_The Property Perspective Episode 5 | Prime Global Residential Forecast 2020

Michelle Ciesielski: Welcome Rupert Dawes, Global Head of Residential at Knight Frank. It's great to catch up while you're in Sydney. As you know, we recently launched our prime global forecast for 2020, which covers 15 global cities including Sydney and Melbourne. Each quarter the residential research teams come together around the globe to track performance of the prime market. Knight Frank defines prime as the top 5% of the market and that's ranked by value. We know that the global economy has slowed in 2019. Price growth has moderated, yet global growth is still rising and the cost of debt remains relatively cheap by historic standards. So Rupert, what are some of the reasons why prime price growth globally has moderated?

Rupert Dawes: Morning Michelle, thank you for having me on your show. It's great to be here in Sydney. The answer to your first question, the reasons why prime pice globally has moderated, I'd say are five areas. The first being capital controls restricting outflows, the second being there have been mounting economic and political risks in key economies which has slowed growth. There's tighter property market regulations and we've seen that in cities like Singapore, Hong Kong , Canada, Toronto, and we're now seeing it in London as governments try and sort of restrict growth. In some areas, primarily North America, there's a backlog of oversupply in some prime markets and buyers in some areas sort of sat on the sidelines waiting to see if the market really has bottomed out and if there is an opportunity to buy at the bottom of the market for growth to come back in.

Michelle Ciesielski: What have been some of the better performing cities for price growth over the past 10 years?

Rupert Dawes: Over last 10 years, I mean ranked by a 10 year percentage in change, topping list is Berlin at around 140% followed, by Vancouver with around 85%. Sydney just under 70% and then Melbourne 64% and those would be the sort of top four we'd be focused on out of the top 10.

Michelle Ciesielski: Yeah it's quite exciting that I guess looking at the Australian markets, Sydney grew further 2.6% and Melbourne 2% in the last year, despite the mainstream market not travelling as well. That's quite interesting that we rank in the top four for that growth over the past decade.

Rupert Dawes: Yeah, it is really encouraging and I think there's more opportunities there and we'll touch on it later as some of the opportunities in terms of things like direct flights and as people look for quality of life and to live in areas like Sydney and Melbourne.

Michelle Ciesielski: In the forecast report, the research team, we're asked to have our take on the biggest risks to prime residential markets. In Australasia we see the top two risks being the consequences of the global and local economic slowdowns. On the overall risk monitor in the report the global economic slowdown topped the list followed by the global trade war. As you connect with our prime property partners around the world what are they saying their risks are to their regions?

Rupert Dawes: I think if we look outside Australasia, we've got four areas - Europe, Asia, North America, and Middle East.

If we start with Europe it's probably change of government or governments. We're seeing quite a few elections coming up in 2020 and Brexit. In Asia, it's fundamentally if you look at the change to property market regulations and a general local economic slowdown. In North America, it's the global trade disputes. It's the China-US trade war which has been going on for some time and doesn't look as though there's going to be any change that in the immediate future. And in some areas, an oversupply of luxury homes which is constrained the market. In the Middle East, it's commodity prices and geospatial crisis. You've got the conflict impacting upon the local domestic markets and you've touched on Australasia.

Michelle Ciesielski: So, I guess the fact that we have provided our forecasts for 2020 as with each year we look into the latest economic indicators, we look at supply, we look at demand, we look at the sales trend. We found that the Sydney prestige market is is forecast to grow by 4% in 2020, while Melbourne is close behind with 3% annual growth projected for the coming year. How do other global cities compare?

Rupert Dawes: Other areas outside of Australasia. You're looking at some of the prime markets, with London at 2%, Paris at 7%, Berlin 5%, Madrid at 3%, Geneva at 4%. There are other markets that are going to drop, and we see New York minus 3, Vancouver at minus 5, and Dubai at minus 2. So in some areas there's growth, in some areas there is depreciation.

Michelle Ciesielski: Looking at future trends we outlined nine in the report. Which two really stand out to you as key drivers of the prime residential market?

Rupert Dawes: The two areas I'd focus on is downsizing down under. And it's interesting, having spent a couple of days in Sydney, is the opportunity for the apartment market to grow and supply lateral space. It's interesting everyone talks about downsizing. I was with a client yesterday and he talked about right sizing and I really liked that expression. It's not necessarily downsizing, it's right sizing. It's having the right space to move into. And as we see projects like One Barangaroo come into the market, you're going to provide people who historically have lived in villa waterfront houses being able to right size into lateral apartment space and I think that's quite an exciting trend that you're going to see in markets like Sydney and Melbourne.

The other part would be what we call a small world. As you start seeing direct flights, you've got them coming into Perth, and you're going to have direct flights coming into Sydney. It's going to open up the world. What investors, what owner occupiers, like is a single flight destination. So people can fly directly from the US, from Europe, into Australia. I think that's really going to make the market potentially grow even further as people are more attracted to coming into Sydney or Melbourne with direct flights. And we've seen that in other parts of the world as markets open up with direct flights rather than stopping over in Singapore or Dubai.

Michelle Ciesielski: At the end of January we'll be releasing a report on downsizing which covers the lifestyle trend towards luxury apartment living that you speak about. Looking at this downsizing demand dictating the market, where else are you seeing this in other cities?

Rupert Dawes: Everywhere. I mean it's a common trend. If you're in some of the key global markets like New York, London, Hong Kong, Singapore, Miami, I mean it's been there for years. So, although it's a new trend perhaps coming into Sydney or Melbourne, it's something that we've seen around the world already. As I said, people's decisions to move are varied and if you look at the London market, a lot of people are choosing to move back into London because you've got the theatres, you've got the restaurants, you've got health care, and tied in with that is people don't want to commute so much. So if convenience is good, if they're time poor, asset rich then you know they'd like to be in the centre of the town with all those amenities and facilities around them. That becomes very attractive. So, as I referred to earlier it's very much right sizing rather than downsizing which perhaps is a trend we'll see going into 2020.

Michelle Ciesielski: I know that we could probably speak all day, but I know that we're also very conscious of your time, Rupert. I just spoken with Rupert Dawes, Knight Frank's Global Head of Residential. For more information check out the link provided which will lead you to the Knight Frank Prime Global Forecast to 2020 report.