Sentinel Sees Property Renaissance in Northern Australia


July 5, 2022

Warren Ebert is the head of Sentinel Property Group, commercial property investors, and they run a number of funds. Fascinating to hear from him about commercial property, industrial, retail, office, what’s going on in there and the trends in those commercial property segments which are not going as you might have expected in terms of warehousing on the rise, retail and office on the decline, that is not quite what’s happening, according to Warren. It’s also very interesting to hear him talk about where in Australia to invest and it’s all about northern Australia, he reckons, north Queensland and Darwin.

So, you really should listen to what Warren has to say about those things. Here he is, Warren Ebert of Sentinel Property Group.

Warren, a year ago, it was all about industrial, everyone was going in for warehouses and distribution centres and running away from retail and office. How’s that going?

Alan, we never got active in those type of 3.5-4 per cent yields and you had a lot of people shopping online, so you had Amazon growing, taking more space. A lot of the companies in Australia and around the world who were saving costs by having just in time and not having a lot of warehousing, they realised that wasn’t very good so they needed to build more warehouses and everyone was onboard buying them. Now you see Amazon are subleasing space, the online has eased up…

You mean it went too far?

Yes, it did go too far, like most things, Alan. Most things go too far, they go too far up and too far down, by far.

And so, is retail and office, in particular retail, is that performing well again as a commercial real estate category?

I think overall it is, Alan, but there’s some areas because of when you see the population growth that we’ve had in Queensland, a lot of those have come from Victoria, so some retailers had to suffer there and you’ve had people move more to the regional areas, the cities have suffered a bit, but overall, retail turnover is up substantially. The regional areas, we have centres in Orange, certainly a lot in northern Queensland, they performed very well because the regional areas didn’t have the lockdowns that the CBD did. Our CFO just a few weeks ago, his son bought something online from Kmart down the Gold Coast. When he eventually found where it was to pick it up, he got home and it was the wrong size, so he took it back and he said he’s never doing online again.

I think the record numbers online that we had during the lockdown, a lot of those people were doing online because they had to, they hadn’t tried it before and now they don’t like it, they’re going back to the shopping centres. I’d just come back from a trip to the United States, we went to a retail conference and the number of new stores that are opening as compared to what’s closed, there’s twice as many opening as what there has been closing, so there has been a real reinvigoration of retail.

That’s fascinating. It’s kind of the growth of warehousing and distribution centres for online retail has stalled or at least going backwards and retail stores are on the rise.

Yeah, I don’t want to get into an argument with the industrial boys because there’s still, I think, a lot of things that need to be done. But some of them, we’ve got the articles from United States where Amazon, quietly, are subleasing a lot of space, they went too hard. I think with what’s happening around the world, we have an industrial property up in Townsville and they have a business related to defence. They’ve said they have to now use 100 per cent Australian materials, where they convert vehicles to make them suitable for the army. So, they’re now having to get things manufactured in Australia and they never had to. There’s still a lot of growth in some areas, but I think some of the warehousing just went too far, as I said, as been evidenced by Amazon subleasing space.

What about office and working from home?

I was never a believer in the working from home and I know that a lot of people just had to because of the lockdowns, but I think that certainly for our business where you need collaboration, people have talked to each other, the few weeks we had in Queensland, we had to work from home, I found at the end of the day I had more emails than when I was in the office because here, rather than just walking to a desk and talking to someone or getting two or three people in to have a quick meeting, you’d be making one phone call after another and you just weren’t achieving a lot. A friend of mine has got a very big accountancy business, he has 1,100 staff, that works well from home but for most businesses I think it’s very hard for you to get a promotion if the boss doesn’t see it.

I see that some of the large American companies including Google have said if you want to work for us, you need to come back to the office. And while a lot of people thought that it was going to really affect the office occupancy, I think what they’re seeing now is the hot-desking is gone, people have their own desk and people have more space now. The way they were saving money in offices was by cramming more people into the same space. Now, you need more office space for the same number of people, so I think offices are coming back into it and people are very aware of having quality office accommodation, that some of the ratty old stuff just isn’t acceptable anymore, so it’s going through a resurgence.

Right, so the idea of having vastly empty office buildings in the CBD, you reckon that’s not happening or it won’t happen?

