Good morning. Good morning, all. Thanks very much for joining us today. Just some brief housekeeping before we kick off. For those in the room, bathrooms are just round behind the stairs over here, and in case of an emergency, can you please follow the instruction of fire wardens who will make themselves known? We'd also appreciate it if you wouldn't mind turning your phones to silent mode. As we're in Melbourne today, or Naarm, its original name, we'd like to acknowledge the traditional custodians of the land where we gather, the Wurundjeri elders of the Kulin Nation, and pay our respects to elders, past and present.
So we're excited to have you all here today, and excited to be able to provide some insights into our initiatives across the emerging living sectors of Land Lease and Build-to-Rent, and to hear from and to meet some of our team. We'll start off by providing some research insights and outline the investment appeal of the living sectors, and then provide an update on the BTR sector and some of our operational and development takeaways from our journey to date. Then we'll discuss our ambitions for entering the Land Lease sector. We'll have a Q&A session at the end, and for those online, you can submit your questions via the web link. So Mirvac has a rich history as an award-winning residential developer with many repeat customers. However, this is only part of the picture.
We've identified a customer need and demand for affordable housing solutions, which has been supported by strong market fundamentals and tailwinds, including rising population growth, record low vacancy levels for renters, and affordability challenges. Our existing apartment and master plan communities product are beneficiaries of these fundamentals, and our expansion into build-to-rent and land lease are natural adjacencies. We're pleased to be able to present our customers with a full life cycle of housing options, from when they first enter the market as a renter in one of our BTR assets, to their first home or apartment purchase, upgrading or downsizing later in life, and in time, we will have the opportunity to offer an affordable downsizing solution as our customers head into retirement in our land lease communities.
As you'll hear today, living sectors are one of the largest and most resilient real estate investment sectors globally, and one of the most sought-after asset classes for institutional capital. We're pleased to continue to expand into these sectors with our partners and drive value for you, our shareholders. As we've previously flagged, our organization has been restructured into investments, funds management, and development to reflect the growing scale of the funds management platform and the integrated nature of our development division. Asset management has also been separated from investment management to provide independent support to both Mirvac and its partners, helping to create a better performance-driven culture. We have a truly integrated business with learnings from our build-to-sell residential, commercial, and operational BTR assets feeding into new development designs. Our unique internal design and construction capability is now deeper than ever, spanning commercial real estate and multi-living sectors.
We've already shown leadership in the use of digitization and prefabrication in our development process, and this will become even more important going forward in order to achieve Scope 3 sustainability objectives, meeting evolving customer needs, and driving investment returns. Over the past few years, our operational environment has shifted, presenting a number of cyclical and structural changes, with a number of the key structural mega trends, which we aim to continue to leverage over time to drive value for investors. We've been executing on our five focus areas outlined in April. Our recent non-core asset disposals, new industrial and BTR development completions, and our planned expansion into land lease, has further modernized our investment portfolio and solidified its cash flow resilience in line with our strategic objectives. We continue to make strong progress towards our other objectives.
As a best-in-class urban asset creator, we have more than 50 years of experience in creating exceptional places through multiple cycles. The purchase of a home is the largest investment most people make. Mirvac's reputation and 50-year track record on delivering high quality, well-designed homes, investing in infrastructure and communities early, and continued product innovation means, means people trust us to deliver on our promises. We have continued to diversify our offering from land, detached homes and terraces, through to mid-rise and high-rise apartments. This means everyone from first home buyer through to upgraders, right-sizers, and investors can benefit from Mirvac's commitment to quality as we respond to demand across all customer segments.
We've responded to market tailwinds and expanded our living sector exposure, now capturing the renter market and, in time, the over-55s market through build-to-rent and land lease communities, in addition to our award-winning residential sell-to-sell business. As customer preferences and value propositions change, our integrated model has allowed us to leverage our in-house residential expertise and apply to these new sectors. Mirvac's competitive advantage lies in our unique integrated asset design and construction capability, which creates significant value for our security holders and capital partners. The integrated model that drives Mirvac's advantage can be thought of as a flywheel that delivers development earnings, a pathway to accelerated growth in NOI, and improved portfolio quality... and at the same time, enables growth in our assets under management and third-party fee income.
