Construction of QUBE’s new office tower in the CBD will set a high-water mark for the group, but being the best (not the biggest) remains the focus for this developer.
Construction of QUBE’s new office tower in the CBD will set a high-water mark for the group, but being the best (not the biggest) remains the focus for this developer.
QUBE Property Group started construction of its latest office building this month after demolition work commenced at 999 Hay Street, Perth.
The site, at the western end of the CBD, will support 10,500 square metres of office accommodation and, in a sign of the group’s confidence, QUBE has pressed the button on the project without signing an anchor tenant.
999 Hay Street is QUBE’s biggest project to date, but the group has been active in the suburban office sector for many years.
And managing director Mark Hector said the boutique slice of the market - office developments of between 2,500sqm and 7,000sqm - was still its key focus in commercial development.
In addition to 999 Hay Street, QUBE is building 15,000sqm of new office accommodation across three projects in West Perth and West Leederville, including ONE70 on Railway Parade and the Binary at 1101 Hay Street West Perth.
These projects were conceived in the wake of the GFC, when QUBE forecast a shortage of office space in Perth driven by activity in the state’s mining sector.
Mr Hector’s assessment of the West Perth market has shifted since these projects were first drawn up and he now warns of a potential oversupply in ‘mining central’, West Perth.
It’s an ominous assessment for any developers with office ambitions in West Perth but yet to turn a sod.
“There is quite a bit of new office being built in West Perth at the moment and as a result of that there is possibly going to be a slight oversupply,” Mr Hector told WA Business News.
“So we have had our run in office development in West Perth for the time being. Subiaco is a different story because the markets are all different.
“You are seeing the office market starting to spread; you have got places like Herdsman doing well, people are decentralizing. Great Eastern Highway is seeing some new office development and Subiaco is seeing some new office development.”
QUBE has bought two parcels of land on Great Eastern Highway - one in Rivervale and the other in Ascot, where it has proposed a 6,800sqm office development.
However the developer has capitalised on more than just Perth’s historically tight office market to drive growth in the past five years.
QUBE’s business model is founded on de-risking investment in a market that is captive to the whims of interest rate rises, sentiment and international events.
“Because you don’t always get it right, that’s the reality,” Mr Hector said.
“But it’s a good market and even when it’s tough there are opportunities. As we have seen during the GFC, quite a number of developers have struggled and therefore our competition was less; as a result we have been able to grow our development book.
“We saw a significant shortfall in office supply as a result of post-GFC ... we could see the mining sector continuing to increase and rents starting to rise.
“But at the moment (our focus is on) apartment and land subdivision.”
In the residential sector, QUBE invests in sites close to transport infrastructure, especially rail, and generally builds complexes with between 20 and 50 apartments priced from $400,000 to $700,000.
It has just finished 18 apartments in its Centro North East project in Subiaco, which sold for an average of $850,000.
It has another 63 under construction on the old Perth Tafe site, which will be QUBE’s fourth apartment development in Subiaco.
Its land subdivisions include parcels in Mundijong, Caversham and Serpentine.
Crucially, each of QUBE’s projects is run as a stand-alone entity with the land purchase funded from its balance sheet and a small circle of about 150 sophisticated investors.
It’s a model that reduces the innate risk of property development by ring-fencing each project, and it also means the private investors can put their money into the parts of the property market they know or like.
Mr Hector sees it as smart way to diversify the operation’s exposure to the different parts of the property sector.
“Every year we pull apart the business and we put it back together in exactly the same way,” Mr Hector said.
“Out investor base doesn’t necessarily want to participate in every project, some may prefer commercial office, some may prefer apartments some may prefer land developments.
“We are very particular about who invests with us and we have only ever had a couple of investors fall away.”
QUBE’s team of 15 staff generally has about 25 different projects on the go at any one time, with the end value of the work currently on its books estimated to be worth about $1.8 billion.
That’s grown from about $1 billion when QUBE broke away from a partnership with the Dibstone brand in 2006 and relaunched operations under its own name.
With the end of the financial year a little over three months away, Mr Hector is optimistic about 2013-14, foreshadowing new office projects as well as apartment developments.
But the focus is on quality not quantity.
“We don’t aspire to be a company that employs 50 people and has 100 projects on the go,” Mr Hector said.
“What we aspire to do is to continue to do the best projects possible and if that sees the business grow then so be it; but at the same time if we continue to do 25 projects at a time and they are the best 25 projects in our view then we are very happy.”
