Expert in Focus - Stuart Penklis
Mirvac head of residential Stuart Penklis recently sat down for an in-depth discussion on apartments of the future and the impacts of the COVID-19 crisis on design, capital growth and investor appetite.
COVID-19 is likely to fast-track an evolution in apartment design, with people working from home requiring extra space and a convergence between what owner-occupiers and investors want from an apartment to continue.
That’s the call from Mirvac Group head of residential Stuart Penklis, who told Australian Property Investor Magazine that he expected current working from home requirements due to the pandemic to become a lasting trend.
ASX-listed Mirvac has been undaunted by the uncertainty of the current crisis, pushing on with several new developments in Sydney as one of its biggest-ever projects, the 696-apartment Pavilions at Olympic Park, recently reached its highest point.
Construction at Pavilions has continued under new social distancing requirements as many of Mirvac’s office staff switched to remote work, while the developer has also recently bolstered its future pipeline.
In February, Mirvac purchased Channel 9’s Sydney headquarters in a deal worth $227 million, putting plans in motion to develop 460 apartments across 10 mid-rise buildings on the three hectare site.
The developer was also appointed by the NSW state government late last year to develop an $800 million integrated station development at Waterloo in a joint venture with John Holland, with planning continuing at pace despite COVID-19 raising questions around the prospects of capital growth in Australia’s hottest property market.
Mirvac and Coombes Property Group received planning approval midway through last month for a $1 billion mixed use precinct at 505 George Street, which will feature Sydney’s tallest residential tower once complete, containing 507 apartments.
The new projects come at a time when many market analysts are predicting that Sydney’s apartments market will have a slow recovery from the COVID-19 crisis, creating an unprecedented level of uncertainty for future supply.
“There’s no question that we’re in uncharted waters, and I don’t think we’re naive, we’ve been through multiple cycles,” Mr Penklis said.
“But the one thing for Sydney in particular is there has been such a significant undersupply for such a long time and planning approvals have been a large factor in limiting that supply.”
Mr Penklis said he believed both the Pavilions and the 505 George Street developments would resonate with future buyers for several reasons.
“People are very focused on what the infrastructure is that surrounds a development, and I think public open space is going to be a big factor moving forward,” Mr Penklis said.
“Design of apartments will change, but the ability to walk out of your apartment and walk down to meaningful public open spaces, domains and curated spaces is going to be a significant factor in the way in which people determine where they want to live in the future.
“There will be locations that don't have that level of amenity that will be challenged moving forwards.”
Mr Penklis said Mirvac had recently undertaken a comprehensive survey program with its previous buyers, with its research to guide its future development pipeline.
Just 12 per cent of respondents to the survey said their living arrangements did not allow them to work from home, while 37 per cent said they would reconsider where they live if they could work from home.
Mr Penklis said the research showed housing design in the future would need to consider convenience and proximity to shops, nature and hospitality precincts, while apartment buyers would increasingly seek more space to create home offices and quiet areas.
“People are now starting to say ‘if I’m going to work from home more, and my partner is going to be working from home, maybe the apartment that I’ve got isn’t as fit for purpose as I thought it would be’,” he said.
The other key trend in apartments, Mr Penklis said, was an increasing convergence between owner-occupiers and investors, who were now completing purchases for the same reasons.
“There’s not really a difference between owner occupied product and investor product, in our mind, and that has played out in recent years, particularly in markets like Brisbane, western parts of Sydney and even in inner parts of Sydney,” he said.
“As an investor you want to know that if you decide to sell your apartment it is going to have appeal to the broadest array of purchasers, and that’s owner occupiers and investors.
“You don’t want to be limiting yourself just to an investor market, because in terms of capital growth and being able to ensure that your product is in demand through the cycles, you have to ensure you buy a product that does cater to both segments of the market.”
Mr Penklis said owner-occupiers and investors alike had also become significantly more sophisticated in recent years in their knowledge of the market, particularly as apartment defects at projects such as the Opal and Mascot towers continued to create national headlines.
“Our product traditionally has been focused towards the owner occupier, while there has been a lot of second and third-tier developers in the market over the course of the last five years that have delivered a lot of inferior products to the market,” he said.
“A lot of purchasers are a lot better educated in terms of the differentiation of quality and the importance of very well-considered design, the efficiency of great design and things that demonstrate design excellence.
“There is certainly a flight to quality and that’s where our DNA is.
“Over the course of at least the last seven years, from our perspective there has been a bit of frustration that possibly a significant portion of the market wasn’t as educated as they should have been, but that has certainly changed.
“What we are hearing from customers now is that people understand that unless they gravitate towards a quality developer, they are at risk of higher maintenance costs, higher repair costs, and by gravitating to a stronger developer you are more likely to enjoy stronger capital gain.”
Mr Penklis said Mirvac’s development philosophy had also evolved in recent years, with the company’s previous strategy to design apartment buildings from the inside out shifting towards a more balanced model.
The theory was that if apartment buildings were designed with the needs of its occupants as the top priority, the project would be a success.
But in 2020, Mr Penklis said architectural aesthetics and design excellence were getting close to the top of the list of buyer needs, whether they be owner-occupiers or investors.
“Historically, we have built a reputation of making sure our apartments were very well considered from the inside.
“So what we would do is design the apartments from the inside because ultimately that’s where people spend all of their time.
“But what has changed, particularly in the last 10 years, is internal layouts are as important as they ever were, but people now want to also live in a building that is aesthetically beautiful from the outside.
“Quite often, that is a conflict between designing from the inside out and designing from the outside in. It’s actually quite a challenge for the architects to get a beautiful building inside and out, and it takes a lot of experience and skill to get that right balance.”
However, Mr Penklis said achieving the balance between a functional apartment and a beautiful building was a particularly challenging prospect for architects and design professionals.
“As an investor, when you go and look at a building that’s just been completed, nine times out of 10, to the average person, brand new buildings look pretty good.
“But it’s how they look in 10 to 15 years’ time that’s important, and that’s the quality of the architecture and the quality of the materials.
“That’s why quite often people say to me: ‘how do I know that a new apartment is going to be good today but good into the future’?
“I always say: ‘go back and look at the projects that that particular developer has delivered over time, and that will be a pretty good yardstick in terms of giving you comfort that the project will stand the test of time’.”