In an environment of cap rate expansion and elevated delivery challenges, our value creation platform and track record around site selection, risk management, and execution will become an even greater differentiator of performance over time. I will now welcome Alex Gray, our Head of Research, to walk through the market fundamentals.
Thank you. Good morning, everyone. Today, we're very pleased to share some insights on renter populations in our cities. So let's begin with Australia's record migration boom underway. While population data from the ABS is quite lagged, we get a more timely read from their Labour Force Survey , and this is showing that the working-age population growth is currently running at a pace of 2.8% a year at August 2023, well above the 1.9% pace in August 2022. So this is clearly the catch-up from lost levels due to the pandemic, and we do expect this to normalize gradually over the next two years. However, two decades of migration data tells us these groups don't disperse evenly around the country. They overwhelmingly reside in Sydney and Melbourne, with some flow through to Brisbane and other parts of Australia.
So what we're looking at here is the impact overseas migrants have on the housing market upon arrival. It shows the change in settlement patterns in subsequent years. So this is looking at migration data at 2019, and we can see migrants largely enter the rental market on arrival to Sydney and Melbourne. On the left, you can see a rented apartment is the typical dwelling for a new migrant to Sydney, and in Melbourne, both rented apartments, semis, and townhouses have been important products for new migrants. We expect the share in apartments to rise in Melbourne, the dark blue there you can see, given the lift in completions in the recent years in the city here and the rapid absorption of that stock. Final key point to this slide is that we find the tenure of migrants shifts over time from renting to home ownership.
For Melbourne, this is around year five from arrival, and you can see the importance of detached housing, something we see ourselves within our master plan communities, projects. For Sydney, it's a longer transition, reflecting the affordability challenges and a longer time in the rental market. For Sydney, migrants have transitioned from renting to buying through purchase of typically more affordable apartments and townhouse product. And so while the demand-side drivers are lifting, so too are the ambitions and targets for housing supply. At the August meeting of National Cabinet, the National Housing Accord target was increased by 200,000 dwellings to 1.2 million well-located homes to be completed by June 2029. To put this in context, it requires 240,000 housing starts every year for the next 5 years, a pace which this country has never achieved.
So the National Housing Accord and the also newly legislated Housing Australia Future Fund policies do not materially impact the near-term outlook for residential construction. While some upside exists towards the end of the decade, the challenge to meet these targets is immense and will clearly require a step change. Delivering at scale will require increasing density and addressing that full housing continuum that Campbell just talked about, something we are focused on here. So we see a picture where dwelling completions in our major cities and nationally are cresting, peaking over the next few months, and through 2024, the volume of completions is expected to reduce quickly, providing some easing to construction cost escalation, though elevated infrastructure spend exists in all our major cities, especially on the East Coast, and so that provides some - that'll be offsetting some of that.
On the current trajectory, completions of detached houses on the left across our three largest cities are expected to fall by more than 25% from peak 2018 levels. However, let's dive into the apartment stock. It is in the apartment stock that the undersupply story is more pronounced, and while we expect a tick-up in the apartment supply in the major East Coast cities in FY 2024, population growth will also be moving through that peak simultaneously. So in subsequent years, we see the volume of new apartments and attached dwellings, which is the typical housing stock for renters, expected to be more than 50% below 2017 levels. Risks are also skewed to the downside here because of the highly constrained funding environment, elevated construction costs, Campbell mentioned, and we also have lower pre-sales limiting construction. So where does that leave us today?
