, 400, 000 people migrating to Australia every year, um, units. offer a very, you know, very, very important solution to them. They can be close and it doesn’t cost an arm and a leg. Well, it does, but it doesn’t cost anywhere as much as a freestanding house to live in.

And maybe they already live in units in their native country. So although it’s not something I personally invest in, it’s still not dead because. You know, the economy has taken thousands of years to get where it is today. Everything just doesn’t change on a dime. It will take time to get back to normal, but yeah, but rest assured it will get, uh, roughly to where it was.

Oh, when those borders do open, um, you know, I think there’s going to be a flight to Australia and that’s a very positive for Australia moving forward in terms of having the right people to support what’s going to be, you know, ongoing growth. But we’ve been a bit, um, New South Wales centric. Uh, this, uh, podcast’s got a story here on smartpropertyinvestment.

com. au around Brizzy, uh, residence commercial properties. Markets are set to receive a huge boost in price growth, uh, as the Olympic Games put the city on the global map. What’s your views? And I’ve been chatting about Brizzy residential as a result of Olympic Games. What does it mean for commercial, mate?

Uh, look, there’s going to be a whole bunch of building going on and that’s going to support, no doubt, the building sector and the associated supply chain. Would you be backing your money on Brizzy right now over any other state for commercial property because of the Olympic Games is the question to ask?

Oh, it always comes down to the numbers. Like Brizzy is quite, look, it’s very hard to compete in this market. We’ve been buying heavily in Brisbane for You know, since I started my company, Raytheon Investing, it’s, uh, it’s been a good market to us. We’ve seen yields compressed significantly over the last 12 months.

I think it is a, it’s the alternative to Melbourne and Sydney for locals, but what the Olympics will do is make it the alternative to Melbourne and Sydney for internationals. Think about the other countries that have had the Olympics, you know, Tokyo, Beijing, la, Paris, these are huge global cities. Now, Brisbane’s in that mix, that’s from a, from a mentality point of view, that’s enormous.

You and I both know the infrastructure spending, they do, it’s, you know, obviously it’s gonna create some jobs, some, some, the temporary boost to the economy down there. But it’s what it’ll do from a global mindset point of view. It’ll put it on the map and I know commercial, it’s restrictions with overseas investors are very, very loose.

Like it’s hard to buy a house in Australia. It’s not hard if you’re an overseas resident. For a commercial, it’s a lot easier. Funding is a lot easier. It’s not as political, so they don’t try to block certain investors. As long as you’re not investing in a sensitive product, like a, I don’t know, a marine port or a hospital, things like that, um, yeah, no, the government really doesn’t care too much if you invest in a, you know, a hundred million dollar, you know, industrial space or a shopping center, it’s sort of free game and that’s going to make money flow into Brisbane from overseas.

And, uh, And us Australians already know Brisbane is a good alternative. It’s got good yields, it’s a big city. So I think it’s just going to put the eyes on it. And, and that’s, yeah, it’s really just a confidence thing long term for the market. Yeah. And, uh, confidence is a key driver and, you know, you made reference to the roaring 20s of last century, uh, this sort of period of economic growth.

Let’s remember those are the stock market crash, uh, a little bit. Um, but the heady days after the, uh, the first world war with, uh, you had a hugely fatigued. global economy and, and also, uh, uh, the people after four years of, of horrific warfare. The 20th was pretty strong, but you had the emergence of some pretty interesting raging during the twenties, which manifested in the thirties, put the world back to war in the forties.

So let’s hopefully we don’t follow that same historic paradigm there. Um, but look, great opportunities for Australia now. For those who are looking at commercial as an investment and an asset class outside of residential, there’s direct commercial investment and you can also have exposure to commercial property through a whole bunch of other ways, um, ETFs or, or any other funds which are traded publicly or, or not publicly on different sort of stock exchanges.

So if you want to get involved in commercial, you can do, but. The thrust of this particular podcast Scott largely is direct investment. We’ve gone into sort of how you can go into other stuff like fractional property investment and all that sort of stuff. But there was a piece in the Australian and this is you were quoted in this.

