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February 5 2021 


1. Where is everyone going?…

Provisional internal migration estimates show the largest exodus from Australia’s capital cities in at least 20 years occurred between the March and September quarters, with 3/5 leaving Sydney going to a regional part of NSW, data from ABS shows. This may help explain the Sydney CBD office vacancy rate hitting a 7-year high of 8.6% in the six months to January, up from 5.6% at the end of July, and 3.9% a year ago (pre-Covid). Sydney also saw over 110,000sqm of new supply during the 6 months to January.

We will wait to see if this trend sticks, as the migration is surely putting pressure on underdeveloped regional infrastructure, or will they need to build?…

Source: ABS, Macquarie Macro Strategy

2. Just keep building, just keep building…

The trend is our friend with homebuilding and related industries, as portfolio company Bluescope Steel beat its own guidance this week (previously upgraded in November, last count was 4 upgrades to 1H21 guidance…)

Residential building approvals rose +10.9% m/m and +22.8% y/y in Dec to a monthly annualised rate of 234K. Detached house building approvals rose nearly 15% m/m and 55.4% y/y, reaching highest levels since 1956! Approvals to renovate also continued to strengthen in Dec rising 8.1% m/m in value terms, whilst loans for home construction were +119% y/y.

Government incentives have supported this increase in demand to date, but a key difference we note between now and the post-GFC boom that we expect propels this trend further was interest rates rose 175bps between Oct-09 and Nov-10, whilst the RBA have strongly signalled rates wont rise until 2024.

Source: ABS, Macquarie Macro Strategy, Feb 2021

3. Bad debts be gone!

Virgin Money UK gave a 1Q21 trading update this week, where management reiterated FY21 guidance, slight upgrade in respect of CET1, and noted potential upside to NIM. What really caught our interest however was the bad debt charges. The update from VUK showed that banks are not yet seeing any deterioration of credit quality beyond what is already allowed for in provisions. VUK’s 10bps bad debt charge was actually lower than pre-COVID levels! We expect this data will remain lumpy but will likely see a similar trend in Australian bank results through reporting season.

Source: Firetrail