Building Approvals rally continues in Cairns

The strong bounce in national building approvals noted last week (which was not replicated in QLD) appears to have been a feature in Cairns during October. ABS data released this morning show total unadjusted approvals in Cairns and Douglas were 84; Townsville 168 and Cassowary Coast just 4. As always, this volatile series needs to be considered using the Conus Trend and here we see the relatively good news for Cairns continue.

The Conus Trend numbers are: Cairns, 64 (unchanged from an upwardly revised number in Sept); Townsville, 155 (down from a slightly upwardly revised 158 in Sept); Cassowary Coast, 6 (unchanged from a downwardly revised Sept).

The graph below more clearly shows the solid growth in Trend approvals that the Cairns region has enjoyed over the past two and a half years. Whether that “boom” continues now that there appears to be so much doubt surrounding the Aquis Integrated Resort remains to be seen.

The nascent recovery that had set-in in the Cassowary Coast earlier this year seems to have run out of steam and now looks like nothing more than a blip on an otherwise consistently weak trend; we will need to see some very solid numbers over coming months for that analysis to prove inaccurate.

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Open letter to Cairns from Tony Fung re Aquis

I have just received the following email as an “Open Letter to the Cairns Community” from Tony Fung. The letter talks about his “commitment to one day deliver AQUIS for Cairns” (my emphasis) and notes that the delays caused in the probity investigation for the Reef Casino takeover will result in “a comprehensive review of our strategy for AQUIS and may require some difficult decisions about the project.”

Sounds to me like 1) Cairns could be waiting a long while for AQUIS, and 2) the final result (if it eventuates at all) will be significantly different to what has been previously discussed. Time will tell.

Here’s the letter in full…

“I would like to thank the community once again for the overwhelming support you have shown for my vision for the AQUIS integrated resort at Yorkeys Knob. The high level of support I and my team have received, both privately and publicly from individuals and organisations, has brought me tremendous satisfaction and galvanised my commitment to one day deliver AQUIS for Cairns.

Like the vast majority of the community I believe Cairns can and should utilise its natural assets to have a vibrant, prosperous future as one of the world’s top holiday destinations. I believe AQUIS can be the catalyst for this new future without compromising any of the things what we all love about the city.

Over recent months and weeks my team has been working across many fronts to bring our shared vision to reality. As you can appreciate a project like AQUIS requires extensive planning and investment as well as a range of necessary regulatory approvals. Due to its complexity this process will naturally involve achievements and setbacks.

As you may be aware I have elected not to extend my offer to acquire the Reef Casino and Hotel. While the main Reef offer is now likely to be unsuccessful I have elected to continue with the purchase of the Canberra Casino in the ACT as I have been assured that transaction will be able to be completed shortly.

Having ownership of a casino in Australia prior to 31 December, 2014, is a key part of our plan for the financing of AQUIS at Yorkeys Knob and I am thankful for the cooperation of the owner Casinos Austria and the ACT regulatory authorities in facilitating this goal.

While we have been able to develop an alternative to full ownership of the Reef Hotel and Casino the failure of the offer will nevertheless require a comprehensive review of our strategy for AQUIS and may require some difficult decisions about the project. While undertaking the review we will continue to push forward with a number of regulatory hurdles including finalising our Environmental Impact Statement (EIS).

It is also worth noting that we recently signed an extension of our option over the core site at Yorkeys Knob. The extension reflects our commitment to push ahead with AQUIS but also acknowledges the increasing complexity and difficulty of the approvals process and the fact we may need some more time than first anticipated.

Despite the challenges of recent weeks I wanted to put on the record my continued personal commitment to the development of AQUIS and my thanks for the overwhelming support for the project. Together, I still believe we can make this vision a reality.

Yours sincerely
Tony Fung
Chairman Aquis Group”

Clearing up the Aquis media frenzy

Today’s Cairns Post has splashed with a story that Tony Fung is prepared to walk away from the Aquis proposal if his proposed take-over of the Reef Hotel Casino isn’t OK’d by the authorities soon enough. However, behind the brouhaha lies a simple truth; the process isn’t taking any longer than usual. The dates quoted in the Post’s story are just plain wrong; as Mark Beath points out in his excellent post, the formal offer on the Reef Casino didn’t happen until late March this year (not mid-November last year as suggested in the Post’s story).

