Australia Real Estate Report - Q1 2015

Q1 2015
www.businessmonitor.com
AUSTRALIA
REAL ESTATE REPORT
INCLUDES 5-YEAR FORECASTS TO 2018
ISSN 2040-7580
Published by:Business Monitor International
Australia Real Estate Report Q1
2015
INCLUDES 5-YEAR FORECASTS TO 2018
Part of BMIs Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: October 2014
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Australia Real Estate Report Q1 2015
CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................... 9
Political ................................................................................................................................................. 11
Economic ............................................................................................................................................... 12
Business Environment .............................................................................................................................. 13
Industry Forecast .............................................................................................................. 15

Office ................................................................................................................................................... 16
Table: Forecast Office Rental Rates, 2015-2016 (USD per square metre per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table: Forecast Office Net Yields, 20011-2018 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Retail ................................................................................................................................................... 17
Table: Forecast Retail Rental Rates, 2015-2016 (USD per sq m per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table: Forecast Retail Net Yields, 20011-2018 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Industrial .............................................................................................................................................. 19
Table: Forecast Industrial Rental Rates, 2015-2016 (USD per sq m per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table: Forecast Industrial Net Yields, 2011-2018 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Construction And Infrastructure Forecast Scenario ........................................................................................ 20
Table: Construction And Infrastructure Industry Data (Australia 2012-2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Table: Construction And Infrastructure Industry Data (Australia 2018-2023) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table: Australia - Federal Expenditure On Infrastructure, AUDbn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Macroeconomic Forecasts ............................................................................................... 33

Economic Analysis ................................................................................................................................... 33
Chinese Reform Efforts To Weigh On Export Growth .................................................................................... 34
Consumption Growth To Slow Further ....................................................................................................... 35
Residential Investment To Fall Short .......................................................................................................... 36
Table: Economic Activity (Australia 2009-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Industry Risk Reward Ratings .......................................................................................... 38

Asia - Risk/Reward Index .......................................................................................................................... 38
Table: Asia - Real Estate Risk/Reward Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Australia Risk/Reward Ratings ................................................................................................................... 39
Rewards ............................................................................................................................................... 39
Risks .................................................................................................................................................... 39
Market Overview ............................................................................................................... 41

Sydney ................................................................................................................................................. 42
Melbourne ............................................................................................................................................ 42
Perth ................................................................................................................................................... 43
Brisbane ............................................................................................................................................... 43
Office .................................................................................................................................................... 43
Business Monitor International Page 4

Table: Historical Rental Costs, 2013-2014 (USD per sq m per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Table: Historical Net Yields, 2013-2014 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Table: Terms Of Rental Contract/ Leases, H114 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Retail .................................................................................................................................................... 45
Table: Terms Of Rental Contract/Leases, H114 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Industrial ............................................................................................................................................... 48
Table: Terms Of Rental Contract/Leases, H114 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Competitive Landscape .................................................................................................... 51

Office ................................................................................................................................................... 53
Retail ................................................................................................................................................... 54
Industrial .............................................................................................................................................. 55
Company Profile ................................................................................................................ 56

Lend Lease ............................................................................................................................................. 56
Brookfield Multiplex ................................................................................................................................ 58
Mirvac ................................................................................................................................................... 60
Stockland Group ..................................................................................................................................... 62
Leighton Holdings ................................................................................................................................... 64
Demographic Forecast ..................................................................................................... 67

Table: Australia's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Table: Australia's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Table: Australia's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Table: Australia's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Methodology ...................................................................................................................... 71
Industry Forecast Methodology ................................................................................................................ 71
Sources ................................................................................................................................................ 72
Risk/Reward Index Methodology ............................................................................................................... 73
Table: Real Estate Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Table: Weighting Of Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

BMI Industry View
BMI View: Australia's commercial real estate market is buoyed by strong fundamentals, with a mature
economy, highly skilled workforce, transparent regulation and a welcoming business environment.
However, the economy has been posting slower growth; and a slowdown in demand in China, a major
destination for Australia's mineral exports, could have an indirect effect on Australia's economy. Overall
demand for commercial real estate is expected to remain low because of this, and we are forecasting no
increase in rental rates in 2015 and 2016.
The economic outlook is set to remain blighted by the impact of the Chinese slowdown and government
austerity, as well as a lack of consumer confidence. We see real GDP growth coming in at 2.4% in 2014 and
2.3% in 2015, well below the 3.8% achieved in 2012. Although there will be a slight pick up towards the
end of our forecast period, we still see growth being only 2.9% in 2018. All this will limit job growth and
also cause businesses to delay potential expansion plans, affecting the fortunes of the commercial real estate
sector.
On the upside, there is significant interest in Australian real estate, both commercial and residential, from
international investors, particularly those from elsewhere in Asia Pacific, notably China and Singapore. This
should ensure that transactional activity remains high.
The office sector is being affected by low demand across the board, although the strongest demand seems to
remain for grade A space, which should buoy overall rental rates. There is a significant backlog of new
supply set to come online in Sydney, and also in Brisbane. Apart from this, we see the lack of demand
acting to reduce the number of new construction projects over the long term.
The retail sub-sector is the one for which we have the most optimism, with our in-country sources
continuing to report high demand and low supply, which should buoy rental rates and a good supply
pipeline. However, downside risks to our forecasts lie in our muted outlook for consumer spending, which
will constrain growth in rental rates and yields.
Industrial real estate will continue to see demand, particularly for premium space, although the economic
slowdown means that we do not expect a rise in rental rates over the short term. In the longer term, though,
we see a rise in yields, implying a rise in rental rates as the economy begins a tentative recovery.

In this report we cover four major Australian cities: Sydney, Melbourne, Perth and Brisbane. Australia's
major cities are on its coasts, and as such all four have important port facilities. Sydney and Melbourne in
particular are centres of business and finance, and are strongly connected to the rest of the global economy.
This drives developments in their commercial real estate sectors. Brisbane, meanwhile, is also a centre of
industry and services, with the government seeking to boost its role as a centre of science and technology.
Perth, in Western Australia, has benefited from the commodities boom, with much of Australia's mining and
oil and gas activity to be found in that state.
Australia scores 69.7 out of 100 in BMI's Risk/Reward Index for the commercial real estate industry in the
Asia Pacific region. The country is in third place in our table, behind South Korea and China, and its score
is buoyed by strong scores for country risks and rewards, reflecting the mature and transparent nature of the
economy and business environment.
Recent Developments
In September 2014 Frasers Centrepoint of Singapore closed its takeover bid for Australian property
group Australand, taking a 98.39% interest in the company for some AUD2.6bn.
The pipeline of new supply in the Sydney office market remains strong.
Also in Syndey, improvements to the city's transport infrastructure should make it more attractive for
industrial real estate.
Key BMI Forecasts
We see no growth in office rental rates until the end of 2016. The highest rents will remain in Sydney, at
USD88 per square metre (sq m) per month.
We also see no change in retail rental rates until the end of 2016. The highest rental rates are in
Melbourne, at USD232 per sq m per month.
No change is predicted in industrial rental rates until the end of 2016. The highest rental rates are
expected in Sydney, at USD18 per sq m per month.

SWOT
Australia Real Estate SWOT
Strengths
The Australian commercial real estate sector is technically sophisticated and globally
competitive.

Transparent business environment.

The industry self-regulates the amount of new development and avoids huge
oversupply in downturns.

The industry has seen a significant reduction in the number and cost of industrial
disputes in recent years.

There is a great amount of land capacity and the expertise to manage very large
projects.

Australia has recently committed to a major drive to improve public infrastructure.

Australia has an established finance market, which supports the commercial real
estate industry.

Australia has a thriving and well-developed real estate investment trust market.

Traditionally low unemployment levels and high living standards drive consumer
spending and demand for retail space.
Weaknesses
Profit margins have remained lower than for most other sectors of the economy, even
though revenue has increased significantly.

Low interest rates, if not managed correctly, could lead to a bubble, which could
collapse when interest rates are eventually raised.

The market's maturity means that it arguably offers less potential than some
developing economies in the Asia Pacific region.
Opportunities
As industries face tough economic times, we have seen a trend for residential
developers snap up industrial real estate factories.

Australia Real Estate SWOT - Continued

The public sector is moving to increase its expenditure on capital works projects as a
way to blunt at least some of the effects of the global economic slowdown.

Low interest rates allow for low-cost loans.

The downturn in the mining sector has seen real estate emerge as an attractive target
for investment.

Increasing investment from elsewhere in Asia Pacific.
Threats
Weakening investor sentiment could result in a subdued market.

Australia's economy has benefited from the commodities boom, and China has been
a key purchaser. The slowdown in the Chinese economy is weighing heavily across all
sectors as consumer and business confidence falls and people delay investments,
and we do not believe the most recent round of stimulus will prove sustainable.

Rising unemployment is affecting consumer and household spending.

Political
SWOT Analysis
Strengths
Australia is a mature democracy with a broadly stable party system.

Economic stability over recent years supports the current political system and radical
groups are unlikely to gain substantial support.
Weaknesses
As one of the region's largest and most stable states, the country attracts many
refugees and economic migrants. The issue is a key source of domestic tension and
has been hotly debated in parliament in recent times as the capsizing of a boat led to
the death of a number of refugees. The issue continues to be debated in the federal
parliament with no sign that political parties will find a viable alternative that would
ensure the safe passage and fair processing of the refugees, while reducing the
possibility of people smuggling.

The fragility of the state governments' finances compared to the large infrastructure
projects that they need to undertake has led to questions with regards to the
compatibility of the federal-state system with the country's current development
needs.
Opportunities
Australia has historically enjoyed close military ties with the US. However, with the
rise of regional economic powers such as China, it will need to balance competing
military and economic ties.
Threats
Australia's early support for the US 'War on Terror', among other things, has made
Australians abroad a target for Islamic extremists.

Australia's close alliance with the US, particularly under John Howard, has left a
lingering feeling among some Asian governments that it is America's 'deputy sheriff'
in the region.

Economic
SWOT Analysis
Strengths
A free-market economy supported by a highly educated workforce.

Blessed with rich natural resources, Australia's economic activity has been
augmented by demand for commodity exports and the investments made in the
mining sector.
Weaknesses
The persistent current account deficit increases vulnerability to capital flows and, by
extension, currency volatility.

The export basket is highly concentrated in commodities, and consequently exposes
the economy and currency to fluctuations in world prices for metals, coal and
agricultural goods.
Opportunities
The rapid expansion of Asian economies in recent years offers new opportunities for
diversifying trading ties from core European markets.

A low level of government debt has provided a certain amount of flexibility in fiscal
policy to support domestic demand through the downturn.
Threats
The high level of private sector debt - especially mortgage loans - fuelled by overseas
funding poses a threat to sustained growth and financial stability.

A collapse in exports from a drop in resource demand from China and other resource-
hungry countries would severely impact headline GDP growth.

Australia is vulnerable to extreme weather that may lead to droughts and floods,
which have become increasingly severe in past years as a result of global climate
change.

Business Environment
SWOT Analysis
Strengths
A highly educated workforce and comparatively modern transport infrastructure
underpin economic prospects.

A number of free trade agreements with countries such as New Zealand, Thailand and
the US serve as a boon for trading activities.
Weaknesses
Despite its openness, Australia requires the Foreign Investment Review Board to
approve any commercial real estate investment by a foreign company or individual
valued at US$5mn or more.

With a population of just over 23mn, the domestic consumer base is small by regional
standards.
Opportunities
Australia is currently in talks with China, Malaysia, the Gulf Co-operation Council,
Indonesia, India, Japan and South Korea regarding potential bilateral free trade
agreements. It is also part of negotiations for the Trans-Pacific Partnership and a
regional south pacific pact, PACER plus.

Upgrade and expansion of urban infrastructure will be needed to sustain population
growth in Australia's main cities, providing opportunities for public-private
partnerships in the future. The government is also targeting infrastructure
improvements to rural areas.

More healthcare infrastructure will be needed to support the ageing population, and
with the introduction of the federal government's National Disability Insurance
Scheme, the industry is likely to see increasing demand for services.
Threats
Corporate taxes for foreign investors in Australia remain higher than in other
countries, and it seems unlikely that the government will succeed to reduce the rates
in the near future.

Recent investment proposals by Chinese firms regarding the agricultural and resource
extraction sector have raised fears that strategic assets will be lost to foreign players.
This has led to more conditions attached to the sale agreements, which is likely to

SWOT Analysis - Continued
reduce the attractiveness of these assets. It remains to be seen if the recent

implementation of a database to increase transparency around foreign-owned
Australian assets will spur more regulation.

