By Philip Hopkins
A LEADING real estate group has welcomed the state government's plans to turn Fishermans Bend into a residential precinct, but warned of potential pitfalls in the project.
Fitzroys executive Charles Emmett praised the concept of higher-density living close to the CBD, but questioned the scale of the rezoning in one hit and warned planners would have to be cautious in their redesign of the old industrial precinct.
The government aims to make the 240-hectare precinct - industrial land in South Melbourne and Port Melbourne south of Lorimer Street and the West Gate Freeway to Williamstown Road and Todd Road - suitable for high-density, mixed-use development.
Mr Emmett said many owners and investors in the precinct were expecting easy windfall profits. ''Many have simply extrapolated current land rates in Southbank, ranging from $5000 to $8000 per square metre, and applied them to the new precinct, where industrial land rates have swung up from $1000 to as high as $3000 per sq m on the expectation of the rezoning,'' he said.
Mr Emmett said an extra 240hectares of capital city-zoned land was potentially available for residential development. ''That's 1.5 times the size of the Hoddle [CBD] grid, which in itself should maintain a ceiling on land values over the medium term," he said.
Existing owners in the area needed to be aware of how the zoning would affect their net income. "New investors or land bankers who have bought in on land rates of $2000 to $3000 per sq m have faced difficulties in obtaining reasonable rent yields," he said.
Fitzroys sold the combined showroom/warehouse and office property at 123 Montague Street on the corner of Thistlethwaite Street in late 2010 for $12.7 million on a land rate of about $2225 per sq m. ''Trying to obtain a rental yield of even 5.5 per cent was extremely difficult,'' Mr Emmett said.
Investors also needed to be wary of the lease terms they were offering, capital investment decisions and rises in land tax. ''As site values increase, net income is going to be severely eroded by increasing land tax whilst the potential for rental growth under existing uses will be limited," he said.
Mr Emmett said rather than owners investing in refurbishment to attract tenants, the optimal outcome might be to sell the property with vacant possession as a development site. "Once leased, the development value is locked away and the property may instead be priced on the low rental stream achieved from a sub-optimal use,'' he said.
Flexibility was needed when to realise the property's development potential, rather than being held hostage to long-lease terms. Mr Emmett questioned the rationale of rezoning all of Fishermans Bend in one line when the aim was to encourage high-density development, particularly when many Southbank apartments were already in the pipeline.
"The sheer supply of new rezoned land may in fact lead to a low- to medium-density development outcome,'' he said.
This could create a market more suited to townhouse projects, which should be discouraged if the government aimed to reduce urban sprawl. It would be better to have a long-term plan, where each stage was built to high-density before rezoning the next stage. "Fishermans Bend is also an opportunity to consider an affordable, high-density family-friendly living environment - an opportunity to get families into apartment buildings,'' he said.
Mr Emmett said the market forced developers to build ''shoebox'' apartments, but a Fishermans Bend plan should provide for family-sized apartments in any development. ''Developers … then will price site acquisitions accordingly, knowing they will have to sell family-sized dwellings at a price point that keeps them selling off the plan.''
Mr Emmett said planners would also need to consider how they implemented village shopping strips. "Village strips should utilise existing period warehouse facades. Historical buildings within these strips should be maintained where possible,'' he said. ''Laneways off these strips should be retained to provide a range of retail options and rental levels."
Successful retail strips such as Hawksburn Village, Albert Park Village and Westgarth Village thrived on a diversity of buildings, he said.