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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Thursday, 19 March 2015

Sydney construction boom

Construction boom

The Sydney economy is arguably the strongest in the country at the moment, albeit there's not a great deal of competition for that mantle at the present time.

One of the key drivers of employment lately has been construction.

Unlike Melbourne, Sydney has had an ace up its sleeve being a dwelling and infrastructure deficit meaning that it can construct a high volume of dwellings.

The Sydney skyline is packed with cranes at the present time, which is helped to offset weakness in engineering construction elsewhere in the state as ever fewer new mining projects pass feasibility.

Despite this, there is no looming oversupply of dwellings in Sydney except in a few small pockets, such as the inner south.

In part, this is because much of the visible construction close to the city is actually commercial in nature.


Take the $6 billion Lend Lease Barangaroo project which I photographed below yesterday.

This is a true monster of a project which will fashion an entirely new suburb - this will create an oversupply of sorts, in Sydney, but of commercial office space rather than residential stock.

This will lead to challenges for owners of existing office space which may begin to look tired or dated by comparison to the 6 star Barangaroo stock.

After all, the way people want to work and live has changed significantly in the past few decades, and expectations have been massively upgraded.

The new office space will be created alongside gleaming new facilities - gyms, parks, food outlets and more.

Some older office stock will incur capital expenditure cost for upgrading, and other stock will be sold off to Chinese funds for conversion into Central Business District apartments.

Construction well underway at Barangaroo

Believe it or not the colossal "T2" and "T3" towers below, will actually be the shortest of the five major towers planned, which will also include retail, commercial and residential space.

I stand to be corrected but I believe the building work to the left of shot is to become the "podium" area, which will comprise retail space, restaurants and the entrance lobbies for these two commercial towers.

Packer's hotel-casino complex towards the Sydney harbour bridge end of the famous "Hungry Mile" is expected to include 66 private residences with the penthouse set to fetch a price of anything up to A$100 million.

I noticed yesterday that a nearby block in which I own an apartment is being refurbished as the local unit market anticipates a boost.

At the project's peak, Barangaroo will have more than 2,000 workers on site, as well as employing hundreds of office staff,

While 2,000 staff on site may not sound much in the grander scheme of the Sydney economy, construction work does tend to have a strong multiplier, with benefits to materials companies and other suppliers.

My better half kindly arranged for me to do a site tour in the middle of last year, so you can get a feel for how the project has changed across that time here.

Live project

Of course, the Barangaroo upgrade is only one project of many.

Lend Lease is also responsible for another project with a billion dollar capital cost being the Darling Harbour Live development across the drink, which will comprise a new International Convention Centre (ICC), a major new hotel and apartments at Darling Square.

Sceptics might say that the old Sydney Convention Centre (SCC) might just have easily been given an uplift given that it was barely 20 years old, but that's all been torn down now to make way for the swanky new site.

Infrastructure boom

Overall, the centre of Sydney is set for a huge change.

However, unlike Melbourne, the harbour city does not have a wild oversupply of apartments.

While Sydney has approved around 25,000 new apartments for construction over the past year, this will only in part address the best part of a decade of under-building.

Meanwhile, the state is undergoing a huge $60 billion infrastructure boom.

Coming next will be major upgrades to Circular Quay, including a new 220 metre tower - Lend Lease again - as well as the $1 billion Gold Fields House upgrade. 

With the $2 billion light rail extension set to hit its straps, many of the landlords along George Street take advantage of the traffic and construction chaos and undertake upgrades too.

George Street as we know it today will be unrecognisable by the end of this decade.