Industry Forecast
BMI View: We expect no growth in rental rates in Australian commercial real estate in 2015 and 2016, as
the sector continues to be affected by the country's poor economic performance, which is dampening
demand. Supply pipelines are also expected to suffer, as investors put off new developments until more
optimism returns to the market. However, we see continued interest from overseas investors in the
Australian real estate sector.
The commercial real estate sector will remain supported by market fundamentals: an investment-friendly
business environment, transparent regulation and a mature economy with a highly skilled, English-speaking
workforce. However, the economic growth trajectory is set to slow over the next few years, with growth
only picking up to 2.8% and 2.9% in 2017 and 2018. Thus, growth will not reach 2012's 3.8% over our five-
year forecast period. Growth will be kept down by government austerity and the economic slowdown in
China, a major purchaser of Australian mineral exports, as well as the Australian consumer's lack of ability
to take on more debt-fuelled consumption.
For the real estate sector, this means that demand in all three sub-sectors is set to remain low, with both
businesses and consumers tightening their belts. The supply pipeline is set to remain small as well, as shown
by our construction growth forecasts.

Growth Flat, But Steady

Australia's GDP, Construction Growth, 2008-2018
10
-5
2014f
2015f
2016f
2017f
2018f
2008
2009
2010
2011
2012
2013
Construction industry, real growth, % y-o-y
Real GDP growth, % y-o-y
f = forecast. Source: BMI
Office
We see no change in office rental rates in 2015 and 2016, as demand looks set to remain low. Our in-
country sources note that in Sydney and Perth there is a pipeline of new projects yet to be completed. This
could act to raise vacancy rates, or reduce rental rates. However, our sources report a minimal pipeline in
the Melbourne and Brisbane, and we believe that over the longer term fewer new construction projects will
begin, as investors take note of market conditions.

Table: Forecast Office Rental Rates, 2015-2016 (USD per square metre per month)
2015 2016
Min Max Trend % change
Sydney 25 88 Same 0
Melbourne 23 52 Same 0
Brisbane 29 68 Same 0
Perth 33 72 Same 0
Source: BMI
However, risks are to the downside. Business and consumer confidence is low in light of economic
conditions in the country and are expected to continue to weigh on the sector, which limits both job growth
and expansion plans. On the upside, our sources have noted that demand in the sector seems to remain
strongest for grade A space, which will help support rental rates in general.
Table: Forecast Office Net Yields, 20011-2018 (%)
2011 2012 2013 2014f 2015f 2016f 2017f 2018f

Sydney 6-10 7-8 7-9 7-9 7-9 7-9 6-8 6-8
Melbourne 5-10 7-12 7-12 7-12 7-12 7-12 7-12 7-12
Brisbane 6-10 7-13 7-15 7-15 8-12 8-12 7-13 7-13
Perth 3-9 7-10 7-11 7-11 5-9 5-9 7-12 7-12
Net yields are forecast to move slightly over our forecast period, from a current 7-9% in Sydney, falling
slightly to 6-8% in 2017, while yields in Brisbane are set to tighten from 7-15% in 2014 to 8-12% in 2015
and into 2016, broadening again to 7-13% towards the end of our forecast period. In Perth, meanwhile, we
see yields remaining at 5-9% in 2015 and 2016, rising to 7-12% in 2017. Yields are forecast to remain
stable, at 7-12% in Melbourne.
Retail
We are expecting the retail real estate sector to be affected by a lack of consumer confidence, while
household debt is high, also affecting spending patterns. The retail sub-sector is the one for which we have

most optimism, with our in-country sources reporting overall high demand, limited supply and a healthy
pipeline. However, we see consumer spending remaining stagnant in the short term, meaning that overall
we expect rental rates to remain flat.
Table: Forecast Retail Rental Rates, 2015-2016 (USD per sq m per month)
2015 2016
Sydney 40 143 Same 0
Perth 25 77 Same 0
Source: BMI
The highest rental rates will remain those in Melbourne, at USD232 per square metre (sq m) per month,
while in Sydney the highest rates are USD143, falling to USD117 in Brisbane and only USD77 in Perth. In
Sydney, as with office space, our in-country sources note that the strongest demand is for premium space,
which will continue to keep rental rates high. Our sources also highlight particularly high demand and low
supply as driving the markets in both Melbourne and Brisbane.
Table: Forecast Retail Net Yields, 20011-2018 (%)
2011 2012 2013 2014f 2015f 2016f 2017f 2018f

Sydney 6-8 6-8 5-9 5-9 5-9 5-9 6-8 6-8
Melbourne 6-10 6-10 5-15 5-15 5-12 5-12 6-10 6-10
Brisbane 3-8 3-8 7-10 7-10 7-10 7-10 3-8 3-8
Perth 3-8 3-8 7-11 7-11 7-9 7-9 3-8 3-8
We see some variation in net yields over our forecast period to 2018. The biggest shift will be in Perth,
where rental rates are lowest, with yields moving from 7-11% in 2014 to only 3-8% by 2017. In Brisbane
we see a similar shift, from 7-10% to 3-8%, while in Melbourne we see yields narrowing in range from
5-15% in 2014 to 6-10%. Sydney will see the smallest move, from 5-9% to 6-8%.

Industrial
The industrial real estate sector will continue to command the lowest rental rates of the commercial real
estate sector as a whole. We see no change from 2015 to 2016, with Sydney continuing to see the highest
rental rates, at USD18 per sq m per month, closely followed by Brisbane on USD16. Industrial real estate
will continue to be affected by the country's poor economic performance, which businesses refraining from
expanding. However, on the upside, demand seems set to remain strongest for premium properties, given
the high tech nature of Australian industry, and the development pipeline looks set to remain robust. These
factors should combine to ensure that rental rates remain flat over our short-term forecast period.
Table: Forecast Industrial Rental Rates, 2015-2016 (USD per sq m per month)
2015 2016
Sydney 10 18 Same 0
Perth 08 13 Same 0
Source: BMI
Yields in industrial real estate look set for an improvement over our forecast period, driven by demand for
grade A space. In Sydney yields will rise from 7-9% in 2014 to 9-10% in 2018, while in Perth the rise will
be from 7-11% to 8-12%. This overall improvement is not expected to affect Melbourne and Brisbane:
Yields in Melbourne will stay stable at 7-12% while yields in Brisbane will decrease marginally from
8-10% in 2014 to 7-10% in 2018.
Table: Forecast Industrial Net Yields, 2011-2018 (%)
2011 2012 2013 2014f 2015f 2016f 2017f 2018f

Sydney 6-8 7-10 7-9 7-9 7-9 7-9 9-10 9-10
Melbourne 6-10 7-12 7-12 7-12 7-11 7-11 7-12 7-12
Brisbane 3-8 7-10 8-10 8-10 7-8 7-8 7-10 7-10
Perth 3-8 8-11 7-11 7-11 7-10 7-10 8-12 8-12

Construction And Infrastructure Forecast Scenario
Table: Construction And Infrastructure Industry Data (Australia 2012-2017)
2012 2013e 2014f 2015f 2016f 2017f
Construction industry value, AUDbn 117.37 119.34 124.92 130.75 138.37 147.47
Construction industry value, USDbn 121.5 115.2 107.4 104.6 105.9 110.6
Construction Industry Value, Real 6.23 0.28 2.36 2.67 3.57 4.03
Growth, % y-o-y
Construction Industry Value, % of
7.8 7.7 7.7 7.7 7.8 7.9
GDP
Residential and Non-residential
Building Industry Value As % of Total 72.01 74.09 74.23 74.10 73.85 73.58
Construction
Residential and Non-residential 84.51 88.42 92.73 96.89 102.19 108.52
Building Industry Value, AUDbn
Building Industry Value, USDbn
Building Industry Value Real Growth 6.07 2.17 2.55 2.48 3.22 3.65
(%)
Building Industry Value as % of GDP
Infrastructure industry value, % of 28.0 25.9 25.8 25.9 26.1 26.4
total construction
Infrastructure industry value, AUDbn 32.85 30.92 32.19 33.87 36.18 38.96
Infrastructure industry value, USDbn 34.02 29.84 27.69 27.09 27.68 29.22
Infrastructure industry value real 5.4 -8.3 1.8 3.2 4.6 5.1
growth, % y-o-y
GDP
Total capital investment, AUDbn 430.63 431.09 446.39 465.34 490.08 519.67
Total capital investment, USDbn 445.96 416.01 383.90 372.27 374.91 389.75
Total capital investment, % of GDP 28.68 27.71 27.49 27.48 27.62 27.78
Capital investment per capita, USD 19,347.28 17,821.75 16,246.11 15,561.14 15,477.56 15,891.03
Real capital investment growth, % y- 8.50 -1.33 1.20 2.20 3.00 3.40
o-y
Construction sector employment, '000 997.4 1,078.4 1,098.0 1,120.8 1,152.0 1,188.5
Construction industry employment, % -3.52 8.12 1.82 2.07 2.79 3.17
y-o-y
Active population, total, '000 15,458.96 15,563.11 15,657.13 15,755.91 15,863.01 15,974.79
Construction industry employees as 6.45 6.93 7.01 7.11 7.26 7.44
% of total labour force
Cement production (including 10,460,152 10,613,232 10,784,793 10,967,748 11,161,740 11,389,629
imported clinker), tonnes

Construction And Infrastructure Industry Data (Australia 2012-2017) - Continued
2012 2013e 2014f 2015f 2016f 2017f
Cement production (including 0.0 1.5 1.6 1.7 1.8 2.0

imported clinker), tonnes, % y-o-y
Cement consumption, tonnes 12,851,384 13,088,278 13,345,375 13,614,275 13,894,477 14,208,448
Cement consumption, tonnes, % y-o- 0.2 1.8 2.0 2.0 2.1 2.3
y
Cement net exports, tonnes -2,391,231 -2,475,045 -2,560,581 -2,646,526 -2,732,737 -2,818,819
Cement net exports, tonnes, % y-o-y 1.1 3.5 3.5 3.4 3.3 3.2
e/f = BMI estimate/forecast. Source: BMI, Australian Bureau of Statistics, USGS, UN
Table: Construction And Infrastructure Industry Data (Australia 2018-2023)
2018f 2019f 2020f 2021f 2022f 2023f
Construction industry value, 157.48 168.10 179.37 191.34 203.87 217.18

AUDbn
Construction industry value, 118.1 126.1 134.5 143.5 152.9 162.9
USDbn
Construction Industry Value, Real 4.08 4.04 4.01 3.97 3.85 3.83
Growth, % y-o-y
Construction Industry Value, % of 8.0 8.0 8.1 8.2 8.3 8.3
GDP
Total capital investment, AUDbn 555.05 592.83 633.19 676.30 715.40 756.76
Total capital investment, USDbn 416.28 444.63 474.90 507.23 536.55 567.57
Total capital investment, % of 28.06 28.35 28.63 28.92 28.97 29.00
GDP
Capital investment per capita, 16,764.03 17,688.05 18,667.63 19,706.13 20,606.44 21,552.34
USD
Real capital investment growth, % 4.00 4.00 4.00 4.00 3.00 3.00
y-o-y
Construction sector employment, 1,227.0 1,266.7 1,307.6 1,349.7 1,392.2 1,436.1
'000
Construction industry 3.24 3.23 3.23 3.23 3.15 3.15
employment, % y-o-y
Active population, total, '000 16,090.55 16,207.70 16,324.44 16,441.72 16,561.35 16,683.21
Construction industry employees 7.63 7.82 8.01 8.21 8.41 8.61
as % of total labour force
total construction
Infrastructure industry value, 42.02 45.30 48.75 52.41 56.23 60.29
AUDbn

Construction And Infrastructure Industry Data (Australia 2018-2023) - Continued
2018f 2019f 2020f 2021f 2022f 2023f
Infrastructure industry value, 31.52 33.97 36.56 39.31 42.17 45.21

USDbn
Infrastructure industry value real 5.2 5.1 4.9 4.8 4.6 4.5
growth, % y-o-y
GDP
Building Industry Value As % of 73.31 73.05 72.82 72.61 72.42 72.24
Total Construction
Building Industry Value, AUDbn
Building Industry Value, USDbn
Building Industry Value Real 3.69 3.66 3.67 3.66 3.57 3.57
Growth (%)
Building Industry Value as % of 5.84 5.87 5.91 5.94 5.98 6.01
GDP
Cement production (including 11,600,230 11,799,902 11,807,125 11,814,637 11,820,497 11,826,532
imported clinker), tonnes
Cement production (including 1.8 1.7 0.1 0.1 0.0 0.1
imported clinker), tonnes, % y-o-y
Cement consumption, tonnes 14,505,167 14,790,831 14,883,916 14,979,266 15,072,633 15,166,019
Cement consumption, tonnes, % 2.1 2.0 0.6 0.6 0.6 0.6
y-o-y
Cement net exports, tonnes -2,904,937 -2,990,929 -3,076,791 -3,164,628 -3,252,136 -3,339,486
Cement net exports, tonnes, % y- 3.1 3.0 2.9 2.9 2.8 2.7
o-y
f = BMI forecast. Source: BMI, Australian Bureau of Statistics, UNGS, UN
BMI View: Q114 data shows that Australia's construction sector is in a state of recovery and we believe
this recovery will continue, albeit at a more gradual pace, in 2014 and 2015. Our view is underpinned by
the conducive monetary conditions for construction, a sustained recovery in homebuilding activity and the
potential for greater construction activity from the private and public sectors.
As expected, the recovery in Australia's construction sector has accelerated in 2014 (see 'Construction
Recovery To Accelerate In 2014', January 27 2014). Latest data from the Australian Bureau of Statistics
(ABS) show that real growth for construction industry value reached 7.5% year-on-year (y-o-y) in Q114,

based on seasonally-adjusted terms. This was a significant improvement from the preceding quarters in
2013. Following data revisions by ABS, Q113 and Q213 is estimated to have experienced contractions of
2.3% y-o-y and 1.2% y-o-y respectively, while Q313 and Q413 achieved a real growth of 0.6% y-o-y and
1.2% respectively.
Budding Signs Of Recovery

Australia - Construction Real Industry Value Data, Seasonally Adjusted, By Quarter
Source: Australian Bureau of Statistics, BMI
This recovery was primarily driven by the residential building sector, with value of work done in the
residential sector growing by 8.0% y-o-y in Q114. Meanwhile, the non-residential sector continues to grow
at a respectable rate, achieving 4.0% y-o-y in Q114.

