QUANTACAST Professional Series | Episode 3

In our third episode of our Quantacast Professional Series we chat with Jake McKinnon, National Research Manager at Cushman & Wakefield.

Jake’s extensive understanding of the commercial real estate landscape makes him the perfect guest for our latest episode. We’ll be delving into the burning questions surrounding interest rates: when will they start to reduce?

We also explore new commercial real estate sectors that are ripe for investing in the current market. Plus, Jake will be sharing the critical statistics that dictate national ‘return to office’ trends.



00:00:00:00 – 00:00:20:12

There will be some changes as people recalibrate how they use their office. But the initial, you know, bad news from the media that the office is dead hasn’t come to pass and I don’t think will.

00:00:20:14 – 00:00:39:20

Welcome, everybody, to our professional series. This is episode three. I’m delighted to be joined by Jack McKinnon of Cushman & Wakefield. Welcome, Jake. Thank you very much. Jake’s been with Cushman’s for nearly 5 years. Spent a couple of years with Knight Frank prior to that, has done a degree down at Griffith University in environmental planning, and we’re really pleased to have him here today.

00:00:39:22 – 00:00:58:23

Before we get into the nitty gritty, Jake, of, you know, what’s happening in the property market at the moment and also what’s going to be happening in the future and your thoughts on that? Let’s run through, our fast five questions for you, and I’ll mix them up. Best, best dish in the kitchen for you when your tossing up your friends? Mexican or anything out of the smoker for me.

00:00:59:00 – 00:01:18:13

Great, great! Favourite place to holiday? Far North Coast, New South Wales. Byron Bay area? Background home. Oh, home from there. Okay. Great. Favourite sporting team? Australian cricket team. Right. Favourite player? Usman Khawaja. Can bat, yep. And were you a batsman or? I was a bowler actually. Okay. Medium, fast? Fast before my back blew. Okay.

00:01:18:13 – 00:01:38:15

And best advice you’ve ever received in your, across your life? Across my life? I will still go back to the Pizza Hut Ad and work hard, be good to your mother. Smart answer, and crypto. Are you yes or no man? Not at present. Okay. Woulda liked to be in the last six months. Definitely. Great. Thanks, mate. Okay, let’s talk a little bit about.

00:01:38:16 – 00:01:57:02

How you’ve got to where you got to today. So you’re the national research manager with Cushman & Wakefield. You’ve clearly been in that area for quite a while now. just tell us a little bit about how you’ve got to, to to that position. Well straight out of uni, started in consulting, property consulting. Worked across a range of sectors, basically office, industrial,

00:01:57:02 – 00:02:18:01

childcare, fuel. Most of the alternates, love the property market, sort of drifted away from planning a little bit to that, that consulting side like that. Then sort of ran across to Knight Frank, more specifically in the aged care, health, retirement, medical market. Royal Commission into aged care sort of stopped that market in its tracks for a little bit.

00:02:18:01 – 00:02:36:03

So I had to pivot and moved across sort of back into that research consulting sphere. Cushman, where I’ve been there for almost five years now. And so you’ve moved through the ranks there, have you? What did you start with? Started as an analyst or senior analyst there a few years ago, sort of worked up to Queensland regional, Queensland state manager for research.

00:02:36:03 – 00:02:55:21

Then we pivoted and split up no state managers and just worked in the sort of national roles now. So now sitting as national manager. And so what does that involve you day to day? So looking after the team, analysts, all the admin that goes with that, I’ve sort of had the industrial market taken off my hands a little bit.

00:02:55:21 – 00:03:10:20

We’ve put on a new head of industrial research, Luke Crawford, down in Sydney. So that sort of given me a bit more time to focus sort of through purely on the office sector and the alternates. Ok great and you’ve got a team under you mate? I do. Yep. Okay, great. Fantastic. So let’s get into a little more of the nitty gritty.

00:03:10:20 – 00:03:28:07

And I think that things that our viewers would be quite interested in and that’s about, you know, what’s happening in the market now. So I’ll if you don’t mind, I’ll just throw a couple of couple of questions for you, tell us your thoughts. And based on what you know, you do in your role each day, the RBA at some point in time are going to cut rates.

