Adrian is regarded as a key advisor to many of Australia's largest property owners and developers across all asset classes. Adrian is also an active member of the Property Council of Australia's Queensland Commercial Office Property Committee and the Capital Markets, Market Trends Roundtable Committee.
What is currently happening with commercial real estate deals regarding volume and pricing?
At the moment, a few deals are being done, but probably not as many as we'd like. And there are different reasons for that slowdown in volume. What we're looking for, and certainly what our clients are looking for, is an opportunity to make sure that there is some depth to the buyer pool at a price that works for both the buyer and the seller. Everyone has investment committees they need to work through, and consequently, not everything's being sold for any price.
In early 2024, we'll see that the gap between buyer and seller expectations on price starts to narrow.
How do you see the landscape of commercial real estate transactions evolving in terms of transaction speed?
The landscape is evolving and very dynamic at the moment, fundamentally due to the underlying commercial drivers in the market with increasing interest rates. But it is also a very competitive global landscape for capital, which means that when you're transacting on real estate deals here in Australia, it always has to be done quickly. In fact, every other deal I'm doing now is quicker than the previous one. Due to many of the adaptations during COVID, the infrastructure around getting a deal done has become more simplified and efficient. So that means we've got to move quickly as well.
How can you support a faster time frame as a legal adviser?
In 24 hours, you can go from a deal being on to a deal being off; therefore, in the best interests of our clients, we need to make sure that we're helping facilitate those deals in a way where we're not getting caught in the nitty gritty or the legalese unless, of course, they're critical issues. There has never been a better time to consistently take a more commercial and pragmatic lens to negotiations. Here at Minters, particularly when we're conveying large-scale real assets, we've developed a national sale contract. This means we can go to our clients and say, 'These are the positions we think are market-tested. And here are five or six different ways we've navigated this issue with a range of different counterparties'. This means we do not have to reinvent the wheel for every negotiation. That makes life easier for us, but more importantly, it makes life easier for our clients.
What are some of the legal challenges or opportunities arising from this need for increased speed?
Increased speed effectively means that we've got a range of sellers with reasonable-quality assets but are struggling to get them away, or they'll work really hard to sign or agree on some non-binding terms with a buyer. A buyer can decide not to proceed, and the seller needs to see who else is there. And it's a pretty shallow market at the moment, so there is not a long tail of under-bidders, or at least those willing to offer up a price close to what the seller is looking for. Our industry is built around transacting deals, and so the worst case we can find ourselves in (and we saw a bit of it during COVID) is where no deals are being done.
A lot of the feedback from the market is on compliance. Is speed going to be adding more compliance?
The simple answer is yes, but it can be mitigated. What will get deals done quicker in a compliance sense is disclosing codes of conduct or policies upfront because they're quite voluminous. The question is, how do we get ahead of compliance obligations sooner rather than later in a market where people want to do deals quickly. We don't want to spend time negotiating deal-specific issues up to the 11th hour and then have to deal with compliance issues at the end. My view is, let's deal with it all at the start, and as difficult and as burdensome as it might be to do that, it will make life a whole lot easier for everyone involved at the end.
How is the growing influence of AI impacting the work you and clients?
AI will herald a massive shift in how the real estate sector transacts, and I'm not just talking about the buying and selling of assets. Leasing is another aspect, and I think we will see massive changes with AI. It is going to make us more productive.
Our aim is to have confluency between having AI tools and an appetite to use AI. These can be two very distinct things; you can have the tools but not an appetite. You really need to have both. For example, if we can harness AI in collaboration with our clients to prepare a sale contract in 20 minutes rather than two hours, not only is it cheaper for the client, but it is quicker, which is the industry's ethos at the moment. So, doing some work through an AI lens is really exciting, and as time goes on, there'll be a lot more we can say and do about it.
How does the increasing focus on ESG factors impacting the negotiation and execution of commercial real estate transactions?
We're seeing a lot of our clients bring an ESG lens, along with their real estate lens, into everything that they do. This can manifest in several different ways. When you get stuck in a sale or contract negotiation, usually the last thing you talk about is seller warranties, but now we're talking about codes of conduct, green lease schedules or ethical supplier guidelines, all of which are relevant and necessary.
But let's consider this through a real estate lens. If the code is not followed, how will you know it's not followed? But even if you do and there's a breach, do you want to terminate a lease of, say, 20,000 square metres where all your people come to work every day? Do you want to crash the deal or terminate it even though it delivers great financial returns? These are the issues in my mind - existential questions for our clients to consider. An ESG policy is important, but there is a challenge in navigating that maze of ticking those boxes while also being able to get the deal done at the same time.
I think the industry is maturing as we go, particularly in getting better at having these conversations. Navigating ESG through a pragmatic lens is super important, and that's where we can add the most value.
Green financing is gaining momentum in the commercial real estate sector. What are you seeing?
What we're seeing now is that capital inflows into real estate assets are being determined by how green the building is. Developments are assessed on what makes them environmentally friendly and sustainable. And that can manifest itself in two ways - access to that capital or access to capital at a lower cost that allows certain developments to proceed.
Therefore, if you can get capital in the door to get your development off the ground, that costs you less, and it's a sustainable building, then at the end of the day, everyone wins.
Are you seeing a shift in the balance between the landlord and tenant?
Yes. The transaction market is more of a tenant-friendly market. There is a flight to quality, so we're seeing a lot of occupiers still on the fence about how much space they want to take up. The one question that is answered very quickly is: what type of building do we want to occupy? Everyone wants to be in a premium building with all the bells and whistles, including ESG credentials, wellness and amenities. Those attributes are really coming to the fore now, and they are game-changers.
When employers talk about getting people back into the office and how to future-proof their workplace for the next generation, they do this through an economic and commercial lens. Still, a big demographic shift is going on, and in real estate, it's a huge consideration.
The people occupying workspaces today will be different from those occupying them in five to ten years. So, it is important to get those decisions right at the outset. And they're questions that tenants are asking landlords a lot. And landlords are having to be nimbler and more sophisticated about their responses.
