Mirvac will bring 900 apartments to market this year as inbound foreign migration returns and in response to an east coast housing market that was “increasingly undersupplied” by a hiatus in new developments, chief executive Susan Lloyd-Hurwitz said.
The new apartment launches across Brisbane, Melbourne and Sydney – more than the 700 it released last year – will complement a further 2000 lots the company will release in greenfield master-planned community projects, Ms Lloyd-Hurwitz said.
Mirvac chief executive Susan Lloyd-Hurwitz.  Janie Barrett
Even as rising interest rates curbed demand from first home buyers – who account for less than a quarter of Mirvac’s off-the-plan sales – low unemployment levels and a return in inbound foreign migrants were holding up demand, she said.
“We continue to see very solid demand for both houses, medium-density and high-density,” Ms Lloyd-Hurwitz told The Australian Financial Review on Thursday.
“There’s no doubt that demand is slower than the peaks of 2021 and 2022, which was really unprecedented and somewhat forced by stimulus in the market that the government rightly put in during COVID, but we’re still seeing very solid demand.”
Mirvac shares closed up 8¢, or 3.8 per cent, after the company said final comprehensive income rose 4.6 per cent to $924 million for the year to June on revenue that jumped almost 20 per cent to $2.8 billion. It settled 2523 residential lots, in line with its prediction of 2500 for the year and predicted a further 2500-plus settlements for the current financial year.
“[Mirvac’s] ability to hit expectations on guidance given uncertainties surrounding residential and commercial development profits is a positive,” Macquarie analyst Stuart McLean said.
Mirvac earnings were boosted in the year to June by completion of its 80 Ann Street office tower in Brisbane and mixed-use Locomotive Workshop project in inner-city Sydney’s South Eveleigh.
Like all developers, however, the company faces rising costs.
“We definitely are seeing cost escalation, probably in Sydney running at about 4 per cent overall in high-rise construction, probably slightly higher in housing construction, and higher again in Queensland, running 7-9 per cent at the moment,” Ms Lloyd-Hurwitz said.
Civil construction costs rose 15 per cent on average across the year. The company has also benefited from higher selling prices. At its Everleigh master-planned community south of Brisbane, Mirvac lifted prices 27 per cent on average; it put them up 29 per cent at its Googong township on the NSW-ACT border and up 21 per cent at its Woodlea development in Melbourne’s outer western suburbs.
Apartments sell for more than master-planned community housing lots but are lower margin. The increase in apartments would lower Mirvac’s residential margin from the 25 per cent it hit last year towards the 18-22 per cent range it targets during the cycle, residential head Stuart Penklis said.
But cost escalation – which it was better able to control by keeping construction in-house – was less of a hurdle in starting further projects in Mirvac’s commercial pipeline, its biggest in 50 years, than the reluctance of key large office tenants to commit to new buildings, Ms Lloyd-Hurwitz said.
Smaller tenants – in the sub-5000 square metre market – were recommitting and were taking, on average, 18 per cent more space than they had, but there was hesitancy among larger corporate tenants, she said.
“There is a certain amount of hesitancy and if major corporates have been able to defer making a decision they have largely [done so] over the last three years,” Ms Lloyd-Hurwitz said.
Planned office projects at Melbourne’s 383 La Trobe Street, Sydney’s 55 Pitt Street and Brisbane’s 200 Turbot Street were all dependent on tenant commitments, she said.
The company is planning to sell $1.3 billion worth of lower-value office and retail assets to improve the quality of its investment portfolio at a time when there was a “bifurcation of tenant and capital demand for modern, sustainable real estate,” Ms Lloyd-Hurwitz said.
Mirvac last month secured the management rights for AMP Capital’s flagship $7.7 billion office fund, which will boost earnings, she said.
“The fund’s modern, sustainable, high-quality $7.7 billion investment portfolio is aligned with our portfolio and investment approach, and we look forward to driving future returns for investors,” Ms Lloyd-Hurwitz said.
The company declared a 5.1¢ final dividend, bringing its full-year distribution to 10.2¢.
Mirvac forecast operating earnings for this financial year of “at least” 15.5¢ per security – above the 15.1¢ it achieved in the year to June. Mirvac tips distributions of a minimum 10.5¢ and a residential lot settlement total above 2500.
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