00:03:28:07 – 00:03:55:14

And I’ll actually just ask you that question. You have the viewing in-house at Cushman. So what’s what’s what’s the sentiment in Cushman? Our house view is Q4 this year. First rate cut early early-ish Q4, and then potentially another one before the end of Q1 2025. Right, right. And what about in 2025? What’s what’s the view there? Have you got that far ahead yet? Well we have to a degree but potentially two cuts. Okay.

00:03:55:16 – 00:04:14:01

So again that that could change. A full percent over the next 18 months? Potentially. Okay. Okay. So if you think about those cuts coming in place, where do you see that the yields firming? In which sectors do you think they’ll firm more quickly than others? Look, I think it’s going to have to go through a few steps to get to the yield firming.

00:04:14:01 – 00:04:35:00

We’ll sort of see that first pivot from the RBA. Once that happens, market confidence will come back a little bit. transaction volumes will pick up. Once that transaction volume picks up, the pricing starts resetting. There may be a little yield movement initially through that. but then pushing you’ve sort of looking at I think late 25 early 2026 til the yields start firming.

00:04:35:02 – 00:04:53:03

some of the sectors might go a little bit differently. you generally don’t see anything countercyclical that will all go the same way. It’s just that timing. the build to rent market, some of the retail market they’ve already gone through, there’s further through the cycle, I should say. So I think they may go a touch earlier.

00:04:53:05 – 00:05:15:09

industrial is obviously just been a pillar of strength across, you know, the last few years so that there’s massive growth potential there as well. I think the office market is probably the one with the most challenges and may lag just slightly. But again, late 2025, early 2026. Ok and so in terms of buyers market now, how do you feel about the opportunities that are out there now?

00:05:15:09 – 00:05:34:11

We know there’s been less transactions over the last say 18 months, specifically. But what’s your view of the market now from a buying sense. Aw look from the buying sense. It’s good and bad. It’s asset specific. Specific. It’s location specific. Like, you know, you can’t just blanket say it’s good buying in the office sector or the retail sector.

00:05:34:13 – 00:05:55:17

It’s very much nuanced. So you’ve got to obviously pick your things. The office sector locally in Brisbane like our markets are doing really well, incredible rent growth. Vacancy is driving down. Absorption is up. which is counter to the rest of I think we had -200,000 square metres of offices absorption across the country. Since December of 2019.

00:05:55:17 – 00:06:19:18

And I put that comparison to the US was about 10 million. But Brisbane on the other hand is positive. So the market’s sort of moving a little bit differently to say our southern counterparts. So I think especially in Brisbane there’s some pretty good opportunities. So if you can find things that are below or out about market rent, because the yields are across the whole market softening and that’s sort of a by-product of global office conditions as well.

00:06:19:18 – 00:06:38:12

So, so just quickly on Brisbane while we talk about Brisbane, South East Queensland, do you see this golden era of, you know, the Olympics that many other cities have had? Is that something. Where is that the reason Brisbane’s held up better or is because it was undervalued or what’s your view of that? Look, I just think it what was, where Brisbane sat within the property cycle.

00:06:38:12 – 00:07:02:05

We always lag Sydney, Melbourne, part of it was our supply pipeline. Melbourne delivered half a million square metres of supply through Covid or just at the start of Covid. Brisbane just didn’t have that supply pipeline pressure happening. So it’s sort of everything in the pipeline got delayed. Something’s got canned. So we don’t have that pressure building on that. So instantly, you know, our vacancies coming down, especially with that positive absorption.

00:07:02:07 – 00:07:20:17

So that pushes the rent up, incentives tighten, and so the market’s performing pretty well. Whereas Melbourne a lot of stock came on at that obviously plays a part of sort of what the way it went. Great, great. Jake we’ve talked a little bit about traditional sectors now in the home office, retail, industrial. What are the emerging sectors in your mind?

00:07:20:17 – 00:07:39:04

They’re going to run a little hotter in in the coming years? I think we’ve got a range to look at there. The whole alternative sphere. Sphere is is rapidly changing, build to rents coming in, there’s been strong levels of government support, you got population driving, you got, national housing crisis with vacancy rates at all time lows.

