26/04/2012 - 11:09

Cottesloe not right choice for development

26/04/2012 - 11:09

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The Barnett government should look to beaches further south, which are more suitable to a Bondi Beach-style focus.

The Barnett government should look to beaches further south, which are more suitable to a Bondi Beach-style focus.

What is worse, an angry community or bunch of other special interest groups?

I do wonder at the state government’s decision to give the green light to eight-storey development at Cottesloe rather than looking for a greenfields alternative, such as Leighton or Port beaches.

I admire Premier Colin Barnett for tackling such a contentious issue in his own backyard – Cottesloe is within his own electorate. It does bolster his credibility when it comes to backing other projects elsewhere in the state.

By backing high rise in Cottesloe, the only noses he puts out of joint are, arguably, so few that it does little harm to his government.

Those potentially directly affected by the move are a limited number of locals, who are unlikely to generate much support from the usual bunch of anti-development protestors who move around Western Australia in a perpetual state of angst.

Nevertheless, I am a perplexed by the decision because I see limited value in making Cottesloe the next test case after Scarborough.

Cottesloe might be the iconic beach of the Perth metropolitan area but it is no Bondi Beach.

Certainly, it draws a crowd and, due to a couple of major pubs and a few restaurants, attracts more than just beachgoers. 

But it is a small beach hemmed in by suburbia and lacking the public infrastructure to support anything beyond few small bars and boutique offerings. Arguably, the existing hotels are already too big a burden on the area.

If Western Australia wants to create another version of Sydney’s beaches, like Bondi or Manly, it would be better placed to do at Leighton, where it has vast amounts of space due to the closure of the marshalling yards – one of the most scenic industrial wastelands on the planet. 

It has already gone part way to achieving this with existing development but few people beyond commuters on the Fremantle railway line are likely to lose their views or feel their daily routines affected by such a change.

Leighton, like Scarborough, has room north and south to expand without really upsetting many people. Unlike Scarborough, it is really close to transport infrastructure, notably a popular train line that virtually runs along the beach.

Further south, at Port Beach, there is also the opportunity to develop high rise. This is less attractive due to the industrial nature of Fremantle Port’s North Quay.

A longer-term vision for the area ought to include the relocation of that container facility to Kwinana, leaving the harbour at the mouth of the Swan River for less intensive shipping activity such as passenger liners, which is more conducive to residential and tourism development.

Almost no one would protest about that idea.

Instead, we have Fremantle Port being expanded and high rise going ahead in Cottesloe.

Strange days, indeed.

Law firms legal world is changing

The story told by our very clever front-page graphic and accompanying feature last week was of massive changes to the top end of the legal sector, with many of the big firms and major boutiques having conducted or chasing mergers. 

This has been a decade in the making but has occurred quite suddenly because of the impact of the global financial crisis, which has accelerated the shift of economic power to Asia.

This week, the latest such deal was revealed by national law firm Allens Arthur Robinson, which has struck an alliance with leading London firm Linklaters that will see the two retain their independence and separate branding but work closely together. 

Global law firms based in London, like Linklaters, have found that the work they do is increasingly based in Asia. 

Their regional foothold in places where the English form of law reigns has been much reduced, with Hong Kong returning to Chinese ownership, just as the region has exploded.

These firms are very familiar with Australian lawyers (a huge number of local partners will have spent time in the UK) but have baulked at merging with their Antipodean counterparts because of the mismatch between average earnings and the scale of the transactions they are involved in.

With Europe potentially in a decade-long deep freeze, Asia rapidly industrialising and the Aussie dollar firming up, these mergers, or similar tie-ups, have now become acceptable. They may not be of equals but it certainly has gotten closer to that.

The big question mark remains as to whether this is sustainable.

My gut feeling is that those with sway in the Australian firms, the leading partners in terms of revenue, have decided now is the moment to seize the day. In most instances, they are the sellers, getting a premium price that builds in some form of Asian blue sky for them to merge their practices into a global partnership.

For the junior partners and those below with massive ambitions, this is the ticket to Magic Circle partnership, which previously required a London address and contact base.

But for many others, the picture might be quite different in five years’ time.

As Europe recovers and Asia’s growth slows, the balance will be reweighted towards London, where the true earnings power resides in the longer term.

That will mean a culling of Australian partners and fewer opportunities for new partners. 

A good example is the merger of national firm Freehills and WA’s Parker & Parker in 1997. This was not exactly a preview of what is taking place at a higher level today because back then WA’s economy was not running hot and Sydney’s was not struggling. Nevertheless, there are parallels.

To get the deal over the line, local partners were offered a deal that kept them in place for several years. At the point of merger, the Perth outpost ended up with 53 partners out of the national group’s expanded base of 180, a staggering 30 per cent. 

Even at the time of the merger, legal commentators were reported as saying the numbers were unsustainable.

Our 2001 Book of Lists shows that Freehills still had 50 partners in Perth about four years later, out of 198 legal professionals and total staff of 300. The next biggest law firm back then was Clayton Utz with 24 partners and the 10th biggest, Deacons, had 13.

Fast forward to 2012 and Freehills remains the leading law firm by size. The next biggest firm, Jackson McDonald, had 32 partners and the 10th biggest, Corrs Chambers Westgarth, had 16. This shows the sector has muscled up a bit but you would expect that in an economy that may well have tripled in that period.

Compared to this, Freehills had remained stagnant in overall numbers with 312 staff and 194 legal professions – not much different from 2001. Even more noticeable is that, a decade later it had just 32 partners, the same as its nearest rival.

I am not saying this is a bad thing. However, it is inevitable that the same form of attrition will occur in Australia.

Cost and benefit in infrastructure

There is a huge difference in the cost-benefit analysis of the infrastructure projects that are covered in depth in the pages of this newspaper.

At its most simplistic, there is straight investment in the logistics of getting resources out of the ground and on board a ship.

Even the hugely expensive option of developing the Port Hedland outer harbour, thought to potentially cost BHP Billiton as much as $200 for every tonne of capacity delivered, is worth it if iron ore prices stay where they are.

From the state government’s point of view, it is a similar issue. 

Spending royalties back in the regions from where they are generated ought to have a pay back. Making the Pilbara more accessible and liveable should lower the cost of business for the miners and, therefore, make adding production more attractive. That generates more income for the state.

In the city, the cost-benefit is less readily definable. Adding billions of dollars of light rail, other public transport options and roads might help alleviate congestion for a while and keep voters off parliamentarians’ backs but it is much harder to determine the value of each dollar spent.

Certainly, there are studies that try to put a dollar figure on the cost of congestion but that is much harder to determine than the real cost of building new infrastructure and operating it.

I have in the past analysed the cost of public transport. Last year I worked out that commuters paid about a third of the operating cost for each journey and a quarter when the cost of capital was included.

Adding more infrastructure simply adds to the future cost to the public. 

Against hazy cost-benefit analysis of the upside in reducing congestion, this is a dangerous equation. Furthermore, by subsidising yet another community service, it makes it ever harder for governments of the future to seek true-cost recovery in order to make such investment sustainable.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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