Residential Activity Drives Construction Recovery
Australia - Value Of Work Done For Residential Buildings By Quarter, Seasonally Adjusted, AUDmn
(LHS); RP Data-Rismark Daily Home Value Index, Five Capital Cities Aggregate (RHS)
Source: BMI, Australian Bureau of Statistics, RP Data-Rismark
On the other hand, there remains a lack of growth in the engineering construction sector, the largest
component of the construction sector (the engineering construction sector includes construction works in the
transport and utilities infrastructure sectors as well as the commodities sectors). Latest data from the ABS
show that work done in the engineering construction sector contracted by 0.8% y-o-y in Q114. Although
this is an improvement from the contraction of 2.3% y-o-y in Q413, it is still vastly lower than the growth
rates seen over the 2010-2012 period, which averaged around 25.0% per quarter.
A Better 2014-15
Looking ahead, we still expect construction activity in Australia to recover in 2014 and 2015, but not at the
pace achieved in Q114. This is reflected in our forecasts, with construction real growth expected to reach
2.4% in 2014 and 2.7% in 2015.

Gradual Recovery
Australia - Construction (And Sum-components) Industry Value Real Growth, % chg y-o-y
20
10
-10
2011 2012 2013e 2014f 2015f 2016f 2017f 2018f
Infrastructure, % chg y-o-y
Residential and Non-Residential Building, % chg y-o-y
Construction, % chg y-o-y
e/f = BMI estimate/forecast. Source: BMI, Australian Bureau of Statistics
Conducive Monetary Conditions
Since the start of 2012, the Reserve Bank of Australia (RBA) has been adopting a loose monetary policy in
a bid to reignite economic activity, with the cash rate falling from 4.25% in January 2012 to an all-time low
of 2.50% since August 2013. This record-low interest environment in Australia is already having a positive
impact on residential building activity and should continue to provide additional incentive for the private
sector to boost investment in construction projects for the rest of 2014 and 2015.

Record-Low Interest Rates

Australia - Reserve Bank Of Australia Cash Rate, %
Source: BMI, Australian Bureau of Statistics
The residential sector has also enjoyed reductions in stamp duty by several state governments. This,
combined with the rate cuts, has played a key role in generating six consecutive quarters of growth (after six
consecutive quarters of contraction) in the residential sector. With the potential for further rate cuts and
stamp duty cuts over the coming quarters - we are expecting the RBA to bring the cash rate to 2.25% by
end-2014 - we believe that housing demand could continue to grow (see 'Credit Slowdown To Prompt Rate
Cut', July 3 2014). This could lead to a sustained recovery in the residential sector as property developers
could be more inclined to increase their building activity to meet demand.
Public Sector Focused On Infrastructure
Even though the Australia federal and state governments are, on the whole, significantly in debt, the
majority of them remain keen to channel funds for infrastructure development and are engaging in
alternative means of securing financing for these projects. A key example at the state level is the New South
Wales (NSW) state government. Since 2013, NSW have shown great interest in implementing large-scale
transport infrastructure projects such as the North West Rail Link and the WestConnex motorway, carrying

out assets sales (namely port and power assets) to finance these projects and crafting public-private
partnerships schemes to attract private sector investment into infrastructure development.
On the federal level, the Liberal-National coalition government has secured parliamentary approval to scrap
the country's debt ceiling, allowing it to secure the necessary funds for its infrastructure plans. This has
already started to take place, with the government particularly keen on implementing road projects. As part
of the federal budget for FY2014/15 (July-June), the Australian federal government announced on May 11
2014 that it will provide an additional AUD11.6bn (USD10.9bn) for infrastructure development, bringing
its total infrastructure expenditure to AUD50bn by FY2019/20.
Table: Australia - Federal Expenditure On Infrastructure, AUDbn
State FY 2014/15 - FY 2017/18 FY 2018/19 Beyond FY 2019/20 Total
New South Wales

Pacific Highway 4.6 1.1 - 5.6
WestConnex 1.5 - - 1.5
Western Sydney Infrastructure Plan 1.2 0.5 1.1 2.9
Other projects 4.4 0.5 - 4.9
Total 11.7 2.1 1.2 14.9
Victoria
East West Link 2.5 0.5 - 3
Victorian Regional Rail Link 1.5 - - 1.5
M80 0.2 0.1 - 0.3
Total 6.8 0.9 - 7.7
Queensland
Bruce Highway 2.7 0.9 3.1 6.7
Gateway Motorway North 0.7 0.3 - 0.9
Legacy Way 0.4 - - 0.4
Warrego Highway 0.4 0.1 - 0.5
Total 8.5 1.8 3.1 13.4
Western Australia
Perth Freight Link 0.9 - - 0.9
Gateway WA 0.6 - - 0.6
Swan Valley Bypass 0.4 0.2 - 0.6

Australia - Federal Expenditure On Infrastructure, AUDbn - Continued
State FY 2014/15 - FY 2017/18 FY 2018/19 Beyond FY 2019/20 Total

Total 4.3 0.4 - 4.7
South Australia
North-South Corridor Adelaide 0.8 0.1 - 0.9
Goodwood and Torrens Junction 0.2 - - 0.2
Total 1.8 0.2 - 2
Tasmania
Midland Highway 0.2 - 0.2 0.4
Freight Rail Revitalisation 0.1 - - 0.1
Total 0.7 0.1 0.2 1
Northern Territory 0.5 - - 0.6
Australian Capital Territory

Inland Rail Pre-Construction 0.3 - - 0.3
Sub total of smaller projects 0.4 - - 0.4
Total 0.7 - - 0.7
Federal Investment Expenditure 35.1 5.7 4.5 45.3
Asset Recycling Initiative 3.9 1.1 - 5
Total Federal Government Expenditure 39 6.8 4.5 50.3
Note: FY = July-June, - = Less than AUD50mn, some figures may not add up due to rounding. Source: Australian
Government Budget FY 2014/15, Bureau of Infrastructure, Transport and Regional Economics, BMI
The AUD11.6bn budget package for infrastructure, known as the Infrastructure Growth Package, consists
of:
An AUD5bn fund, known as the Asset Recycling Initiative, to incentivise state governments to sell assets
and reinvest the sale proceeds into infrastructure;
New investment of AUD3.7bn to expedite federal government road programmes and the construction of
major roads and highways;
New investment of AUD2.9bn for major road upgrades in Western Sydney.
Furthermore, we believe that the victory by the coalition during the September 2013 federal elections could
lead to a board-based improvement in project execution for all public-led infrastructure projects in

Australia. This is because five out of the eight Australian states are governed by the coalition. This creates a
stronger likelihood for greater coordination between state and federal governments over infrastructure
development across Australia (see 'Change In Infrastructure Direction Not To Prevent Slowdown',
September 23 2013).
Declining Backlog
Australia - Value Of Work Yet To Be Done, Engineering Construction, By Quarter, By Sector, Original,
AUDmn
Sizeable Project Pipeline
As stated before, Asia will continue to need mineral commodities to support economic growth and this
demand should drive mining and energy-related infrastructure activity in Australia (see 'Mild Recovery For
Construction In 2013', February 4 2013).
We therefore believe that engineering construction activity in Australia could continue to achieve moderate
levels of growth in 2014 and 2015. The project pipeline in the engineering construction sector remains
sizeable despite being on a steady decline since 2012. We believe the pipeline mainly consists of iron ore
and natural gas projects. Several liquefied natural gas (LNG) projects are under construction and have long

construction periods, while major miners such as BHP and Rio Tinto remain keen to expand existing iron
ore mines to meet China's demand (see 'China Iron Ore: Consolidation Looms', July 21 2014).
In addition, engineering construction activity could also be supported by transport infrastructure projects
given the federal government's strong focus on developing road projects across Australia.
Dampening Growth Potential
While we expect construction activity to be on a gradual recovery in 2014 and 2015, we highlight that the
rate of recovery is likely to be lower than the average annual growth rate seen in the Australian construction
sector over the past decade (4.4% per annum between 2004 and 2013). This is because there are three main
factors dampening the outlook for Australia's construction sector.
Poor Macro Fundamentals For Construction
The macroeconomic fundamentals for construction activity remain poor even though monetary conditions
in Australia are conducive for construction. In the residential building sector, Australian households still
look overstretched - housing debt-to-disposable-income remains around 130% - and this acts as a cap on the
population's ability to finance new housing. Meanwhile, the current trajectory for housing prices in
Australia suggests that the affordability of Australian homes will decline further. Housing prices in
Australia have been on the rise since mid-2013 despite a lack of economic growth - we are forecasting real
GDP growth in Australia to decelerate from 2.4% in 2013 to 2.3% in 2014 and 2015. This means that
domestic home buyers could face growing difficulties in meeting debt repayments as declining economic
growth could translate to rising unemployment and greater downside pressures on incomes. Indeed, we are
already seeing signs of a slowdown in the rate of increase in housing prices.
Australia's lack of economic growth is also capping activity for non-residential buildings and engineering
construction projects. An economic slowdown typically leads to a decline in electricity consumption and
freight transport volumes, which would in turn affect the demand for electricity generation and transport
links.
In addition, the Australian economy is heavily exposed to the Chinese commodities trade, and demand from
China is cooling due to a structural rebalancing in the country's economy. Chinese authorities are
conducting reforms and this includes the government cracking down on commodity financing deals which
have reportedly provided some support for industrial commodities such as copper, aluminium and iron ore.

This decline in demand is prompting Australian businesses that are exposed to the Chinese commodities
trade to be cautious with their capital expenditure plans. To be sure, Rio Tinto, one of the major miners in
Australia, had announced in December 2013 that it planned to cut its capital expenditure by 20% y-o-y,
from slightly less than USD14bn in 2013 to around USD8bn in 2015. BHP Billiton also announced in 2013
that it will lift its iron ore exports in Western Australia over the medium term, but will reduce its capital
spending on other segments of its business by 25% to USD16.2bn in 2014. Lastly, latest data from the ABS
show that the project pipeline in the engineering construction sector is shrinking since 2012, particularly for
mining, oil and gas projects.
Obstacles To Asset Sales
Some of the state governments - NSW, Victoria and Queensland - are trying to raise funds by privatising
state assets (see 'Greater Private Sector Participation Not Without Risks', January 6 2014), but such sales
are being frowned upon by the electorate, particularly if they result in job losses and wage cuts. Given that
the state of Victoria is expected to hold elections before the end of 2014, while the Queensland state
government has publicly stated that they will not conduct any asset sales without a mandate from voters, we
believe that there could be delays to the asset privatisation plans for both states.
Declining Competitiveness
There is a growing lack of competitiveness in some of Australia's engineering construction projects,

particularly in the liquefied natural gas (LNG) sector. Many of the country's LNG projects have suffered
considerable cost overruns due to high labour costs, unfavourable foreign exchange environments and the
high cost of transporting materials to remote locations (see 'Market Rigidities To Force Unemployment Rate
In 2014' December 13 2014).