00:07:39:06 – 00:08:02:17

So that build to rent will definitely gain momentum. It’s got really strong institutional interest as well. So I think that that’s definitely a sector. we have some of the sectors that might not be so much as emerging, but they’re sort of emerging, emerging into a new sphere, whereas the institutional interest in those sectors is sort of really increasing, you know through public, private hospitals, student accommodation, it’s continuing to grow.

00:08:02:19 – 00:08:21:11

And then, you know, you go through your aged care, your retirement, your land lease communities, all of those sort of while they have different income profiles and return profiles to some of the more traditional. They’re starting to push through as well. a few challenges within some of those government regulations, and they’re a little bit tricky to navigate than the traditional, you know, office or a shed.

00:08:21:11 – 00:08:45:12

So but I think in there there are some very strong opportunities. Childcare government backed they won’t let it fail. It’ll continue to grow. We’re looking at massive, massive population growth over the next few years. Be that through immigration and natural increase, participation rates in childcare have gone up. Dual working families increase in the female labour force.

00:08:45:12 – 00:09:22:02

You know, that feeds into the office and into the industrial market, but then also into the childcare market. So there’s sort of a few a few points to that sphere that I think will drive the emerging markets pretty well while they’re still fairly young. if you look at the upside potential following some of the more, established markets through the UK and the US, the solid growth potential across the alternative sector. Jake, in terms of the states that have this increased population, you know, not issue to it’s a good thing, however, you know, having appropriate housing is, you know, is where the problem can lie, you know, where do you see the,

00:09:22:02 – 00:09:46:20

the increases, moving further than state to state, I suppose, or into, in terms of pure growth. So there’s a few components. Queensland all, you know, interstate migration since forever we’re really strong. Victoria was strong leading up to Covid then dropped right back and went into the negatives. But from that internal sort of movement, Queensland will obviously a massive beneficiary.

00:09:46:22 – 00:10:12:23

Immigration Victoria, I think it’s 1 in 4, people in Melbourne, they’ll parent born overseas. So that sort of drives into there. Their longer term population growth, so really strong as our Sydney sort of sitting over that 2 to 2.6% for the different cities. but again, Queensland, a lot of that internal movement which obviously comes with that jobs, houses, the need for more retail.

00:10:13:00 – 00:10:37:05

So off the back of that, I think it’s a, puts us in a pretty strong spot here. Great. Jake. I’ll bring you back to the, the office market in Brisbane again, because, you know, in one of our, recent acquisitions, we’ve we’ve had really strong rents in the CBD here in Brisbane, a B-grade office building. Where do you see the rents now and where do you more, more interestingly, see the rents going in in the Brisbane CBD office market.

00:10:37:05 – 00:10:54:10

Brisbane’s got a pretty good capacity for growth. there’s a number of things that drive that growth. obviously you’ve got your flight, flight to quality. we’ve talked about it for a long time now, but it’s still, you know, when you look at the absorption and the take up it is in that prime growth in the premium and A-grade properties, that will definitely drive growth there.

00:10:54:12 – 00:11:12:24

lowering vacancy rates, lack of available options. You know, there’s many tenants out there that have five options in front of them but really ones suitable. so that’s going to continue to drive rents that should pull incentives down as well. our forecast for rent growth there will be just a little bit of a tick up to around that five, 5.5%.

00:11:13:01 – 00:11:39:03

and then it’ll just it’ll smooth slightly down over the longer term, but still sit between that three and five sort of to 2028 2029. Okay. Great. So if you look at the the the rents in Brisbane versus the Sydney and we we know that there’s a gap in all of that. How do they really compare. Is it sort of silly money for Sydney compared to Brisbane or what’s your view? Yeah there are a few opposing views obviously always on that.

00:11:39:05 – 00:11:58:12

I think Brisbane provides better value. but then if you look at it depends what industry you’re in as well. obviously Sydney is massively driven by the financial services. So if you’re in the financial services generally, Sydney is where you want to be. and that will drive a lot of that growth through industry specific and asset specific stuff.