I think with the government, there’s still a lot of government working from home but some nasty people have said they achieve as much working from home as they do from the office, there’s not a lot done, but I think that sort of talk is uncalled for. But I think the larger companies and the banks are really realising we have to be back in the office. So, yes, it is coming back but I was reading an article just the other week and they said, “If your job can be done from home, if you don’t have to be in the office, well then it can be done from Indonesia or Vietnam or India. It doesn’t have to be done from Dandenong or Hamilton or wherever it is.” So, people need to be a bit careful. If their job doesn’t need to be done from an office, then it can be done from anywhere in the world.

What about regional, Warren? I mean, I had a graph on the news last night showing the huge flow of population from Victoria and New South Wales into Queensland over the past year or two, which you just mentioned as well. Is that leading to a resurgence in Queensland, but in particular retail?

Yes, without a doubt. Through our shopping centres, we’re seeing that we’re back up above where we were in 2019. So, yes, a resurgence. It was only this morning, I read an article that said Queensland is the major tourist destination in Australia, which is the first time ever and I think it was the Whitsundays, Airlie Beach was up 184 per cent or something, so we’re seeing absolutely crazy numbers in the regional areas which is being reflected in the retail. But one of the big problems we have, Alan, is getting staff. We have a couple of properties in Cairns and I think a month or so ago the unemployment rate was 4 per cent and we didn’t have any international tourists back in, I think the first cruise ships came in last week, while when you’ve got unemployment at 4 per cent in an area like Cairns, that’s sort of full employment, well where do you get the staff to work in the hotels, the cafés, the coffee shops and that’s a serious issue for regional locations. Any one of our centres up north, the banks are only open a couple of days a week and not even a full day because they just can’t get staff.

Interesting. What other parts of Australia are you looking at and are you interested in?

Well, we’re very long northern Queensland and Northern Territory. Certainly, northern WA, with all the minerals, is great but it’s so far to go between towns. I think we’d have over a billion dollars invested from Mackay North. Northern Territory in particular is just going absolutely berserk and the diversity up there since the problems in Russia and Ukraine, and was only on the radio again this morning, European nations having to get gas from other places other than Russia and the push that is on the Northern Territory to get more LNG is going absolutely crazy.

Also, with the rare earth minerals up until recently, I think 90-95 per cent of rare earth minerals were coming out of China, so America, while they have rare earth minerals over there, the conservationists wont let them mine them, so there’s an enormous push on in northern Australia, particularly in Northern Territory and with the batteries that we’re doing for electric vehicles and everything else, you need the copper, the nickel, the zinc and that’s everything from up north. From Gladstone north, it is an enormous decade ahead, dams and hydro-electricity and green hydrogen. I never knew it but there’s two actual iron ore mines up in the Northern Territory, one’s owned by a South Korean company, another by a Vietnamese, so they’ve started mining those and they’re looking at building a steel mill up there, Twiggy Forrest is looking at doing green hydrogen.

Really, the future up north is enormous, Alan. When I was up there last year, I said to one of the senior government people, “the temperature’s so hot, why would people move here?” And he said, “well, there’s half a billion people in Asia live in the same temperature and we forget about that.” We judge the temperature up there based upon what it is in Brisbane, Sydney or Melbourne, where, yes, there’s half a billion people a few hours away are used to that. That’s one of the things with retail, once you get into those northern areas, you go to Singapore and any of the major Asian cities and retail is just packed and the reason is, when it’s 35-37 degrees, 90 per cent humidity, you want to be in air conditioning. That’s another benefit of having a large shopping centre in those northern regions.

What are you investing in in Northern Australia, in Darwin and North Queensland, to get exposure to the boom there, is it just retail?

Alan, we started in the Northern Territory about six years ago buying offices and the market up there bottomed in about 2017 because you had a $US43 billion gas project called Inpex, which was a joint venture between a Japanese company and a French company, and when that came off Northern Territory just suffered enormously. We bought very close to the bottom and it took a long time to recover. We’ve got some industrial up there, we’re the largest office owners in Darwin. We recently bought Casuarina Square Shopping Centre, which was the largest single property transaction ever north of Brisbane. Every man, woman and child in Darwin goes to that shopping centre 5.1 times a month.

Casuarina Shopping Centre is in Darwin, is it?

Yeah, Casuarina Square, it was first opened in 1973, so it’s its 50th anniversary next year and it is the dominant centre and you really cannot build another centre of that size, you need 12 hectares in a geographical centre, it doesn’t have any competition and we’ll continue to grow that. We’ve got offices in Townsville, it’s been a bit difficult, but Townsville is booming like it has never boomed, Alan. The biggest defence base in Australia is in Townsville and defence is no longer just guns and cannons, you’ve got people sitting in offices flying drones and all that type of thing, so it’s a different type of worker they get now in the Army and Air Force, all of those things.