I believe all you need is 200 K to become an avid commercial property investor. Tell me about this 200 K sounds pretty easy to get in. If you, most people would have that in their super fund. Yeah, look, the media loves talking about, you know, the minimum and it’s something I’ve tried to steer away in the early days of talking about commercial I was very big and talking about the minimum entry level.

And the reason was two, three, four years ago, there was Plenty of opportunities to get into the entry level market easily. And they’re like buying small industrial space, uh, small retail shops. That side of the market has got so much tougher. And the main reason is commercial is more popular now. It’s like we’re, we’re quadruple what we used to be two years ago in terms of new inquiries and it’s, it’s.

It’s just, I think because residential has grown so much and the, you know, the yields are so low there. Like it’s almost like a natural transition into a space that does look more lucrative. And that whole bottom end of the market has been crushed with demand. And that article, you know, we’re quoting 200 grand is the minimum.

The article actually said 120. So, you know, we’re quoting a 300 grand property, you know, and 30 percent deposit plus cost plus a small buffer. That’s 120 grand total cost. I was saying realistically, you need 200 because, you know, how many 300 grand assets are just lying around? It’s like, there’s just simply not, once you’ve got 200, you can do an 80 percent loan like this.

A couple of banks out there that’ll go up to 80 percent and your rates are into the low 2 percent or mid 2%. So there’s good numbers on offer, but yeah, you want to be working off, uh, you know, that sort of 200 minimum and you can buy a decent property in this market. There’s not huge amounts out there and you know, if you ask me in 12 months, I’ll probably say 300, 000 is the minimum, but that’s the trend that we’re seeing at the moment, that bottom end of the market.

has enormous demand from all walks of life that people now, uh, and it’s, it’s a good alternative to residential, which we all know is going pretty well nationwide as well. So. Well, I’m blaming you for that demand in commercial property in this podcast. We should, we’re responsible for the spike and made it hard for property investors to get in.

But, um, it’s good to democratize this and the fact that more people are saying commercial is an asset class, um, goes to show, you know, how you can be a diversified investor and it’s good to have some commercial in there. And as we spoke through in this particular podcast, The way in which commercial property is used will change over time.

Get used to that and have a comfortable relationship with change. A lot of things you probably can telegraph. A lot of things you probably can’t telegraph. I think sort of ongoing sort of expansion of logistics based industrial will be the norm. The key thing is going to be how. Your traditional sort of high street or, um, sort of more block based retail is going to be used and the experience based shopping that, that a lot of Australians do enjoy, but, um, uh, how that’s going to have a sort of pivot into e commerce as well.

So that’s the big unknown really for me at the moment. And I think you’ll just, it’ll just happen. Some smart people will come out and start doing retail differently. Yeah, exactly. And I think a lot of that’s already fact in the yield. So historically retail has a lower yield than industrial because two, three decades ago, industrial was viewed as more risky because it was easier to supply quicker to build, you know, there’s lots of land available.

So people were. In the past, more fearful of industrial and retail is more of your, um, you know, the darling child at the time. Now that’s reversed. Retail is a little bit of sorts with people and everyone wants industrial. So the yields are actually sharper or lower in industrial than retail. for like for like type asset.

That’s an opportunity, you know, that’s why like you always want to be a little bit counter cyclical in how you invest. And, um, you know, full disclosure, like, you know, we still buy more industrial properties than retail because there is weakness in the retail market, but there is an opportunity. Now, if you get good quality retail, you’re going to get a better yield than you probably should first, the interest rates.

And, uh, if you have a stomach for a little bit of risk and you can deal with, you know, potential vacancy or, you know, Like you said, this, this change that’ll happen over the next decade, you know, that’s the risk as a commercial investor, you need to be comfortable with. If you’re not, forget this space, you know, stick to buying the Ford bedroom house in the suburbs and hopefully that’ll do well for you.