Positioning and threats are all parts of “business as usual” at this kind of level, and Fung is no doubt a master at it (as the OLGR will be fully aware). However, the Post should be careful that it isn’t being used quite so blatantly.

UPDATE. Statement from the OLGR re Aquis as quoted on Member for Cairns, Gavin King’s Facebook page.

Aquis “largest building in the world”?..er, no

Feelings are running hot in Cairns regarding the proposed Aquis Resort. The anti-Aquis community group Aquis Aware Coalition of Concerned Citizens has publicly released their submission on the Environmental Impact Statement; and they’re obviously not fans.

However, while criticising (with some justification) the EIS for its accuracy and content, the group’s spokesman is quoted in today’s Cairns Post as saying that Aquis is “basically the largest building in the world”. Is that accurate? Er, no…not even close. Even if you were to add all the floor areas of all the separate buildings planned it still comes in at about 1 million sq metres. The vast bulk of that comes from the 625,000 sqm of floor space in the eight separate towers housing the hotel rooms. Perhaps some accuracy from both sides might be in order?

Cairns rentals and the impact of the mining investment slowdown further South

Mark Beath over at Loose Change has written a very interesting piece on the trends for rental rates in some major QLD centres.
While his commentary focuses on the changes in Cairns, and makes mention of the potential Aquis-effect on future rentals, it is also interesting to see the impact on rental rates in Gladstone and Mackay as the mining investment boom unwinds. Gladstone in particular appears to have seen declines of some 30% since the highs of mid-2012 and now sits at, or below, the level seen in Cairns.

While we would not expect the Aquis construction to have these scale of impacts in the Cairns region, it is certainly true that over the period of construction (in fact 2 periods of construction) there is likely to be strong upward pressure on rental rates in the Northern Beaches.

This is part of what the Aquis EIS had to say about the impact on housing and rents (my emphasis)..

“During the first stage of construction, it is the shorter term accommodation market that will be most impacted. As many workers relocate for specific tasks of the Aquis project construction, their contracts are relatively brief, lasting between a few months up to two years. The price impacts will depend on the capacity of the Cairns tourism accommodation and private rental markets to absorb a larger number of tenants.

Current indicators suggest that capacity in this market may be an issue. ABS data shows that vacancy
rates for apartments in Cairns averaged around 2.1% towards the end of 2013. This would also impact other residents involved in the local rental and serviced apartment market. Without an increase in the number of dwellings available by the peak of project construction, Aquis workers may crowd out the ability of existing or new Yorkeys Knob/Smithfield residents to reside in the area.

While it is inevitable that there will be some price impacts in local property and accommodation markets, it is difficult to ascertain the magnitude, or the net redistribution of wealth. There are a number of years before the Aquis project reaches peak construction and even longer until peak operations. It is possible for almost full market adjustments to occur in this time. This will largely depend on the CRC’s response to the Aquis project and the rate at which land is released and development applications are approved. This would also apply to other local councils surrounding Cairns. Lag times for releasing land are not unusual, with such processes usually planned years in advance to concord to long term population and settlement trends. Renters may face higher costs before supply responses; this is only one side of the coin. Other market segments, namely landlords and asset holders, would see an appreciation in their wealth. The net effect of these two countervailing impacts on incomes is also unknown.”

