Lawyers in the real estate space saw a little summer slowdown.
The real estate space is one of substantial growth. One only has to turn on the nightly news or any current affairs program to hear of soaring house prices and new construction developments.
A booming property market brings with it plenty of work for those who operate at the front or back end of real estate, and legal professionals are no exception.
Real estate lawyers, though presented with their challenges, are hardly ever short of work.
With the property sector showing no signs of slowing down, this demand looks set to continue, presenting a plethora of opportunities for lawyers eyeing this space.
Attempts by the government to curb foreign investment in the property market had little to no effect in easing real estate lawyers into 2017.
Unprecedented market highs meant that Clayton Utz’s national real estate practice group leader Nikki Robinson was still getting instructed on new transactions in mid-December.
“Last December was, without a doubt, the busiest December I’ve ever had,” she says.
“There’s activity in that buy/sell side, but also the development of new stock, which is why everyone is so busy. Sometimes you see one but not the other. At the moment, I think we’ve got unprecedented levels [of activity] in both.”
Ms Robinson notes that capitalisation rates are in a strong position for offshore investors, and yields remain high.
“We’re still seeing an influx of investors from offshore, and not just the Asian market: the Europeans and the Americans are back in full force,” she says.
In late 2016, the federal government increased land tax and the stamp duty surcharge for foreign buyers in the Australian property market.
“The Australian dollar is still falling; the property market is still quite affordable and seen to be good value despite these additional surcharges,” says Corrs Chambers Westgarth partner Nathaniel Popelianski.
Across the board, lawyers are predicting that the uptick in real estate-related legal work will continue.
Clayton Utz has grown its real estate team’s graduate intake significantly, taking on 60 graduate lawyers in the practice in 2016 – more than in any other year in
“Each year there seem to be predictions of a decline, but the market defies these predictions,” notes Maddocks development partner Nick Holuigue.
“The property market has proven to be incredibly resilient over the past few years.”
While he predicts a stable market in 2017, Mr Holuigue is cautiously optimistic, forecasting a slightly reduced demand in foreign investment “as the changes to the FIRB rules start to bite”.
Innovation playing a part
New technology is liberating real estate lawyers from time-consuming due diligence work. As it develops, it’s likely to be a major game-changer, particularly when clients have hundreds of sites and turnaround is tight, Ms Robinson explains.
“Clearly people don’t want to pay a lot for due diligence, but it has to be done, so that’s where technology is going to be incredibly helpful,” she says.
“It’s certainly not the most exciting part of our job but it’s a necessary part.
“Some of the less exciting parts we’ll be able to do in a different way so that we can keep our juniors engaged, so we hang onto them but also deliver better value to clients.”
Corrs Chambers Westgarth has been involved with the development of a series of innovative technological legal solutions, many of which are now freely available to the public. The firm says these are part of its effort to foster a profession-wide collaborative approach to innovation.
“I think that one of the things we’ll be seeing over the next 12 months is experimenting [with] a take-up of artificial intelligence technology to automate high volume jobs,” Mr Popelianski says.
“Rather than sort of fearing it, we’re talking to our clients about what the things are that they’re doing that could actually benefit from this technology, and being engaged with our clients on that front.
“We’re taking a longer-term outlook for our clients in terms of driving efficiencies.”
Mr Popelianski says the challenge for lawyers is to make sure they continue to embrace technology to drive efficiency.
“Clients are expecting that; they want their lawyers to come to them with ideas, with initiatives,” he explains.
Ms Robinson says that investors are increasingly seeing value in developing sites themselves. It’s a shift from investors buying established buildings, seeking good yields and good tenants, she notes.
“There’s been a big shift over the last few years where [investors] see a lot more value in actually being the developer on the ground,” Ms Robinson says.
“So they’re not actually paying someone the development fee, or the fees for taking the risk, to actually get it up and running.”
In addition, Ms Robinson says she’s seeing growing numbers of Chinese and Spanish investors entering the construction market.
“[It’s] disruptive to your average Australian developers,” she says.
“There’s more competition in [the construction] market.”
In the tenancy market for commercial real estate, organisations are increasingly seeking ‘new and improved’ office spaces as a way of progressing cultural change.
Mr Popelianski says this shift is reducing the amount of office space required, which has had a significant impact on the market.
“Organisations had very standard, typical offices and they’re looking at ways to firstly reduce their office requirement by consolidating, encouraging agile working, so it’s enabling people to work a lot more flexibly based on how they actually operate,” he says.
“A lot of our clients put a lot of effort into selecting their next commercial office.
“There’s a lot of work that happens behind the scenes within an organisation to work out what the strategy in their workplace is, and … how the new office and the new fit-out complement and enhance that.”
According to Mr Popelianski, good-quality property lawyers are in high demand.
“Australian-trained lawyers with a native Asian language are highly soughtafter as Chinese investors continue to look here,” he adds.
“If you’re a high-quality lawyer who can speak Mandarin, you’re in high demand.”
As real estate teams across the profession look to expand, Mr Popelianski says that even though lawyers are in demand, this space is still highly competitive and a focus on staff retention is more important than ever.
“There is so much demand and so many options out there,” he says.
“As the European, US and Asian markets improve, more and more of our lawyers are wanting to do an overseas tour, which hasn’t happened as much over the past six years.”
Area to watch
Social and affordable housing is a growing focus for the governments. The NSW government has been very active in this space, Mr Popelianski says.
“Part of the issue is that housing prices in our major capital cities have gone up astronomically and it’s left a whole lot of people who can’t afford private rental, and so the need for social and affordable housing has never been greater,” he says.
“They’ve got sites that have older housing stock, which they are offering to the market to developers and housing associations to deliver either more social housing on those particular properties [or] combine it with private housing.”
Mr Popelianski says he expects Victoria, Queensland and potentially Western Australia to follow the NSW government’s heavy focus on the solution.
“The governments around the country are looking at their existing older housing stock and working out, ‘Well, where are the opportunities to go to the private sector and to housing associations … in order to leverage a better result?’,” he concludes.
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