But if you are a little bit more experienced and sophisticated and, uh, can understand that, uh, there is potentially a little bit more risk in that space, um, you know, you’re gonna, you know, you’re risking more reward as well. So it’s, it’s the forever balance. Yeah. I think it’s, as part of a theme for this podcast, Scott, it means you can sort of just, what, what the future of the utility of commercial property is going to be, um, moving forward.

And, and, and I think office Largely is going to be set in stone, I think, you know, with office markets, it’s going to be this hybrid working environment, people in three days, two days a week working from home, the other period of time, whether they work remotely or, or locally, I think that’s not going to change too much.

I think how they use office space will change quite a lot. The big sort of unknown for me is, is this retail space. Maybe we should get some people on, have a chat with us, uh, who operate. Um, maybe doing fit outs, um, in these type of stuff and what different clients are demanding now and how they’re reshaping the internals of this stuff to be more effective.

Um, whether it’s, uh, this whole retail experience, you know, how are they setting up their shops now to give a retail experience and how that might interface or juxtapose with the e commerce components of it. How, you know, here we’ve got a couple of floors here, how we’re using this space. I think that’d be a good thing for us, mate.

Yeah, I agree. And I think, uh, It’ll be interesting because I’ve heard some, uh, you know, I don’t know if you want to call it worrying, but you know, it’s things like, uh, I think night Franks for one of the big real estate companies were making employees where that was sort of like GPS trackers. So when they got close to each other.

It would send alarms to the head office and like, it was, it sounded like something out of, uh, you know, some kind of, you know, sci fi film and, you know, this stuff is probably going to be in our face over the next decade. So yeah, look how businesses are fit out and run, uh, are going to change and, um, some people won’t like it and yeah, it’s, it’s interesting there.

Let’s, let’s see if what we can dig up and chat about it. Yeah, that’s cool. All right. Good chat, mate. I enjoyed that a bit, a bit amusing about the world and it just reminds me how, uh, I’ve got to be quite, I’m providing my sort of real world observations on this, but I, you know, by way of disclaimer, I’m not a commercial property expert.

I’m a guy that works in property and talks to people who are experts, i. e. you. So, um, there’s some of my sort of personal musings, but maybe that’s the balance because I give the view of, um, not only as a commercial and a property investor, but also as a business owner, uh, and, and also a consumer of this stuff.

So it’s not a bad blend. It’s good. And I think, uh, Yeah, I’m just interested to see what all happens over the next month or two with, uh, with Sydney and Melbourne in lockdowns because, um, yeah, there’s a lot of fatigue and mental health issues out there. And, and look, that’s, that’s just from an investing point of view, though, like it, people have never gone harder.

I’ve just, it’s sort of almost to this day, the thing that I can’t get my head around, like, uh, you know, I’m sure we all thought things were going to be really slow and people would park up investment decisions, but, um, Yeah. Lockdowns and out of work forces people to think, what do I do with my money?

COVID clarity, Scott. COVID clarity. People are going, okay, is this the way it is? Let me just rethink and recheck. And, you know, we need to remember during this period of time, some people are doing really well, some people aren’t doing so well. And R U OK Day is just around the corner, uh, which is a really good reminder, uh, of some of the challenges that people have, uh, the fog that can, uh, sometimes, uh, exacerbate into some significant.

Medical and mental health challenges. So remember to connect with your friends, your colleagues, your peers, um, just check in, seeing if they’re all right. It’s a important time to do it. And are you okay? There’s a good reminder for that, but thanks for your time today, Scott. Really enjoy the discussion.

Hopefully maybe not next month, but the month after, uh, we can back to the studio back in business. I hope so, mate. Definitely keen to get back into it. Fingers crossed. Nice one. That’s Inside Commercial Property. Phil Tarrant, Scott O’Neill, your co hosts. Scott, any further questions? People want to sort of go, Alright, that all sounds good.

What do I do next? What do they do? How do they connect with you? Yeah, look, best bet, just rethinkinvesting. com. au. You’ll see a talk to us button in there. So just reach out, we’ll give you our two cents on the commercial market, what’s out there. And yeah, always happy to chat. So yeah, just reach out. Nice one.

All right. We’ll see you again next time. Until then, bye bye.