Increasingly Costly
Australia - Value Of Work Done, Engineering Construction, By Quarter, By Sector, Original, AUDmn
This could deter investors from making further investment into the sector. We highlighted earlier Australia's
shrinking engineering construction pipeline, and have already seen several cases of projects been terminated
or delayed due to a significant deterioration in investment returns (see 'Kogas Looking For GLNG Exist',
September 30 2013, and 'Synergies Adopted To Mitigate LNG Project Cost Increases', October 25 2013).
While we believe that the Liberal-National coalition could address some of these business environment
challenges by implementing reforms such as correcting labour market rigidities, they will take time to be
resolved. In addition, other reforms may be more difficult to implement - namely increasing free trade and
inward foreign investment (see 'Coalition Spurs Mixed Developments In Business Environment', September
20 2013).

Macroeconomic Forecasts
Economic Analysis
BMI View: The strong performance by Australian exports lifted Q114 real GDP growth to 1.1% quarter-
on-quarter (q-o-q) in real and seasonally-adjusted terms, and we have upgraded our 2014 growth forecast
to 2.3% on the back of these figures. However, our growth forecast remains below consensus as an austere
budget and easing mining investment intentions should keep domestic demand subdued.
The Australian economy grew by 1.1% quarter-on-quarter (q-o-q) after seasonal adjustments in Q114,
reaccelerating from a pace of 0.8% recorded in Q413. Strong export growth was further accentuated by a
contraction in imports, which saw the goods and services balance move into the black in Q114 for the first
time in nine quarters. Given that latest data from the Chinese customs authorities for April showing another
surge in iron ore imports (which are primarily from Australia) to 24.2% year-on-year (y-o-y), we have
upgraded our real GDP growth forecast to 2.3% to account for the stronger export performance.
This upgrade, however, in no way changes our downbeat and below-consensus outlook for the Australian
economy. We maintain that the economy remains on shaky foundations, as the mining sector continues to
be the heavy lifter for the rest of the economy. We believe that a slowdown in the Chinese economy and
ongoing reforms efforts should weigh on Australia's export performance beyond H114. At the same time,
we believe domestic demand will be moderate at best, as government consumption growth is likely to slow
under a more austere federal government and the services sector will struggle to offset the declines from the
manufacturing and mining sectors.

Still Reliant On Mining

Australia - Growth Contribution By Sectors (% chg q-o-q, LHS) & Chinese Iron Ore Imports (mn
Tonnes)
Source: BMI, ABS, China General Customs Administration
Chinese Reform Efforts To Weigh On Export Growth
We maintain that both our downbeat outlook for the Chinese economy and reforms that local officials are
implementing will weigh on exports and reduce the tailwind they have provided to the Australian economy.
Exports contributed more than 96% of the growth recorded in Q114, while the simultaneous contraction in
imports boosted overall net exports to contribute 1.4 percentage points (pp) to q-o-q growth for the quarter.
On the back of this strong growth in Q114, we have upgraded our expectations for real export growth to
come in at 6.0% (versus 4.5% previously).
However, given our bearish outlook for the Chinese steel sector and property market, we believe that
current levels of demand for Australian exports from China will not be sustained. Additionally, we believe
that the Chinese authorities will continue to pursue reforms, and this could include the government cracking
down on commodity financing deals which have reportedly provided some support for industrial
commodities such as copper, aluminium and iron ore. To this end, we believe that recent news that the port
of Qingdao, China's third largest port, has halted shipments of metals starting from June 3 due to an
investigation by local authorities suggests that the crackdown may begin sooner rather than later. As such,
Australia's stellar export performance may be curtailed in H214, in line with our previous expectations (see '
Downbeat Outlook For Steel To Cap Iron Ore Export Growth', March 7 and ' China Imports: Robust
Growth To Give Way In H214', June 2).

Consumption Growth To Slow Further
With the export boost expected to fade in the coming months, growth in domestic demand will need to
become much stronger to fill the gap. In this respect, we maintain our outlook for the domestic economy to
experience a period of slow growth as a combination of high debt levels (which implies a need for
deleveraging or for incomes to grow) and near-term job cuts weigh on domestic expenditure. So far, we
believe that these dynamics are already playing out. Indeed, after stripping out the effects on growth from
external demand, domestic demand contracted by 0.3% q-o-q in Q114 compared to 0.5% q-o-q growth in
the previous quarter. This was driven by moderating consumption growth as well as a severe contraction in
inventories. In particular, growth of total public and private consumption decelerated, coming in at 0.3% q-
o-q in real and seasonally-adjusted terms, versus 0.4% q-o-q in Q413. In addition, the austere federal
government budget for FY2014/15 (July-June) announced in mid-May presents another headwind to
consumption growth given that proposed tax hikes and subsidy cuts have begun to weigh on consumer
confidence. Monthly retail sales have also shown signs of weakness over the last few months.
Barely In The Black
Australia - Gross Capital Formation & Components (pp contribution To Real GDP q-o-q Growth)
Source: BMI, ABS

Residential Investment To Fall Short
Our outlook for the investment picture in Australia remains dim, as we expect the weaker investment from
the mining sector to outweigh initial spurts of growth from the other sectors of the economy in the near
term. Moreover, we believe that residential construction will struggle to offset the declines in other non-
dwelling investment sub-segments. In Q114, inventories suffered yet another deep contraction, subtracting
0.7 pp from the headline real GDP growth figure. Moreover, q-o-q growth of gross capital formation barely
made it to the black, despite the stronger investment in residential dwellings. This is despite data from the
Australian Bureau of Statistics (ABS) showing that the 6.8% q-o-q increase in residential construction
activity in Q114 successfully offset contractions in non-residential construction and engineering
construction, to lift the sector's overall activity by 0.3% q-o-q. With house price growth showing signs of
cooling, we believe that residential investment will struggle to grow sufficiently to offset the declines from
the other sectors. This is especially so as a number of major liquefied natural gas (LNG) projects are nearing
completion, such as Gorgon, Gladstone, APLNG and QCLNG, while mining investment intentions continue
to ease based on latest ABS estimates.
Private Consumption: We expect private consumption growth to ease as wage growth wanes in 2014 and
2015. Moreover, with household debt above 90% of GDP, we see little scope for debt-driven consumption
to rise significantly, and therefore cap the likelihood for private consumption growth.
Private Investment: While confidence has improved, we note that businesses remain cautious and as such
expect spending and employment activity to be subdued. Moreover, we do not expect the elevated
residential building activity to be maintained for the rest of the year as we believe that the strong growth in
house prices over the past year will wane as wage growth appears even less likely in the months ahead.
Government Consumption And Investment: Although Prime Minister Tony Abbott is keen to push
through plans for austerity, we believe that the fragmented composition in the federal Senate will prevent
any significant cutbacks. That said, with the rollback of carbon tax and limited scope for implementing tax
reform with the support of the states, we do not expect the authorities to significantly increase their
infrastructure spending in 2014, although there is scope for greater public spending in the years beyond.
Net Exports: We believe that the pick-up in mineral exports will subside in the coming quarters, given the
decline in commodity prices and shutdown of fringe mine operations. That said, we expect import growth to
slow with wage growth on the decline.

Table: Economic Activity (Australia 2009-2018)
2009 2010 2011e 2012e 2013e 2014f 2015f 2016f 2017f 2018f
Nominal GDP, USDbn 982.0 1,247.3 1,499.6 1,555.1 1,501.2 1,449.8 1,376.2 1,362.1 1,408.0 1,488.6
Real GDP growth, % y-o-y 1.4 2.7 2.5 3.8 2.4 2.3 2.3 2.5 2.8 2.9
GDP per capita, USD 44,967 57,009 67,166 66,664 61,709 63,044 59,268 58,100 59,471 62,276
Industrial production, % y- -0.7 4.7 1.2 4.6 3.6 1.6 1.6 2.1 2.0 2.0
o-y, ave
Population, mn 22.0 22.4 22.7 23.1 23.3 23.6 23.9 24.2 24.5 24.8
Unemployment, % of
labour force, eop 5.5 4.9 5.2 5.4 5.9 6.5 6.1 5.7 5.5 5.5
National Sources/BMI

Industry Risk Reward Ratings

Asia - Risk/Reward Index
The Real Estate Risk/Reward Index provides a regional country-by-country comparison of the risks and
rewards for the commercial real estate market. It evaluates the industry's current size and growth potential,
and takes into account issues that could affect the industry's development, such as commercial bank lending,
financial infrastructure, per capita GDP, urbanisation, real estate prices and lending rates. The Index also
covers country- and industry-specific factors, such as political and economic stability, that could inhibit or
encourage development in the real estate sector.
Table: Asia - Real Estate Risk/Reward Index
Industry Country Industry Country Real estate

rewards rewards Rewards risks risks Risks score Rank
South Korea 55.0 74.6 61.9 93.3 69.7 85.1 73.5 1
China 80.0 48.4 68.9 90.0 50.1 76.0 72.5 2
Australia 65.0 91.6 74.3 60.0 74.7 65.1 69.7 3
Hong Kong 52.5 91.7 66.2 63.3 74.6 67.3 66.7 4
Malaysia 55.0 59.5 56.6 83.3 60.1 75.2 65.9 5
India 87.5 37.2 69.9 73.3 38.4 61.1 65.5 6
Singapore 55.0 97.6 69.9 46.7 82.3 59.2 64.5 7
Taiwan 60.0 67.0 62.4 70.0 59.2 66.2 64.3 8
Japan 57.5 84.6 67.0 53.3 73.7 60.5 63.7 9
Indonesia 80.0 35.3 64.4 73.3 37.6 60.8 62.6 10
Philippines 65.0 37.4 55.4 73.3 51.3 65.6 60.5 11
Pakistan 70.0 29.3 55.8 76.7 43.4 65.0 60.4 12
Thailand 45.0 40.1 43.3 83.3 63.4 76.3 59.8 13
Vietnam 65.0 20.0 49.3 73.3 50.5 65.3 57.3 14
Scores out of 100, with 100 the best. Source: BMI

Australia Risk/Reward Ratings
BMI View: Growing fears of a property crash in the residential sector as well as the risks to the building
sector posed by a weakening banking sector have dampened the overall real estate outlook while the
country's less-than-stellar economic performance is affecting demand for commercial real estate.
Rewards
Industry Rewards
Australia performs well in terms of this indicator, with a score of 65.0, the same as Q414. The commercial
real estate market is mature, meaning growth potential over the long term is limited, but the stability the
market offers offsets that. Bank lending, particularly in light of current low interest rates, is one of the
biggest rewards Australia offers due to the developed nature of its financial sector in comparison to its
Asian peers. Indeed, companies and individuals from elsewhere in Australia are increasingly investing in
the country's real estate, both residential and commercial.
Country Rewards
The country performs impressively on the labour market front. It has a highly skilled and multilingual
working population which is highly urbanised and increasing due to robust immigration. Australia's
business environment with transparent regulations and a predictable investment climate is further beneficial.
Australia scores 91.6 for this indicator, behind only Singapore and Hong Kong.
Risks
Industry Risks
The country has a strong regulatory environment. The well defined regulations are transparent and investor-
friendly, with a range of incentives on offer. The commercial real estate industry is diverse in terms of
firms. However, real estate prices have risen in recent years, but could stagnate over the short term as
demand is dampened by the prevailing economic conditions. There are fears that an environment of low
interest rates could lead to a bubble in the residential market. Meanwhile, in the commercial market an
economic slowdown is leading to business caution in terms of expansion, meaning less demand for
commercial real estate and a drying up of the new project pipeline. Australia scores 60.0 for this indicator.

Country Risks
As in most mature democracies, the Australian political system is relatively stable. Certainly, there are
policy differences between the main political groupings, the Australian Labor Party (ALP) and the Liberal
Party, but changes in government rarely result in any major alteration in political direction. However, the
economy has benefited from the recent commodities boom, with China a key customer for Australian
mineral exports. A slowdown in China could therefore have a direct impact on Australia's economy. The
country scores well in terms of this indicator, with a score of 74.5.