00:11:58:14 – 00:12:14:09

the CBD is doing really well in Sydney. So is that value for money? Probably not compared to Brisbane. is it for Sydney? Probably yes, for Sydney. But yeah, when it’s not always apples and apples and sort of it’s always hard to make a call on that sometimes. Is there value in Sydney generally in the market at the moment?

00:12:14:11 – 00:12:31:06

We looked at a few things in Sydney that we would never have looked at in the past, because the yields were too tight. Is there value around more so than there’s ever been in the last say 15 years? look, I think post GFC there is we have we haven’t seen some of the, some of the sort of vacancy upticks.

00:12:31:08 – 00:12:48:09

you know Parramatta there’s some good opportunity out there. Vacancy is really high. They’re building their own city almost out there. Yep. Yeah really running that hub and spoke model. but they said you know Brisbane is probably not large enough and we’re not at a state where we can do that. Sydney is big enough to have those sort of satellite office markets.

00:12:48:11 – 00:13:07:14

But again, we’ve seen a few sales in Sydney where the pricing is resetting at the moment. and that’s got further to go. Q1 always traditionally very slow for transactions. I think this year slow first half quicker second half, that second half we’ll start to see a lot more transactions happen. And that pricing sort of reset happened.

00:13:07:14 – 00:13:30:02

And that’s where we’ll probably see a few a few more opportunities. People will sort of see that, you know, you’re not underselling things or over buying. When that pricing reset happens, do you think the banks put enough pressure on or not enough, but put pressure on landlords to sell, you know, through this interest rate? You know? Yeah. Yes, yes and no it seems in some ways they haven’t put as much as we do.

00:13:30:04 – 00:13:49:02

Is that fair to say? Look, initially I thought there was going to be a little bit more carnage, so to speak. but there has been some leniency from the banks, but, you know, what we saw through the GFC with vacant office buildings across different countries, recessions are a lot worse than sort of missing a few mortgage payments at this point.

00:13:49:04 – 00:14:08:00

Gotcha. Jake, I’d like to talk to you a little bit about public transport and pedestrian numbers now because we know they have a direct correlation to how CBDs is performing. Would you mind giving me your view on what’s happening on the eastern seaboard in that in that realm? Yep. Well, I think we’ve seen, a number of indicators like you look at pedestrian, pedestrian counts.

00:14:08:00 – 00:14:27:18

We look at, public transport numbers. the PCA ran an occupancy thing for the office. all of these things sort of amount to around the same amount. we look at it in terms of pre-COVID numbers and how that’s it’s obviously Covid hit. It dived almost a zero. No one on public transport, no one on the streets, no one driving.

00:14:27:18 – 00:14:54:17

We’re on lockdowns. some of our southern states a bit, a bit further along than us, was 120 days in Melbourne. I don’t think we we went near that. and that sort of shows up in the trends as well. So we’ve steadily been rising post-Covid. the city centre is reactivating to a degree. so we’re we see it at about 70, 70 to 80% of the pre-COVID numbers, coming back in either by public transport count, or by pedestrian count.

00:14:54:19 – 00:15:11:16

That’s pretty strong. That is very strong. You know, obviously the media, there was a lot in the media about the death of office and work from home was going to revolutionise it. while it has, you know, it’s not new. It has been around for quite a long time. we obviously saw a take up rate of work from home.

00:15:11:18 – 00:15:41:14

That was ridiculous. Almost went to 100% overnight. that’s slowly filtering back out. You know, the death of office? I don’t think so. The offices are still very obviously very much needed, very much useful. again, it can be quite industry specific. There’s certain people that need their office space. we’ve seen people reconfigure their office space, quite differently, put more into amenity and breakout areas to encourage, encourage your staff back into the office and have a nice working environment rather than sort of, you know, cubicles and battery hand style stuff.

00:15:41:16 – 00:16:10:03

So while everyone talked about a compression in, you know, floor space that people were taking, when you look at the fact that they’re putting more amenity in they might be taking some desks out, but the amenity sort of areas and breakout rooms and such take up more space. So we really didn’t see too many massive footprint changes initially. obviously you’ve got leases that will end and there will be, you know, over the next three, four, five, six years, there will be some changes as people recalibrate how they use their office.

