Baby boomer moves affect market

In understanding the current commercial market, some analysts have difficulty in explaining the motives of many purchasers and vendors.

Scott Keck of Charter Keck Crammer (the largest independent professional property services firm in Australia) view is that this can largely be attributed to the first-time occurrence in Australian society of an older age, but property/asset rich class of “baby boomers” and their families, now facing retirement and family succession challenges respectively.

This means that for some, it is a strategic time to buy and for others, a solution to sell. Accordingly, much of the current market activity is not a reflection of a perceived property value cycle or market “window”, but more directly related to a range of personal needs and family planning.

Many purchasers, whether local and from overseas are not yield influenced or guided by traditional return or income analysis, but rather are acquiring for reasons of wealth transfer, asset class reweighting, relocation to lower sovereign risk, or medium-term immigration related planning.

In some circumstances, it is as a means of seeking less complex property management needs, for example, transitioning to a single property with a long-term lease, and exiting a mixeduse property with a variety of leases and more demanding management.

Many vendors are not selling to cash out of a perceived market which has peaked, but rather are realising assets for reasons of family distribution, lack of family management succession, unfortunately, although increasingly, possibly for reasons of deceased estate, divorce or separation, or alternatively, for reweighting to other retirement income stream alternatives.

It is also known, that in many instances the decision either to sell or acquire, is driven by younger family members whose influence is not based so much on property investment fundamentals, but rather entirely personal needs.

For many of the recent notable portfolio realisations by high profile wealthy families, which have been mentioned in the media, the main impetus can be traced to generational change and family succession.

Yet, each of these transactions has a counter party / purchaser, taking the opportunity to acquire what in many instances are prime assets.

If the media references are followed through in detail, it can be discovered that in most instances, these counter party  purchasers, are in contrast to the vendors, of a different generation, usually younger. So, on balance the market activity should not be taken as a value cycle indicator, but rather of generational  making and largely a first-time event in Australia as a consequence of the now older age “baby boomers” who having enjoyed a seventy-year period of huge capital growth and asset accumulation are either dispersing or planning the future management of their portfolios. Colliers International managing director for the Ballarat and Geelong regions, Andrew Lewis, concurs with Scott Keck’s assessment of the current market conditions.

“The baby boomer phenomena is now coming home to roost,” Mr Lewis said.

“The past 10 years have been very kind to investors with low interest rates and strong investment in the property market boosting the wealth of baby boomers substantially. Many are at a point in their life that decisions need to be made around their retirement needs and succession planning.

“Those managing multiple investment properties are looking to simply their portfolios with some looking to consolidate their portfolio into a single more manageable and less time consuming investment.”

Mr Keck said that it is also notable that market activity over the last two years, has evidenced a continual firming of yields to historically low levels although this should not be taken as an acceptable investment measure.

More usually than not the yield at time of sale has little to do with the purchasers’ expectation, as many of the properties that are acquired, have been secured for further development through additional capital expenditure ultimately to arrive at a higher reversionary yield, by unlocking the potential, through refurbishment, additional construction or the development of surplus land.

In the now “global” market place, international investors are significantly motivated by their country of origin domestic fundamentals, particularly preference for diversification both within asset class and regionally, placement of funds and internationally obtainable higher yields. Consequently, many local owners become vendors to international purchasers. Other factors motivating sellers of increasing age, include change of living location upon retirement, perhaps a move interstate and a desire to reconsolidate or exchange their portfolio to their new local situation.