Market Overview
BMI View: The Australian real estate market as a whole is increasingly receiving investment from
overseas, particularly from the Asia Pacific region. While the residential real estate market is booming,
there is also substantial activity in the commercial real estate market. However, the country's less-than-
stellar economic performance is affecting demand for commercial real estate.
The slowing economy (we forecast real GDP growth of 2.3% in 2014 and 2015, down from 2.4% in 2013
and 3.8% in 2012) is having an impact on sentiment in Australia's commercial real estate market, with
demand slowing and pipelines drying up in some instances. Household debt is high, and the government's
austerity measures mean that consumption is not driving strong demand for retail real estate in particular.
Meanwhile, Australia's economy is largely dependent on commodity exports, particularly to China, and a
slowing in demand in that country is affecting Australia's net exports as well as its wider economy. This is
set to have an impact on the commercial real estate sectors as a whole, limiting demand and growth.
However, partly because of the slowdown in China, transactional activity remains strong, with much
demand for Australian real estate, both commercial and residential, coming from the Asia Pacific region,
notably China and Singapore. The Singaporean property market has been affected by cooling measures
introduced by that country's government, and Singaporean property companies are increasingly looking
elsewhere in order to find growth opportunities and to diversify risk. Meanwhile, amid signs of a slowdown
in the Chinese property market, Chinese investors are also increasingly interested in the 'safe haven' of
Australian property.

Tough Times Ahead
Australia's Unemployment And Household Spending, 2008-2018
2014f
2015f
2016f
2017f
2018f
2008
2009
2010
2011
2012
2013
Unemployment, % of labour force, average
Total household spending, AUD, % change y-o-y
Sydney
Sydney, in New South Wales on Australia's south eastern coast, is a global economic hub, and a centre of
Australian business and finance, and is Australia's largest city. The port of Sydney, together with
Melbourne, is Australia's largest container port, and the city has good transport links with the rest of the
country. An investment programme is under way at the port.
Melbourne
Melbourne is the capital of the state of Victoria, on Australia's southern coast, and is the country's second
largest city by population. Like Sydney, it is a global economic hub, and a significant number of Australian
businesses are based there. Melbourne is home to Australia's largest container ports, and one of the largest
in terms of tonnage throughput.

Perth
Perth is the capital of Western Australia and is one of Australia's largest cities. Western Australia is the
scene of much activity in the mining and oil and gas spheres, and Perth has benefited from the boom in
Australian commodity exports. Perth is served by the port of Fremantle, the largest in the region.
Brisbane
Brisbane is the capital of Queensland and is on Australia's eastern coast. It is one of Australia's largest cities
by population and is a centre of services and industry. In particular, the government has been promoting the
city as a centre for science and technology-related businesses. Brisbane is home to one of Australia's largest
ports.
Office
BMI View: The office segment continues to suffer from the slowdown in the Australian economy, affected
by low demand, which is leading to a reduction in the pipeline of new supply in some areas. We do not see
an improvement in the sector's fortunes in the short term.
Supply And Demand
The office segment has traditionally been a strong area of commercial activity in recent years. However,
conditions in the sector have deteriorated considerably, mirroring a general downturn in the country's
macroeconomic climate. Weakening business sentiment has been one of the main factors in reduced
demand for office space, and has been held back by the declining profitability of the manufacturing and
services sectors.
Across all four cities that we survey, demand is currently low. However, in Sydney our in-country sources
note that the strongest demand is for premium space, which tends to have better amenities, and that the
pipeline of new supply remains healthy, which could have a negative impact on rental rates.
In Melbourne, Australia's other major business hub, demand likewise remains strongest for premium space,
although the market is already being affected by oversupply, however the pipeline of new projects is now
very small, which will support rental rates. In Brisbane there is a similar story of low demand and high
current supply. However, like Melbourne, the pipeline of new supply is minimal. Perth's office real estate
market is also afflicted by low demand; however, low supply is acting to keep vacancy rates low, although
some new projects that are due to be completed in late 2014 could affect vacancy rates.

Rents And Yields
We have seen shifts in rental rates in all four cities across our review period, from January 2013 to
September 2014, reflecting the uncertainty in the market as a whole. Top-end rates fell in Sydney, from
USD95 per square metre (sq m) per month to USD88, while in the other three cities they rose. In Melbourne
this was by USD9, from USD43 to USD52, while in Perth they rose by USD7 and in Brisbane a smaller
USD1.
Table: Historical Rental Costs, 2013-2014 (USD per sq m per month)
January-September 2013 October 2013-March 2014 April-September 2014
Min Max Min Max Min Max

Sydney 23 95 25 88 25 88
Melbourne 20 43 23 52 23 52
Brisbane 34 67 29 68 29 68
Perth 33 65 33 72 33 72
Source: BMI
At the bottom end, rents rose slightly in both Sydney and Melbourne, reaching USD25 and USD23,
respectively, by the end of our review period. Meanwhile, Rents remained at the same level in Perth, at
USD33 per sq m per month. In Brisbane, rents fell by USD5 to USD29 per sq m per month. These changes
in rental rates were not reflected in net yields, which remained the same in each of the four cities over the
review period. The highest yields can be found in Brisbane, at 8-12%, while the lowest are in Perth, at
5-9%.
Table: Historical Net Yields, 2013-2014 (%)
January- October 2013- April-September

September 2013 March 2014 2014
Sydney 7-9 7-9 7-9
Melbourne 7-12 7-12 7-12
Brisbane 8-12 8-12 8-12
Perth 7-11 5-9 5-9
Source: BMI

One area where the weakness of the market reveals itself is the number of months that tenants can expect to
negotiate as rent free, up to six months in Melbourne and around three months elsewhere. However, tenancy
periods do tend to be relatively long, at up to 10 years in Melbourne and Perth and up to five years in
Sydney and Brisbane.
Table: Terms Of Rental Contract/ Leases, H114
Lease terms, years Rent-free months, if any
Sydney 3-5 3
Melbourne 3-10 3-6
Brisbane 3-5 3
Perth 3-10 2-3
Source: BMI
Retail
BMI View: The retail segment remains relatively well placed in terms of its supply-demand dynamic.
Nevertheless, weakening consumer confidence will limit growth in the market overall, as businesses become
more cautious about expansion plans.
Supply And Demand
The key demand drivers for the retail sector are retail sales and consumer spending, and improvement in the
sector is influenced by the activities of major retailers. In 2014, Australia's retail market has been
constrained by a combination of growing job uncertainty and weakened consumer spending. We forecast
the growth of private consumption to slow in 2014 and 2015, while unemployment will rise from 5.9% at
the end of 2013 to 6.5% a year later, falling to 6.1% by the end of 2015. Consumer confidence is dented by
the austere federal government budget for FY2014/15 (July-June) announced in mid-May, and proposed tax
hikes and subsidy cuts have begun to weigh on consumer confidence. Monthly retail sales have also shown
signs of weakness over the last few months.
Our Sydney source notes moderate demand and supply in that city, with demand particularly focused on
prime quality space. New supply coming to the market over the course of 2014 should ensure that the
current supply-demand dynamic remains stable in the short term. In Melbourne the picture is different, with
demand outweighing supply, particularly of prime quality space. This is leading to low vacancy rates for

retail real estate. We are also seeing high demand and low supply in Brisbane and Perth, with our in-country
sources citing particularly high demand from food retailers in Brisbane and a lack of sufficient mall space in
Perth.
Rents And Yields
Retail rental rates in Australia are higher than those for the office sector, and much higher than those for
industrial real estate. Rents have been on a generally rising trend over our review period, from January 2013
to September 2014, although there is a significant disparity across the cities that we cover. Upper end rents
in Melbourne, a key economic and cultural centre, are at USD232 per square metre (sq m) per month,
significantly higher than in Sydney (USD143), Brisbane (USD117) and Perth (only USD77). Bottom-end
rents in Sydney and Brisbane, at USD40 and USD43, are almost double Perth's USD25.
There have been significant rises at the bottom end in Melbourne, from USD24 to USD31, while at the top
end rents in Sydney rose from USD122 to USD143 per sq m per month, and in Brisbane they rose from
USD92 to USD117. All this indicates a continued level of confidence among retailers, as well as lack of
sufficient supply in some areas.

Sydney 41 122 40 143 40 143
Melbourne 24 230 31 232 31 232
Brisbane 43 92 43 117 43 117
Perth 21 74 25 77 25 77
Source: BMI
Despite the changes in rental levels over the past two years, yields have remained stable more or less across
the board, with the only decline seen in Perth, where yields fell from 7-11% to 7-9%. Unsurprisingly, with
the highest top-end rents, Melbourne also has the highest potential yields, at 5-12%.


Sydney 5-9 5-9 5-9
Melbourne 5-15 5-12 5-12
Brisbane 7-10 7-10 7-10
Perth 7-11 7-9 7-9
Source: BMI
Tenants appear to be able to negotiate up to three months of rent-free accommodation in their lease terms,
while leases tend to range from around five to 10 years, although in Brisbane they can be as short as one
year.
Table: Terms Of Rental Contract/Leases, H114

Sydney 5-7 3
Melbourne 5-10 2-3
Brisbane 1-10 1-3
Perth 5-10 2-3
Source: BMI

Industrial
BMI View: A low supply of industrial real estate stock protected the industrial segment from the worst of
the downturn experienced by the rest of the commercial real estate market. A stable supply-demand
dynamic has allowed rental rates to remain stable over our review period, but our expectations are now
firmly to the upside for 2015 and 2016.
Supply And Demand
Industrial real estate encompasses warehousing, logistics and distribution centres and bespoke industrial
space. The key demand driver for the industrial sector is the strength of exports, as lower exports typically
result in lower demand for industrial space. Acceleration in the pace of growth of Australian exports is
helping to support demand for industrial space, with the depreciating Australian dollar supporting our
bullish 6.0% year-on-year (y-o-y) export growth forecast in 2014, up from a previous forecast of 4.5% and
compared with 2.3% in 2013.
However, there are downside risks to our export outlook, particularly as a result of our downbeat outlook
for the Chinese economy, a key importer of Australian mining products; and we believe that this level of
growth will not be sustained. We also believe that consumer confidence and private consumption growth
will ease, as government austerity measures take effect, and see private investment remaining subdued, as
businesses remain cautious. All of these factors could dampen demand for industrial and logistics real
estate.
Demand for industrial real estate varies across the four cities that we cover. In Sydney government
initiatives to increase the land available for industrial real estate, as well as improvements to infrastructure
that will allow more efficient movement of goods, will boost demand, particularly for prime quality real
estate. Key infrastructural improvements include the WestConnex project, a 10-year, 33km project that will
form part of the city's Orbital Network, and a number of transport-linked logistics projects are under way or
under consideration.
Melbourne is among Australia's most significant industrial real estate markets, and is a major centre of
manufacturing, as well as being an Asian economic hub and home to Australia's largest container port. This
makes industrial real estate among the priciest in Australia. Our in-country sources note, however, that
demand was flat in the first half of 2014, although it is now beginning to pick up. Nevertheless, new supply
coming online could make prices more stable than they would otherwise have been.

In Brisbane, our in-country sources note high demand for high quality and for distribution-related industrial
real estate. Although demand in Perth could be affected by a slowdown in mining activity, a number of
government infrastructure developments in the area should make industrial real estate increasingly
attractive.
Rents And Yields
Sydney has continued to enjoy the highest rental rates for industrial real estate of the four Australian cities
that we cover, with rents ranging from USD10 per square metre (sq m) per month to USD18 per sq m per
month. Rents elsewhere range from a low of USD5 in Melbourne to a high of USD16 in Brisbane. It is
worth noting that over our review period, from January 2013 to September 2014, industrial rental rates did
not change in Sydney; but there were notable increases elsewhere, particularly at the top end, indicating that
demand has been strongest for prime quality real estate.

Sydney 10 18 10 18 10 18
Melbourne 5 10 5 14 5 14
Brisbane 5 8 7 16 7 16
Perth 7 11 8 13 8 13
Source: BMI
Yields remained fairly stable over our view period, ranging from 7-11% in Melbourne, arguably Australia's
most significant industrial real estate area, to 7-9 in Sydney and Brisbane. The lack of movement in yields
indicates that landlords seem to have priced their rental levels appropriately.