We look out to the near-term picture of a rapidly growing population, sharply lower supply, yet today, vacancy already is at record lows across many submarkets. Apartment rents across our capital cities have clawed back their pandemic impacts and now, in the double-digit pace, they're above inflation. Across our three largest cities, renter households have been the fastest-growing across all large population age groups. Renter households aged 20 - 59 have recorded a compound average growth rate greater than 3% over the past 15 years. While conversely, you can see that outright ownership has declined or held flat. So our renter households are getting older as affordability constraints around obtaining the deposit or servicing the mortgage see more young people delaying home ownership.
According to ANZ and the researchers at the Australian National University, it took 9.9 years for households on median incomes to save the 20% deposit for a median price dwelling in Australia in September 2023. In Sydney, this was 12.3 years. With dwelling prices now on the rise again across all of Australia's capital cities, this represents a decrease in market buying accessibility for renters, and the time to save the deposit is now on the increase again. As such, we have a growing pool of renters, and they are getting older. You can see the chart on the right is showing a count of households by age over time in the three largest cities. Renter households aged 30 - 39 have more than doubled in 15 years. Almost doubled in 15 years.
As renter households increase, we've also found a growing acceptance and preference for apartment living across all household and family types. These charts here are showing the share of renter households living in a high-rise apartment, which is a structure more than four stories. The largest renter customer groups are on the left side screen. Top left is our single and group households, and the bottom left chart is showing a couple household with no kids. The light blue lines show the story for Melbourne. In 2006, around one in five of those renting household types was living in a high-rise apartment. Fast-forward to 2021, a high-rise apartment was the home of two in five of those groups. The charts on the bottom, top and bottom right of the screen are our families with kids.
So we've either got a two-parent or a single-parent family. And what stood out to me was the importance and acceptance of high-rise apartments for family living. For example, 15 years ago in Sydney, a high-rise apartment was home to less than a third of all renting two-parent families with kids. And today, there are now more families with kids renting in a high-rise apartment than any other dwelling type. You can see as the other cities are on the same trajectory. Against this background, we think the build-to-rent sector will play an important role in Australia's future housing supply. While rents have continued to lift over this past year, the median renter affordability pressures are generally not to the same extent as borrowers.
Conversely, for residential investors, mortgage repayments have climbed higher than median rents, and we've seen residential investors become a higher share of for-sale listings in many areas over the past year. Lastly, we also see huge demand for quality housing from older cohorts. Forecasts from the recent Intergenerational Report show the volumes of people in Australia over 55 climbing strongly over the next few decades, almost doubling by 2063. The potential is there. The 2021 census showed over 70% of Australians aged 50 - 79 live in dwellings with just one to two residents in their homes. However, for over 80% of those dwellings, they have three or more bedrooms. Up to 40% have four or more. We expect growing volumes of households will look to unlock the value of those dwellings in order to fund a quality retirement.
I'm very pleased now to hand over to our CEO Investment, Richard Seddon, to speak on the investment appeal of living sectors.
Thank you, Alex, and good morning, everyone. Over the past 10 years, Mirvac has taken an active approach to portfolio composition, disposing over AUD 4.2 billion of older assets to create over AUD 6 billion of brand-new, highly sustainable, award-winning assets, which resonate with customer demand across build-to-rent, industrial, and office. This has driven a strong uplift in portfolio quality and operational performance, with 97% occupancy across all sectors and outperformance across all time horizons. Our strategic focus is to further improve the cash flow resilience of our investment portfolio by upweighting our exposure to the structurally supported living sectors, build-to-rent, and land lease, continuing to lift our exposure to industrial, and moderating our office exposure to more acutely focus on modern, high-quality assets.