First look at the Aquis EIS

The release of the Aquis Environment Impact Statement (EIS, available here) has given everyone concerned a ton of reading to do! We decided to focus on the Economic section (Chapter 13) and even that runs to 44 pages; even the Executive Summary is 88 pages!
Anyway, a first reading of the Economic section highlights the huge impact that the project is likely to have at a local and regional (and even state) level. Even if we allow for some over-egging of the knock-on impacts via multipliers etc., it is clear that the project will have real and tangible positive results for the area.
The EIS talks about a peak of construction jobs in 2017 of some 3,750 direct, 2,825 indirect in FNQ and another 2,250 indirect elsewhere in QLD. By the time the resort if fully operational in 2027 jobs are estimated at 20,000 direct, 30,675 indirect in FNQ and 3.146 indirect elsewhere in QLD; these are huge numbers in the context of about 110,000 in employment (Conus Trend) in the Cairns area in May 2014. The report acknowledges that “a large number of positions are likely to be sourced outside of the region from Queensland and the rest of Australia”. Later in the report the figure of 40% is used for the scale of “construction and operational workforce that would be drawn from other parts of the State and rest of Australia”. That still means that 60% of the jobs are anticipated to be filled by Cairns locals and the other 40% moving into the area would obviously also have positive knock-on effects in terms of local demand and economic activity.
In terms of visitors the EIS suggests 74% of visitors would be international (and within that 60% from China). The remaining 26% made up of 11% from the FNQ area and 15% from elsewhere in Australia.
The anticipated impact on the FNQ’s Gross Regional Product (GRP) is quite simply extraordinary! The chart below, taken from the report, suggests GRP at almost 74% above the “non-Aquis” baseline in 2027. {Although the report talks about “central and low scenarios being detailed in this chart there is no sign of the “low” option anywhere…this is one of quite a few editing errors we found within the report.} While we would be highly sceptical that a single project (even of this scale) could have such an impact, without access to the full assumptions inherent in their model it is impossible to make further comment. Suffice to say that even if these projections are double what they might be the impact on the region will still be huge.

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Aquis and its impact on Cairns labour market

There is much talk in the media about the potential jobs impact if/when the Aquis integrated-resort goes ahead north of Cairns. The company’s statements talk of 3,750 jobs in the construction phase rising to about 11,000 when fully operational in 2018.
To put these numbers in some context let’s just consider the current position of the Cairns labour market. The table below outlines the current position (all data Conus Trend) and some estimates (all else remaining equal) based on a variety of assumptions (outlined below).

It would seem fair to assume that if construction was to start immediately that at least some of these new jobs would come from outside the region; therefore let’s assume the working age population increases to 192,500 (i.e. 13% of the new employees are sourced from outside Cairns). We could also expect to see a move up in the participation rate generally (let’s assume to 62) as some were attracted back into the workforce.
Therefore, with a working age population of 192,500 and a participation rate of 62, our workforce would be 119,350. With an extra 3,750 employed total employment would be 110,850 which leaves 8,500 (119,350 minus 110,850) unemployed. That would mean an unemployment rate of 7.1%.
So perhaps 1,500 of the new jobs would go to those currently unemployed, 500 to people from outside Cairns and the balance to new entrants into the workforce.

April actual with Aquis Construction jobs 
and various assumptions
Employed 107,100 110,850 3,750 new jobs
Unemployed 9,800 8,500
Workforce 116,900 119,350
Participation 60.9 62.0
Working Age Pop 192,000 192,500 500 new employees from outside
Cairns Unemp Rate % 8.1 7.1

How the fully operational 11,000 jobs in 2018 would impact the region is far harder to determine since we cannot know with any certainty what the level of “non-Aquis” jobs is likely to be by that time. Clearly a large number of people would come to Cairns for the Aquis work and we would also (hopefully) see a big pick-up in participation. The working age population is growing by about 2,000 per annum at present so by 2018 we would expect to see it at around 200,000; add in perhaps 2,000 for extra new arrivals and we get a total of 202,000. If participation returned to a more “normal” level of 65 this would mean a workforce of some 131,300. That would make Aquis the employer of about 8.4% of all Cairns workers.

Neither of these projections take into account any peripheral employment effect within the economy from suppliers etc. who would clearly also see employment growth from Aquis going ahead. They also do not account for any fall-off in jobs from employers who might be negatively impacted; although these are likely to be few and of only minimal significance. Clearly Aquis would have an enormous impact on the employment level in the Cairns region.