Sydney 7-9 7-9 7-9
Melbourne 7-12 7-11 7-11
Brisbane 8-10 8-9 7-9
Perth 7-11 7-10 7-10
Source: BMI
This fact is attested to by the uniformity in rent-free periods that new tenants appear to be able to negotiate,
ranging from one or two months up to three months. However, we do note a significant range in lease
periods, with the shortest leases, of only a year, being available in Sydney and Brisbane while the longest
leases, of 20 years, are to be found in Brisbane, with the other cities typically having longer-term leases of
only 10 years.
Table: Terms Of Rental Contract/Leases, H114
Sydney 1-10 1-3

Melbourne 3-10 2-3
Brisbane 1-20 1-3
Perth 3-10 2-3
Source: BMI

Competitive Landscape
BMI View: The Australian commercial real estate market continues to be balanced because, structurally,
the industry operates in a way that restricts overdevelopment. The market is increasingly popular with
international investors, especially those from the Asia Pacific region.
Commercial real estate in the country tends to be owned by a number of key listed players, with real estate
investment trusts (REITs) important players in the market. Major listed REITs include Westfield Group,
Stockland Group, Brookfield Multiplex, General Property Trust and Mirvac. Together,
Westfield, Stockland and the debt-laden Federation Ltd own the majority of the country's large retail
centres. Commercial property in the major city centres is also predominantly owned by listed REIT players,
including General Property Trust and Commonwealth Property Trust.
There is increasing international interest, especially from Asia investors, in investing in the Australian
property market. Notably, a number of Chinese and Singaporean firms have invested in Australian
commercial property in a bid to diversify away from weakness in their local markets and to take advantage
of the weak Australian dollar. For example, Singapore-based Hiap Hoe purchased an A-grade commercial
building in Perth for AUD90mn (USD81.35mn) in March 2014. The acquisition is in line with the
company's strategy to acquire high quality, well located land sites that are able to generate greater returns
for our shareholders, according to Hiap Hoe's CEO, Teo Ho Beng. The acquisition is the third asset
acquired by the company in Australia, after purchases in Melbourne and Perth.
In September 2014 Singapore-based Frasers Centrepoint closed its takeover bid for Australian property
group Australand, taking a 98.39% interest in the company for some AUD2.6bn. Australia is set to be a
key investment focus for Frasers.
The residential real estate market has been performing particularly well in an environment of low interest
rates and international interest, and there are fears that a bubble may be developing in the residential market.
Investors Look To Cash In
With the worst of the market downturn likely to have passed, 2014 has seen a number of investors look to
profit from a lack of valuation growth over the past few months. In March 2014 private equity real estate
investment group Altis Property Partners acquired two business parks in Port Melbourne, Australia from
national property fund manager ISPT for USD28.25mn. The first building at 251 Salmon Street comprises

three-levels and consists of an on-site parking for 243 vehicles. The second building at 261 Salmon Street
features two levels and covers 5,145 square metres (sq m) of office and warehouse space along with car
parking for 179 vehicles. The two transactions represent a yield of 8.4%.
Furthermore, Charter Hall's office fund has acquired a 50% stake in the Australian Taxation Office (ATO)
building in Adelaide, Australia, from Aspen Group for AUD29.5mn (USD26.69mn). Charter Hall also
bought a 30,000sq m development site called City Central for AUD12mn (USD10.85mn). Both properties
have Telstra Super as a co-owner. The office building is at the centre of Adelaide's central business district
and covers 37,313 sq m, which is let for 15 years to the ATO.
REIT Sector Hotting Up
Current new developments are also mainly from major REITs. Lend Lease, Multiplex and Leighton
Holding tend to be the major players in commercial and infrastructure development in Australia. Westfield,
Stockland and Mirvac undertake major retail developments in Australia, and Mirvac and Meriton Group
undertake a number of major residential projects. There are also a number of smaller players who represent
smaller developments, but the Australian real estate sector is dominated in terms of ownership and
development by a few major players in the listed REIT sector.
The REIT sector in Australia is one of the most sophisticated and mature in the world. The listed property
sector began in Australia in the 1970s, and by 2007 the sector constituted more than 10% of the S&P/ASX
200; at its peak more than 40 stocks. At this time it also constituted, in terms of market capitalisation, more
than 11.5% of the global REIT market. Prior to the financial crisis, a number of the REIT players
aggressively expanded into offshore property markets, using a mix of debt and equity funding. As such, the
risk profile of the Australian REIT sector was quite high prior to the global financial crisis. The crisis had a
significant effect on the sector. By October 2011 REITs only constituted around 6% of the S&P/ASX 200,
comprising 12 stocks. After the financial crisis there was dramatic consolidation in the sector and a number
of smaller REITS were taken over.
However, in light of the increased risks in the mining sector, this downturn has been reversed. The real
estate market has emerged as a safe investment destination. This has resulted in a surge in equity
fundraising. A-grade REITs have accounted for a third of all money raised via share issues in Australia's
equity capital markets this year, outpacing all other sectors with USD1.3bn. That is almost triple the amount
raised by mining-sector companies, and puts the property sector on course to hit the highest fundraising
level in three years. A-grade REIT players shares gained 24.2% in the financial year that ended on June 30

2013, slightly better than a 22.8% rise in Australia's benchmark S&P/ASX 200 index. They also
outperformed peers in Hong Kong, Singapore, the US and the eurozone.
There have been a number of developments in the REIT market during the past few months. In November
2013 Singapore-listed AIMS AMP Capital Industrial REIT signed a conditional agreement
with Stockland Direct Office Trust No. 2 to acquire a 49% stake in the Optus Centre, a premium A-Grade
business park in Macquarie Park, Sydney, for AUD184.43mn (USD169.11mn). The acquisition would be
the REIT's first investment in Australia and the first freehold property (as all other 25 assets in Singapore
are leasehold). Of the total purchase price, 60% will be funded by a new five-year Australian dollar term
loan facility, while the remaining cost will be financed by an existing dual currency Singapore/Australian
dollar revolving credit facility.
In January 2014 Australia's Dexus Property and its joint venture (JV) partner Canada Pension Plan
Investment Board brokered an asset sale deal with rival GPT Group, paving the way for the end of a
takeover battle for Australian REIT Commonwealth Property Office Fund (CPA). Dexus and CPPIB will
sell five office buildings in Sydney and Melbourne for an aggregate cost of around AUD1.2bn (USD1.08bn)
to GPT Group. GPT will acquire a 50% stake in 10 Shelley Street in Sydney, a 100% stake in 750 Collins
Street in Melbourne, and a 100% stake in 655 Collins Street, Melbourne, and a 50% interest in Melbourne's
2 Southbank Boulevard. GPT Group will also acquire a 50% interest in the Northland Shopping Centre in
Victoria for USD505mn.
Office
Australian commercial real estate firm Mirvac manages a portfolio of office properties in the key Australian
central business districts (CBDs) of Sydney, North Sydney, Melbourne, Brisbane, Canberra and Perth.
Brookfield Office Properties describes itself as a 'global office property company that owns, manages, and
develops premier assets in the world's most dynamic and resilient markets'. In Australia it has an office
portfolio in Sydney, Perth and Melbourne.
Australian real estate developer Stockland has a portfolio of 10 office buildings as of mid-2014. This was
valued at some AUD1bn.
Cromwell Property Group buys and manages commercial properties across Australia. It specialises in
office real estate, and has a portfolio valued at some AUD22.bn, with AUD1.3bn of assets under
management.

Arena Investment Management specialises in commercial property in Australia and New Zealand. Its Arena
Office Fund has a portfolio of office properties in Sydney and Melbourne, as well as in Auckland, New
Zealand. By the end of March 2014, it had total assets of AUD343mn. Arena Property Fund operates in
office and industrial property, with total assets worth AUD219.5mn (March 2014). Of these, 65.2% were
office and 34.7% were industrial.
General Property Trust (GPT) is listed on the Australian Securities Exchange and describes itself as 'one of
Australia's largest diversified listed property groups'. It has AUD16.7bn of assets under management across
office, logistics, business parks and shopping centres.
Dexus Property Group has a AUD17.8bn portfolio of office, retail and industrial portfolio in Australia. Its
office portfolio consists of 1.7mn sq m of space in Sydney, Melbourne, Brisbane and Perth. It focuses on
prime quality assets in central business districts.
ISPT describes itself as 'one of Australia's largest unlisted property fund managers'. It has over AUD9.7bn
in funds under management and invests in office, retail, industrial and residential real estate. It has six
funds: ISPT Core Fund, which has a diverse portfolio within Australia; ISPT 50 Lonsdale Street Property
Trust, a single-asset fund that manages a key Melbourne commercial building; ISPT Retail Australia
Property Trust; ISPT Development and Opportunities Funds Nos. 1 and 2; and its international fund, ISPT
Grosvenor International Property Trust.
Charter Hall owns and manages office, retail and industrial real estate, with a portfolio valued at some
AUD12.1bn. According to its website, it manages 'a wide variety of listed and unlisted property funds for
institutional and retail investors', and partnerships for wholesale investors. It has 48 office properties, 87
retail properties and 47 industrial properties.
Retail
At the end of June 2014, Stockland had a portfolio of 40 retail centres, with total gross leasable area (GLS)
of 974,184 sq m.
According to its website, Mirvac owns and manages more than AUD1.9bn of shopping centres across
Australia's eastern seaboard.
Real estate developer and operator Lend Lease manages 16 shopping centres across Australia.

Westfield Group describes itself as 'one of the world's leading shopping centre companies'. In June 2014, it
was restructured into two independent companies: Westfield Corporation to own and manage Westfield's
US and European interests and Scentre Group to own and manage the Australian and New Zealand
shopping centres. Scentre says that it operates Australia and New Zealand's 'largest shopping centre
portfolio'. This consists of 47 shopping centres, 38 of which are in Australia, with some AUD38.6bn of
assets under management.
Federation Centres specialises in retail real estate, owning and managing 70 shopping centres in Australia in
mid-2014. It has AUD6.9bn of shopping centre assets under management.
Dexus Property Group manages 13 shopping centres in Australia, valued at around AUD3.4bn. It manages
them on behalf of third party capital partners.
Industrial
As of mid-2014, Stockland has a portfolio of 21 logistics and business parks, with a GLA of more than
1.2mn sq m.
Dexus Property Group has an industrial portfolio worth AUD2.5bn in Australia. This is across business
parks, industrial estates and logistics and distribution centres.
Logos Property specialises in logistics real estate. It was established in 2010, and has investments
throughout Asia Pacific, specialising in 'large format logistics development'.
Goodman describes itself as 'an integrated commercial and industrial property group that owns, develops
and manages real estate including warehouses, large scale logistics facilities, business parks and offices
globally'. In Australia it has 202 properties.

Company Profile
Lend Lease
SWOT Analysis
Strengths
A well established company with a strong back catalogue of projects.

International company with a global portfolio.

A reputation as a sustainability leader.

Strong market position is enhanced by substantial construction backlog revenue and
funds under management.
Weaknesses
Profitability has been affected by the global financial crisis and its aftermath,
particularly in its European operations.
Opportunities
Potential for expansion, particularly in Asia.

Significant project pipeline.

The company's portfolio has been re-positioned, and generates 60% of earnings from
its domestic market, Australia.
Threats
If the global economic recovery falters, there could be negative implications.
Company Overview Founded in Australia in the 1950s and listed on the Australian Stock Exchange, Lend
Lease is a leading real estate specialist that creates, enhances and manages real estate
assets around the world. Its activities are mainly focused in Asia Pacific, Europe and the
US.
Lend Lease operates three core businesses: project management and construction;
property investment management; and property development. Its development
business focuses on three key areas: retail, communities and privatisation. It has an
integrated business model, and its earnings are diversified by market sector and
geography.
Lend Lease manages 16 shopping centres in Australia.

Strategy Lend Lease's vision is 'to create the best places'. The aim is to achieve a balanced and
diversified portfolio and to continue to recycle capital from property assets and non-
core businesses to invest in higher yielding opportunities. To better capitalise on the
growth in public and private infrastructure opportunities in Australia, it has acquired
construction and engineering businesses Abigroup, Baulderstone and Conneq.
Lend Lease has a 'restore, build, lead' strategy to realise and deliver long-term
sustainable growth. As part of the 'restore' phase, it has reorganised the group into a
regional structure and is focused on continuous business improvement. In the 'build'
phase, it has secured a significant portfolio and construction backlog revenue.
Financial Data In the year ending June 2013, Lend Lease's financial results included the following:
Revenue of AUD12,209mn;
Operating profit after tax of AUD553mn; and
Operating EBITDA of AUD744mn.
Company Details Lend Lease
30 The Bond
30 Hickson Road
Millers Point NSW 2000
Australia
Tel: +61 2 9236 6111
Fax: +61 2 9252 2192
www.lendlease.com

Brookfield Multiplex
SWOT Analysis
Strengths
A well-established company with a strong back catalogue of projects.

More than 50 years market experience.

Has operations and offices in Australia, New Zealand, Canada, Europe and the Middle
East.

Breadth and diversity across construction sub-sectors, including commercial real
estate, residential, healthcare facilities and infrastructure.
Weaknesses
Profitability has been affected by the global financial crisis and its aftermath.

Increasing competition.
Opportunities
Potential for expansion as the Australian economy shows stronger growth.