00:16:10:05 – 00:16:31:12

But the initial, you know, bad news from the media that the office is dead on hasn’t come to pass, and I don’t think will. We haven’t seen that even in our CBD asset. It’s it’s you know, it’s been really strong, and the rents have been jumping. Can I ask you in Sydney in regards to Sydney, Melbourne and Brisbane, who’s performed the best in terms of the numbers coming back in your pedestrian counts?

00:16:31:14 – 00:16:51:20

Melbourne’s come back more recently stronger. Right. which, if you’d been down Melbourne the last couple of years, the CBD was very, very quiet. I was down there, a few weeks ago, it was greatly reactivated on that. but in saying that in our numbers, Melbourne’s the only one that we use pedestrian counts for everything else is public transport data for the rest of the states.

00:16:51:22 – 00:17:12:07

you can’t do it for Victoria because they sort of made a bit of an error a few years ago and released too much public information. so they don’t release that data anymore. So we rely on pedestrian counts. So it’s not quite apples for apples, but it’s consistently that sort of low 70 to 80%, for all the states and of very seasonal, January, dives, holidays.

00:17:12:12 – 00:17:32:18

Easter, we’ll see a dip, you know, so that’s sorta how we see it. So, Jake, tell us a little bit about the expansion happening at Cushman. At the moment. It’s it’s across multi sectors at the moment. we’ve identified growth obviously across a lot of sectors, within the property market and sort of slight slightly on the outer still relating on the property market, but more on the advisory side.

00:17:32:20 – 00:18:01:06

So we’ve recently put on a advisory plus side, which will work heavily hopefully with levels, government and projects from the ground up. we put on the alternatives team, which will focus from aged care, retirement, childcare, film studios, agri business. Everywhere from sales and leasing to management etc. Valuations, right through there. Yeah. So from sales leasing management then also into valuations project development services facility management.

00:18:01:07 – 00:18:19:06

there’s quite a wide depth of offer at Cushman & Wakefield. And what we do, we sort of I think we’re at about 60,000 employees, across 60 different countries at the moment. Well, that’s really impressive. and we’re a client of yours, as you know, and we’ve recently sold an asset, in North Queensland, through Cushman.

00:18:19:06 – 00:18:34:23

And we’re really pleased with the service. So it seems like, you know, things are heading in the right direction, of course, with the company, though. Definitely. But I think we’re well positioned for growth. Talk to you about technology in property at Cushman. So is it something that the company’s focussed on? It’s a topical matter for us.

00:18:34:23 – 00:18:55:05

We’re looking at it all the time. Is it is it a focus at Cushman & Wakefield and if so, what sort of things are you doing if you don’t mind discussing. Yeah no worries. Yeah massive focus globally. initially being driven out of the US where a lot of the product development is, we’re currently trialling AI here in Brisbane and a couple of other locations throughout Asia Pacific.

00:18:55:07 – 00:19:21:10

help generating reports or basic draft reports, marketing posts, marketing content, stuff like that. it’s we’re finding it really good to give you that first draft. and then you come back and fine tune and fine tune, and the company that we’re working with are sort of trying to tailor it to write in our company style, it links into our data and sort of straight feeds, data out into reports into tables.

00:19:21:12 – 00:19:41:23

not quite there yet in Australia, but some of the markets overseas, live rent data. At any point you can just pull go straight to report a through the AI system. I think it will completely change the industry. you know, we’ve seen technological advances, the internet. It was you know, there’s been no market sky like the internet.

00:19:41:23 – 00:19:58:16

It was, 29% for a number of years over in the states. So it went nuts. I might not quite go there, but the way it’ll change things, I think definitely has the capacity. Jake, thanks very much for coming in today. It’s been a pleasure having you. We met you through an industry event and we were very impressed with the way you, you know, conducted yourself the information you shared.

00:19:58:18 – 00:20:18:15

So, it’s a it’s a real feather in our cap to have you on. So thank you very much for coming. Thank you very much for having me. Thanks, everybody, for watching today, and we look forward to bringing you our next professional series episode.