The mineral province out from Charters Towers, Mount Isa, that all is going through Townsville, they’re spending $380 million on widening the shipping channel from 92 metres to 180 metres. And while there certainly is a lot of coal going through Mackay, only 5 per cent of the workforce is actually engaged in the mining industry, so it’s very diverse, Mackay’s a very wealthy town. We’re in the process of buying the largest shopping centre up in Mackay, which in 2014 was a billion dollars, 2017 it was valued at $480 million and we’re buying it for substantially less. The growth up north is fantastic and just very diverse, Alan.

Is there any defence activity going on in Darwin?

Absolutely enormous. Back when Julia Gillard was prime minister, she approved 7,500 troops on permanent rotation for the US, currently they have 2,500. When we were up there about 2.5 months ago, they started construction on a 300 million litre fuel dump for the US Defence Force. Once that gets done, they can have more aircraft and more ships in, then they can go from the 2,500 to 7,500. Japan, a couple of months ago, confirmed they will have a permanent base in Australia and while they haven’t said where it will be, I would have thought that it would make sense to be in the Northern Territory, rather than down south. The French have a base there, you’ve got a Tindall Airforce Base, you’ve got the Singaporeans, United States, certainly Australian, and they just keep putting more and more in there.

And what’s happened up in the South China Sea, without taking any sides, those issues aren’t going to be sorted in the next 12 months, they’ve been going for 5,000 years and with what we’re seeing happening in Russia and Ukraine and the conversations the last few days with NATO, NATO are now saying that they have to have a bigger influence in the areas and they have mentioned China. I have a massive map on the wall, looking at the 101 countries I’ve been to and when you look at that, where can they be? It’s unlikely that they would go to Indonesia, New Guinea or the Philippines. The place would be Northern Territory.

You’ve only got 270,000 people in the Northern Territory at the moment, Alan, 150,000 in Darwin. So, you start putting the tens of billions of dollars’ investment in there and you can imagine what that does for the place.

Are you saying that you think NATO will have a base in Darwin?

Yes, that’s my view, not necessarily that of the management, but when you have a look what has happened with Russia and Ukraine, while America has been supplying some munitions to Ukraine, they have been trying to take a bit of a backseat because whenever anything goes wrong, people always blame America for it and then when they want help, they ask America for it. But I think the US is trying to take a bit of a backseat and have NATO lead it. Our Prime Minister, Albanese, has been over there the last few days at NATO and they have mentioned that NATO does need to do something with China because they’re concerned about the influence that they have with some of these smaller countries and there was, I think, a budget of something like $680 billion announced two days ago that the NATO countries want to put into investing in smaller third-world countries to tackle the China Belt & Road.

Well, a lot of that is through our part of the world. We’ve seen that with the Solomon Islands just recently, so if NATO is going to combat that, Alan, then they have to have a base to combat it from and where is that going to be? Given that everyone else is coming to Northern Australia, it really does make sense.

Even though the letters stand for North Atlantic Treaty Organisation?

Yes, well that’s only a four-word acronym, Alan, that’s got nothing to do with it. You can put Indo-Pacific. It started with the industrial, that’s part of the warehousing and manufacturing that countries are bringing back onshore because what the COVID showed is that you can’t have all your manufacturing done overseas because you get restrictions. Now, I’m not a warmonger, but if there was to be any action against China, we can’t really say, “listen, can we just put that off six months until we get some more spare parts off you?” That just doesn’t work. Countries have realised you do need to have some more onshore manufacturing and certainly warehousing, because you can’t just rely on the just in time.

Shipping prices, I think, Alan, I was reading something in Eureka Report on the weekend, where they’d been shipping boats from Kiribati or something, that previously they were 17,000 on a ship, now they’re 75,000, so they’re going to sail them over. There’s a lot of changes happening, Alan, which particularly benefit the northern parts of Australia, Queensland, Northern Territory, and where they’re very long – and one thing I can tell you, that the Northern Territory Government are fantastic to deal with, not only do they say they want investment, but the opportunists just go and meet the Chief Minister and those people. I encourage all businesses in Australia to have a look at investing in Northern Territory.

Fascinating. Very good to talk to you, Warren, thanks.

Terrific, Alan, look forward to catching up again soon. Thank you.

That was Warren Ebert of Sentinel Property Group.

Alan Kohler | Eureka Report

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