Potential in the Australasian market.
Threats
Could be affected by any faltering in the global economic recovery.
Company Overview Multiplex was founded in 1962 as a private company in Perth and was acquired by
Brookfield Asset Management in a transaction that was completed in January 2008. The
re-named Brookfield Multiplex is a fully integrated company in the fields of commercial,
retail and residential property development, construction, management services and
infrastructure.
Parent company Brookfield is publicly listed on the NYSE, TSX and Euronext
Amsterdam stock exchanges under the symbols of BAM, BAM.A and BAMA
respectively.
Brookfield Multiplex operates in Australasia, the Middle East, Europe and Canada. It
operates in four divisions: construction; engineering and infrastructure; plant and
equipment; and services.

Current According to its website, in Australia Brookfield Multiplex has an overall workbook value
Developments of USD3.2bn, with a total of 21 projects including infrastructure, retail, commercial and
education.
Current office projects include the expansion and redevelopment of 570 Bourke St, in
Melbourne, where work is due to be completed in mid-2015, and Brookfield Place
Tower 2 in Perth central business district, with construction expected to be completed
by the end of 2015.
Operational Data As of April 2014, the company's website noted an orderbook of USD9.4bn, with the
following breakdown: health (42%), commercial (20%), residential (16%), retail (7%),
tourism and leisure (6%), engineering and infrastructure (4%) and education (4%).
Company Details Brookfield Multiplex
Level 22
135 King St
Sydney
New South Wales
2000
Australia
Tel: +61 2 9322 2000
Fax: +61 2 9322 2001
www.brookfieldmultiplex.com

Mirvac
SWOT Analysis
Strengths
Mirvac is a well-established company with a strong back catalogue of projects.

Over 40 years experience.

Diverse portfolio of assets across the office, retail, industrial and residential sectors.
Weaknesses
Profitability was affected by the global financial crisis and its aftermath.

More than 50% of its portfolio is office space.

High exposure to just Sydney and Melbourne, according to Reuters.
Opportunities

Banks are more reluctant to lend to smaller developers, providing better potential
pricing for the larger players such as Mirvac.

Well-placed to benefit from any growth in the retail segment.
Threats
Interest rates may rise, putting pressure on sales in the residential division.

Geographic limitations mean the company is reliant on the Australian economy and
therefore susceptible to any volatility or weakness there.
Company Overview Established in 1972, Mirvac has more than 40 years of experience in the Australian real
estate industry. It is a leading integrated real estate group, listed on the Australian
Securities Exchange with activities across the investment and development spectrum. It
specialises in office, retail, industrial and residential real estate.
Mirvac Property Trust has a diverse portfolio of assets across the office, retail and
industrial sectors, leased to tenants including leading Australian and international
companies.
Mirvac's integrated business approach includes using its specialised in-house asset
management team, Mirvac Asset Management, which is responsible for all leasing and
property management across the entire portfolio.

In terms of office properties, the company focuses on the key Australian central
business districts (CBDs) of Sydney, North Sydney, Melbourne, Brisbane, Canberra and
Perth. According to its website, Mirvac owns and manages more than AUD1.9bn of
shopping centres across Australia's eastern seaboard.
Strategy The group continues to remain focused on managing its capital position by monitoring
and accessing diversified sources of capital, including both domestic and international
markets. This means Mirvac can continue to meet its objectives without increasing its
overall risk profile.
Financial Data Mirvac's financial results for the year ending on June 30 2014 included:
Total revenue from continuing operations of AUD1,868.0mn, up from AUD1,469.7mn

a year earlier;
Total other income of AUD113.9mn, up from AUD99.5mn;
Profit for the year of AUD447.3mn, up from AUD139.9mn; and
Total comprehensive income of AUD446.4mn, up from AUD162.5mn.
Company Details Mirvac
Level 26
60 Margaret St
Sydney
New South Wales
2000
Australia
Tel: +61 29080 8000
Fax: +61 29080 8111
www.mirvac.com

Stockland Group
SWOT Analysis
Strengths
Stockland is a well-established company with a strong back catalogue of projects.

Diversified in a number of real estate areas.

Over 60 years experience in the market.
Weaknesses
Its profitability was affected by the global financial crisis and its aftermath.
Opportunities
Threats
Any rise in interest rates would put pressure on sales in the residential division.
Company Overview Established in 1952, Stockland is Australia's largest diversified property group,
managing a portfolio of assets including retail centres, business parks, logistics centres,
office buildings and residential and retirement communities.
Financial Data For the year ending on June 30 2014, Stockland reports:
Total revenue of AUD1,939mn;

Profit before income tax benefit of AUD534mn;
Profit for the year attributable to security holders/bondholders of AUD527mn; and
Total comprehensive income attributable to security holders/bondholders of
AUD581mn.
For the year ended June 30 2013, the Stockland Consolidated Group's financial results
included:
Total revenue of AUD1,728.2mn;

Profit before income tax benefit of AUD32.7mn; and
Total comprehensive income attributable to security holders/unit holders of
AUD124.4mn.
Operational Data At the end of June 2014, the company's portfolio included 40 retail centres, with total
gross leasable area (GLS) of 974,184 square metres (sqm); 21 logistics and business
parks, with a GLA of more than 1.2mn sqm; and 10 office properties. The company also
has a portfolio of 63 residential communities and 63 retirement villages.

Company Details Stockland
Level 25
133 Castlereagh St
Sydney
2000
Australia
Tel: +61 02 9035 2000
Fax: +61 02 8988 2000
www.stockland.com.au

Leighton Holdings
SWOT Analysis
Strengths
Australia's largest project development and contracting group.

World's largest contract miner.

Growing presence worldwide.
Weaknesses
Property development division is struggling due to severe downturn in private
construction.

Leighton's Middle East joint venture (JV), Al Habtoor Leighton (HGL), is likely to
remain a drag on Leighton's financials, as the JV is still unable to sustain itself,
requiring funds from the parent company to stay afloat.
Opportunities
Rising Australian government spending on infrastructure ensures new public-sector
contracts will be up for grabs.

In the Middle East, the Gulf Cooperation Council infrastructure sector continues to
boom, with Leighton positioning itself to take advantage of potential in the rail sector.

Chronic deficits in infrastructure in many Asia Pacific countries ensure many
contracts.

Mining sector expansion based on long-term Chinese demand for commodities will
bolster demand for infrastructure in Australia.
Threats
AUD has returned back to record highs, affecting revenues from foreign projects for
Australian construction companies.

A hard landing in China could see demand for raw materials weaken, causing mining
companies to reconsider capital expenditure plans.

Notable failure for toll road projects in Australia due to inflated traffic. Projections
could hit investment in that sector.

Company Overview Leighton was established in 1949. It began life as a small, privately owned civil
engineering company before diversifying over the years into a fully integrated
infrastructure solutions provider, across construction, mining and services.
The company is 55% majority owned by German construction major Hochtief.
Leighton operates in three overall markets: infrastructure, resources and property. It is

able to handle project development and contracting services and has operations in 22
countries in Asia, Australiasia, the Middle East and North Africa and Sub-Saharan
Africa. Leighton Holdings' subsidiaries include John Holland and Theiss.
In terms of property, Leighton Holdings' operating companies operate in construction in

the both the residential and non-residential property market, including offices; retail;
industrial; defence; correctional facilities; medical facilities; and hotel, leisure,
entertainment and sports facilities.
The firm's Australian property company is Leighton Properties. It focuses on developing

commercial, residential and mixed-use projects.
Strategy Leighton is working on a strategic review of its operations, according to its website. The
key aims, as outlined in mid-2014, are to strengthen its balance sheet, streamline its
operating model and improve roduct delivery. In order to effect this streamlining, it has
'established dedicated businesses focused on' construction (Leighton Contractors),
mining (Theiss), public-private partnerships and engineering.
It is now considering the options for other businesses, including services and property.
Recent There remains a strong likelihood that Leighton could be afflicted by projects delays in
Developments 2014, which could reduce returns from these projects. Most of Leighton's project
backlog was acquired before the company tightened its risk management system, and
it might not have a clear understanding of the risks it faces from these projects.
Leighton wrote off its AUD63mn investment in BrisConnections because the
concessionaire had failed to stay afloat due to over-bullish traffic projections.
We expect the Australian mining and construction market, the company's main sources
of revenues, to have fewer project opportunities for Leighton than in previous years.
Although we believe that real growth for Australia's construction sector is estimated to
have improved to 3.0% (and could improve to 4.1% in 2014), this is still below the
average annual growth rate in the Australian construction sector over the past decade
(7.1% a year between 2002 and 2011).
This is due to several factors, namely the structural hurdles in China's economy, the
uncertain outlook for Australian power plants due to new clean energy legislation,
limited upside in housing demand, investor caution for commodity projects, sizeable

fiscal debts for some state governments and the differences in infrastructure planning
between federal and state-level governments.
Financial Data The company's preliminary results for the year ended on December 21 2013 show
growth in total revenue of 6% year-on-year (y-o-y) to reach AUD24bn. The increase in
income over the year is consistent with the previous year's growth of 5.9%. Profits for
FY2013 grew by 13% to AUD508.7mn, up from AUD450.1mn in FY2013.
The substantial increase in profits was assisted by a notable reduction in the firm's
expenditure over the period, with net capital expenditure down by 27% y-o-y. The
company also secured AUD215mn in procurement and overhead cost savings.
Company Details Leighton Holdings
472 Pacific Highway

St Leonards
New South Wales
2065
Australia
Tel: +61 2 9925 6666
Fax: +61 2 9925 6000
www.leighton.com.au

Demographic Forecast
Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is
the total population of a country a key variable in consumer demand, but an understanding of the
demographic profile is key to understanding issues ranging from future population trends to productivity
growth and government spending requirements.
The accompanying charts detail Australia's population pyramid for 2013, the change in the structure of the
population between 2013 and 2050 and the total population between 1990 and 2050, as well as life
expectancy. The tables show key datapoints from all of these charts, in addition to important metrics
including the dependency ratio and the urban/rural split.
Population Pyramid
2013 (LHS) And 2013 Versus 2050 (RHS)
Source: World Bank, UN, BMI

Population Indicators
Population (mn, LHS) And Life Expectancy (years, RHS)
Source: World Bank, UN, BMI
Table: Australia's Population By Age Group, 1990-2020 ('000)
1990 1995 2000 2005 2010 2013e 2015f 2020f
Total 17,097 18,124 19,259 20,521 22,404 23,343 23,923 25,440

0-4 years 1,262 1,302 1,290 1,299 1,458 1,555 1,604 1,664
5-9 years 1,263 1,298 1,358 1,347 1,373 1,459 1,530 1,677
10-14 years 1,241 1,299 1,347 1,409 1,413 1,423 1,450 1,607
15-19 years 1,398 1,277 1,335 1,409 1,508 1,510 1,504 1,541
20-24 years 1,366 1,427 1,303 1,444 1,651 1,638 1,608 1,605
25-29 years 1,422 1,388 1,448 1,383 1,665 1,739 1,745 1,703
30-34 years 1,398 1,464 1,442 1,517 1,536 1,659 1,746 1,827
35-39 years 1,316 1,429 1,512 1,498 1,622 1,596 1,598 1,809
40-44 years 1,260 1,338 1,458 1,550 1,559 1,625 1,658 1,635
45-49 years 985 1,255 1,348 1,474 1,586 1,573 1,571 1,670
50-54 years 822 974 1,262 1,346 1,476 1,549 1,576 1,563
55-59 years 729 804 969 1,242 1,331 1,401 1,453 1,554
60-64 years 738 712 801 950 1,216 1,272 1,296 1,418
65-69 years 663 691 681 766 911 1,073 1,166 1,247
70-74 years 493 595 636 629 713 783 852 1,096

