Originally published by UBS Asset Management
Around half of Sydney's population lives in Western Sydney, and there's projected to be an extra 1m people there in the next 20 years. So it's no surprise that Western Sydney dominated the leader board in the annual Housing Industry Association (HIA) Population & Residential Hotspots report. Based on 2015/2016 population growth and building approvals, South West Sydney (towards Campbelltown) held positions #2, #12 and #20, while spots #4 and #14 were in the north west (towards Richmond). The NSW Government changes to FHB (first home buyers) should further aid Western Sydney, with stamp duty exemptions expected to be widened from new to established housing with a threshold of up to $750k and potential increases in the threshold for new homes from the current $650k. The national Top 20 summarised in the table below.
A number of REITs and private investors have specifically targeted such regions to take advantage of the growth. Stockland Corporation Ltd (AX:SGP) and Mirvac Group (AX:MGR) both have significant landholdings near these major growth corridors, while Aventus (AX:AVN) have just purchased two large format retail (LFR) centres in Sydney's North West growth area, being Home Hub centres in Castle Hill and Marsden Park. This transaction improves AVN’s exposure to Sydney market (largest Sydney LFR landlord at 26% of the market). The upside comes from the population growth around each centre and the consequential increases in visitation and expenditure. The Castle Hill asset has a shorter 3.3 year average lease term (WALE) which should offer rental upside in a catchment where the average household income is 20% above the Sydney metro average. There are numerous remixing opportunities there, with one expiring tenant looking to downsize, however their rent is ~40% below the centre average. Management already have enquiry to lease the portion of space handed back at higher rents. The asset also has the potential to add ~15,000m2 of space on the rooftop, which is similar to the Belrose rooftop addition which provided a 10% return on equity. Plus there's upside via casual mall leasing, signage, storage, digital presence, etc = all the things that a good manager should do. The prior managers of these assets had <10 staff, Aventus will have close to 60 personnel to assist.
Deep dive into South West Sydney
Following my "Bondi to Badgery's" tour last month, I toured the south-west Sydney zone in more detail, visiting Narellan, Oran Park and Badgery's Creek. The transformation is unbelievable. As I drove around the area I had flashbacks to the former farmlands and tried to suppress the thoughts of sporting defeats by St Gregory's College near Campbelltown. A long list of sporting greats went there, including the current NSW rugby league fullback James Tedesco and the master coach Jack Gibson.
There's around 100,000 residential lots earmarked for development in the region, with the major projects being:
Oran Park is well progressed with the largest Woolworths Ltd (AX:WOW) in the southern hemisphere open for almost two years and trading very well. Those familiar with the race track will have to adapt to street racing because the old track is now housing lots. The overall scheme includes 7,500 homes and it's a unique project in that the developer (Greenfields) and government (Landcom) can plan for future infrastructure now. The South West rail link is proposed to run through the town centre. Greenfields have been involved in the area for decades and it was refreshing to see them strive to achieve the best outcome for residents, to the point of replacing trees and paving, years after it was first done. Local residents have benefitted from the nearby Narellan Town Centre’s $200-million expansion, with the final stages due to open in August. Kmart opened to a record crowd last September, JB Hi-Fi Ltd (AX:JBH) and other retailers opened a few weeks ago and there's many more to open in August, including Target and Bonds.
Oran Park Town in 2011
Oran Park Town projected in 2030
Roadworks
To help cater for the population growth, a number of major infrastructure projects are in planning or underway right now. This includes the Western Sydney Infrastructure Plan, a 10 year $3.6 billion road investment program to increase transport capacity from the proposed airport, the significant housing supply and the increase in employment zones. Work has already started on the 61km of new and upgraded roads with the major projects being:
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a 35 kilometre upgrade of The Northern Road to a minimum of four lanes from Narellan to Jamison Road, Penrith;
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construction of a new east-west motorway to Badgery's airport between the M7 Motorway and The Northern Road to be known as the M12 Motorway;
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the upgrade of Bringelly Road to a minimum of four lanes between The Northern Road and Camden Valley Way; and
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construction of the Werrington Arterial Road by upgrading Kent Road and Gipps Street to four lanes between the Great Western Highway and the M4 Motorway;
Source: Western Sydney Infrastructure Plan Portal, https://v2.communityanalytics.com.au/rms/wsip
South West Rail Link Extension
The Government is investigating a north - south public transport rail corridor to cater for growth and the proposed Western Sydney Airport. The corridor is proposed to connect Leppington Station to Bringelly and then head in two directions: north to the T1 Western Line near St Marys; and south to the T2 South Line near Macarthur. A number of core stations are proposed in the existing and planned centres of Rossmore, Bringelly, North Bringelly, Oran Park and Narellan. A station is also proposed at Badgerys Creek to service the airport.
Access to the city is vital given that 45% of current users of the South West Rail Link alight at a stop within the City Circle. Only ~10% of those who tapped on in the South West Rail Link alighted at another station in the south west, showing that employment options in the area were only supporting a small percentage of the growing community. The aim is that many more employment opportunities will eventuate. Already there's tensions between the State and Federal Governments, with the State Government concerned that by joining with the Western Line at St Marys, that this will only put more pressure on the already overcrowded Western Line.
It's an amazing time for residents and property owners of Western Sydney, who will benefit enormously from the Government spending billions of dollars on infrastructure. It sets up Western Sydney and NSW for a great decade of growth and I'd strongly encourage readers to visit the area.