Australia's Population By Age Group, 1990-2020 ('000) - Continued
1990 1995 2000 2005 2010 2013e 2015f 2020f
75-79 years 376 407 511 551 555 596 636 766
80-84 years 222 278 315 403 430 439 452 524
85-89 years 101 132 171 205 273 291 297 319
90-94 years 34 44 59 80 103 126 141 159
95-99 years 8 10 12 17 26 30 34 49
100+ years 1 1 2 2 3 4 5 7
e/f = BMI estimate/forecast. Source: World Bank, UN, BMI
Table: Australia's Population By Age Group, 1990-2020 (% of total)
1990 1995 2000 2005 2010 2013e 2015f 2020f
0-4 years 7.38 7.19 6.70 6.33 6.51 6.66 6.71 6.54
5-9 years 7.39 7.16 7.05 6.56 6.13 6.25 6.39 6.59
10-14 years 7.26 7.17 6.99 6.86 6.31 6.10 6.06 6.32
15-19 years 8.18 7.05 6.93 6.87 6.73 6.47 6.29 6.06
20-24 years 7.99 7.87 6.76 7.04 7.37 7.02 6.72 6.31
25-29 years 8.31 7.66 7.52 6.74 7.43 7.45 7.30 6.69
30-34 years 8.18 8.08 7.49 7.39 6.85 7.11 7.30 7.18
35-39 years 7.70 7.88 7.85 7.30 7.24 6.84 6.68 7.11
40-44 years 7.37 7.38 7.57 7.55 6.96 6.96 6.93 6.43
45-49 years 5.76 6.93 7.00 7.18 7.08 6.74 6.57 6.57
50-54 years 4.81 5.38 6.55 6.56 6.59 6.64 6.59 6.14
55-59 years 4.26 4.44 5.03 6.05 5.94 6.00 6.07 6.11
60-64 years 4.32 3.93 4.16 4.63 5.43 5.45 5.42 5.57
65-69 years 3.88 3.81 3.54 3.73 4.07 4.60 4.87 4.90
70-74 years 2.88 3.28 3.30 3.06 3.18 3.35 3.56 4.31
75-79 years 2.20 2.25 2.65 2.69 2.48 2.55 2.66 3.01
80-84 years 1.30 1.54 1.64 1.96 1.92 1.88 1.89 2.06
85-89 years 0.59 0.73 0.89 1.00 1.22 1.25 1.24 1.25
90-94 years 0.20 0.24 0.30 0.39 0.46 0.54 0.59 0.62
95-99 years 0.05 0.05 0.06 0.08 0.11 0.13 0.14 0.19

Australia's Population By Age Group, 1990-2020 (% of total) - Continued
1990 1995 2000 2005 2010 2013e 2015f 2020f
100+ years 0.01 0.01 0.01 0.01 0.01 0.02 0.02 0.03
Table: Australia's Key Population Ratios, 1990-2020
1990 1995 2000 2005 2010 2013e 2015f 2020f

Dependent ratio, % of total working age 49.5 50.2 49.6 48.6 47.9 50.0 51.8 55.8
Dependent population, total, '000 5,664 6,056 6,381 6,707 7,257 7,779 8,167 9,115
Active population, % of total 66.9 66.6 66.9 67.3 67.6 66.7 65.9 64.2
Active population, total, '000 11,433 12,068 12,878 13,814 15,147 15,563 15,756 16,324
Youth population, % of total working age 32.9 32.3 31.0 29.3 28.0 28.5 29.1 30.3
Youth population, total, '000 3,767 3,899 3,995 4,054 4,244 4,437 4,585 4,948
Pensionable population, % of total 16.6 17.9 18.5 19.2 19.9 21.5 22.7
working age 25.5
Pensionable population, total, '000 1,897 2,158 2,387 2,653 3,013 3,342 3,583 4,167
Table: Australia's Rural And Urban Population, 1990-2020
1990 1995 2000 2005 2010 2013e 2015f 2020f
Urban population, % of total 85.4 86.1 87.2 88.2 89.0 89.5 89.8 90.4
Rural population, % of total 14.6 13.9 12.8 11.8 11.0 10.5 10.2 9.6
Urban population, total, '000 14,601 15,606 16,787 18,096 19,950 20,888 21,477 22,992
Rural population, total, '000 2,496 2,518 2,472 2,425 2,454 2,455 2,446 2,447

Methodology
Industry Forecast Methodology
BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of model we use varies from industry to industry, in each
case being determined, as per standard practice, by the prevailing features of the industry data being
examined.
Common to our analysis of every industry is the use of vector autoregressions. These allow us to forecast a
variable using more than the variable's own history as explanatory information. For example, when
forecasting oil prices, we can include information about oil consumption, supply and capacity.
When forecasting for some of our industry sub-component variables, however, using a variable's own
history is often the most desirable method of analysis. Such single-variable analysis is called univariate
modelling. We use the most common and versatile form of univariate models: the autoregressive moving
average model (ARMA).
In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality
is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for
analysis and forecasting.
BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use
of objective views, we use a 'general-to-specific' method. BMI mainly uses a linear model, but simple non-
linear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for
example poor weather conditions that affect agricultural output, dummy variables are used to determine the
level of impact.
Effective forecasting depends on appropriately selected regression models. We select the best model
according to various different criteria and tests, including but not exclusive to:
R2 tests explanatory power; adjusted R2 takes degree of freedom into account;
Testing the directional movement and magnitude of coefficients;
Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value);
All results are assessed to alleviate issues related to auto-correlation and multi-collinearity.

BMI uses the selected best model to perform forecasting.
Human intervention plays a necessary and desirable role in all of our industry forecasting. Experience,
expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous
data, turning points and seasonal features where a purely mechanical forecasting process would not.
Sector-Specific Methodology
In each of the countries surveyed, we make contact with local sources (typically major commercial real
estate agents) and ask them 10 questions in relation to three commercial real estate sub-sectors:
Office
Retail
Industrial
We have combined the answers into the data tables and text that form part of the market overviews and
industry forecast scenario. In taking this grass-roots approach, we believe we ensure that we identify, in a
timely fashion, key issues that will likely drive rents and yields over the short, medium and long term. We
have developed a framework that facilitates comparisons between cities and sub-sectors in different
countries.
In developing our long-term forecasts, we have focused on net yields. Our view is that as yields are driven
by both rentals and capital values, the movements in yields provide a convenient short-hand for what is and
is not expected to be happening in markets.
Sources
Sources used in real estate reports include UN statistics, national accounts, housing and economy ministries,
officially released company results and figures, trade bodies and associations and international and national
news agencies.

Risk/Reward Index Methodology
BMI's Risk/Reward Index provides a comparative regional ranking system evaluating the ease of doing
business and the industry-specific opportunities and limitations for potential investors in a given
market. The system divides into two distinct areas:
Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state
characteristics that may inhibit its development. This is further broken down into two sub categories:
Industry Rewards. This is an industry-specific category taking into account current industry size and
growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall
score for potential returns for investors.
Country Rewards. This is a country-specific category, and factors in favourable political and economic
conditions for the industry.
Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic
profile that call into question the likelihood of anticipated returns being realised over the assessed time
period. This is further broken down into two sub categories:
Industry Risks. This is an industry-specific category whose score covers potential operational risks to
investors, regulatory issues inhibiting the industry, and the relative maturity of a market.
Country Risks. This is a country-specific category in which political and economic instability,
unfavourable legislation and a poor overall business environment are evaluated to provide an overall
score.
We take a weighted average, combining industry and country risks, or country and industry rewards. These
two results in turn provide an overall Risk/Reward Index score, which is used to create our regional ranking
system for the risks and rewards of involvement in a specific industry in a particular country.
For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall
Risk/Reward Index score being a weighted average of the total score. As most of the countries and
territories evaluated are considered by BMI to be 'emerging markets', our indices are revised on a quarterly
basis. This ensures that we draw on the latest information and data across our broad range of sources, and
the expertise of our analysts.

Indicators
The following indicators have been used. Overall, the Risk/Reward Index uses four subjectively measured
indicators, and over 20 separate indicators/datasets.
Table: Real Estate Risk/Reward Index Indicators
Indicator Rationale
Rewards
Industry Rewards
Construction output, USDbn (previous Absolute size of construction sector used as proxy for size of real estate
year) sector.
Construction sector real growth, Indicates prospects for, and confidence in, the construction sector, and
compound annual growth rate (CAGR) hence a proxy for prospects/confidence for real estate sector.
(previous year to three years hence)
Total commercial bank lending, USDbn Real estate projects are long term and capital intensive, with most finance
(end previous year) obtained from commercial banks. Indicates funding availability.
Commercial bank lending, CAGR (previous This indicates prospects for the stability of finance and, implicitly, its cost. In
year to three years hence) times of crisis, this is likely to be the most volatile indicator.
Country Rewards
This captures the efficiency of the commercial banking sector and other
BMI's business environment index score elements of the financial services industry in making funding available to the
for financial infrastructure real estate sector.
Higher per capita GDP correlates with the expansion of the middle classes,
Per capita GDP, USD which are the key market for residential real estate, and the users of
commercial and retail real estate.
Urbanised states tend to be more conducive markets for real estate
development, as they have deeper, more mature markets. That said, our
Urbanisation, % of total population living in scoring methodology views favourably less urban, or even predominantly
urban areas rural, states that are characterised by persistently strong construction sector
growth.
Risks
Industry Risks
It is assumed that lending volumes and nominal GDP should, generally,
Lending risks, ratio of the growth in grow at the same rate. If lending growth substantially exceeds nominal GDP
nominal lending (ie by commercial banks to expansion, this would suggest deterioration in risk standards by lending
non-bank customers) to the nominal institutions. Conversely, if nominal GDP rises substantially faster than bank
growth in GDP over a five-year period (last lending, the cost of finance for real estate ventures is likely to rise, affecting
year to current year plus three) profitability.
This is used as a proxy for the stability of finance. Thus, a rapid decline in
the ratio (ie a lending squeeze) is penalised. Conversely, we are more
Financial institution confidence, change in tolerant of a rise in lending, as in itself, this may be positive for the industry.
the loan to deposit ratio over a five-year High rates of lending growth are penalised as they could indicate an
period (last year to current year plus three) investment bubble unless BMI's short-term economic score for the state, a
proxy for vulnerability to an economic shock, is very high.
Where possible, we have identified a national index (usually for house
Real estate prices, % change y-o-y prices) and assess annual growth. The indicator is symmetrical, in that high
growth (which indicates a bubble) is penalised, as is sharp price falls (which

Real Estate Risk/Reward Index Indicators - Continued
Indicator Rationale
indicates that bubbles have been burst). Where no real estate price index is
available, this indicator does not affect the overall score for this section.
Country Risks
BMI's long-term economic index score A measure of long-term economic stability.
BMI's business environment legal Denotes the strength of legal institutions in each state. Security of
framework index score investment can be a key risk in some emerging markets.
Source: BMI
Weighting
Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal
weight. Consequently, the following weight has been adopted.
Table: Weighting Of Indicators
Component Weighting (%)

Rewards 50, of which
Industry Rewards 65
Country Rewards 35
Risks 50, of which
Industry Risks 65
Country Risks 35
Source: BMI

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Q1 2015

Part of BMIs Industry Report & Forecasts Series

Published by: Business Monitor International

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Business Monitor International 2014 Business Monitor International

BMI Industry View ............................................................................................................... 7

Industry Forecast .............................................................................................................. 15

Macroeconomic Forecasts ............................................................................................... 33

Industry Risk Reward Ratings .......................................................................................... 38

Market Overview ............................................................................................................... 41

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Table: Historical Rental Costs, 2013-2014 (USD per sq m per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Competitive Landscape .................................................................................................... 51

Company Profile ................................................................................................................ 56

Demographic Forecast ..................................................................................................... 67

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BMI Industry View

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Key BMI Forecasts

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Australia Real Estate SWOT

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Australia Real Estate SWOT - Continued

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SWOT Analysis - Continued

reduce the attractiveness of these assets. It remains to be seen if the recent

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Growth Flat, But Steady

f = forecast. Source: BMI

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Table: Forecast Office Net Yields, 20011-2018 (%)

2011 2012 2013 2014f 2015f 2016f 2017f 2018f

f = forecast. Source: BMI

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Table: Forecast Retail Net Yields, 20011-2018 (%)

2011 2012 2013 2014f 2015f 2016f 2017f 2018f

f = forecast. Source: BMI

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Table: Forecast Industrial Net Yields, 2011-2018 (%)

2011 2012 2013 2014f 2015f 2016f 2017f 2018f

f = forecast. Source: BMI

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Construction And Infrastructure Forecast Scenario

Table: Construction And Infrastructure Industry Data (Australia 2012-2017)

2012 2013e 2014f 2015f 2016f 2017f

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Construction And Infrastructure Industry Data (Australia 2012-2017) - Continued

2012 2013e 2014f 2015f 2016f 2017f

Cement production (including 0.0 1.5 1.6 1.7 1.8 2.0

e/f = BMI estimate/forecast. Source: BMI, Australian Bureau of Statistics, USGS, UN

Table: Construction And Infrastructure Industry Data (Australia 2018-2023)

2018f 2019f 2020f 2021f 2022f 2023f

Construction industry value, 157.48 168.10 179.37 191.34 203.87 217.18

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Construction And Infrastructure Industry Data (Australia 2018-2023) - Continued

2018f 2019f 2020f 2021f 2022f 2023f

Infrastructure industry value, 31.52 33.97 36.56 39.31 42.17 45.21

f = BMI forecast. Source: BMI, Australian Bureau of Statistics, UNGS, UN

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Budding Signs Of Recovery