We've made good progress towards these goals with our asset disposals of mostly lesser quality office assets, progression of our industrial and build-to-rent pipeline, with Switchyard and LIV Munro completed in the last 12 months, and our planned expansion into land lease. The build-to-rent asset class is underpinned by compelling structural drivers, including extremely low vacancy rates of around 1.5% nationally, robust demand supported by strong forecast population growth, a structurally undersupplied housing market with planning and delivery challenges persisting, and stretched affordability increasing the proportion and duration of renting in Australia. This provides an attractive investment thesis, producing stable income with high occupancy, diversified tenancy risk, and a strong underlying customer proposition, a robust rental growth outlook with attractive supply-demand fundamentals and typically higher inflation protection, and low cash flow leakage with modest CapEx, minimal incentives, and generally low downtime.
It's very aligned to Mirvac's core capabilities, including our deep history of award-winning residential products across a broad range of product types and geographic markets, supported by market-leading in-house design and asset creation capability, our deep operational experience in target markets with established customers and understanding of regulatory and customer requirements, and our operating track record with two completed assets, providing a first-mover advantage and a wealth of operational data and customer insights from which to draw on. Globally, build-to-rent has demonstrated strong performance. The chart on the left shows in the U.S., the direct residential sector has achieved strong total returns on a comparative basis with a lower standard deviation or variability in returns during this period. In Europe, cap rates have proved resilient and longer-term returns attractive with lower volatility.
Capital is responding with recent surveys of investor intentions, demonstrating a targeted upward in allocation across all major geographies. In Australia, the residential sector is exhibiting much of the same structural characteristics as that witnessed globally. Vacancy rates are materially lower than the other major asset classes, with the exception of industrial, for which we already have a secured development pipeline and are now upweighting our exposure to. Rental growth has outperformed other asset classes in real terms, with nominal rental growth around 130 basis points above inflation over the past 10 years. We have a structural undersupply of housing, with stretched affordability impacting homeownership levels against a backdrop of elevated demand from one of the strongest forecast population growth rates in the developed world of around 1.5% per annum.
Our major cities of Sydney and Melbourne are consistently rated as the top, in the top ten most livable global cities across a range of metrics, cementing their appeal on the world stage. This chart indicatively sets out the component parts of potential investment returns for illustrative purposes. While the initial yields are comparatively tight, the attraction of this asset class is underpinned by strong rental growth, supported by the strong fundamentals Alex outlined earlier. Relative to other asset classes, only modest cash flow leakage from incentives, CapEx, and downtime. This delivers an attractive true cash yield, underlying growth profile, and lower volatility compared to other asset classes. Additional ancillary revenue streams are available via the OpCo for value-added services, which Angela will expand on shortly.
Through the cycle, we'll continue to maximize development margins in the vehicle to compensate for delivery risk and provide a positive spread between the stabilized yield on cost to cap rate, boosting underlying cash yields and providing asset valuation uplift post-stabilization. The balance of Mirvac returns are illustrated on the right-hand side of the chart from investment and asset management services, and acquisition and development management services. The Australian build-to-rent sector is still in its infancy, with only 13 operating assets nationally and a total of around 4,000 units. While we're seeing an increase in development activity, much of the potential supply pipeline is yet to receive development approval or commence construction. If all of the current known or potential build-to-rent supply was delivered, this would equate to around 47,000 units, or only 0.4% of the total housing stock in Australia.
The potential addressable market is significant. In the U.S., penetration rates are at 12%, and in the U.K., they're at 5.4%, with the sector only being established in just over 10 years. By contrast, in Australia, the total completed assets and pipeline of just 0.4% of an approximately AUD 10 trillion total residential market. If build to rent achieves a penetration rate of just 3%, this could result in a AUD 290 billion asset class across approximately 350,000 units, which would be considerably larger than the current office, retail, or industrial investable universe. Mirvac is pioneering the build-to-rent sector in Australia. Having commenced the asset class over six years ago, we are now very well placed with two operating assets and a secured pipeline well under construction.
This operational experience and first mover advantage will continue to provide great insights into site selection, design, creation, and curation of our future assets as we grow our exposure to this sector. We're able to leverage Mirvac's core capabilities, including our rich history in developing residential product, to respond to evolving customer demand in the creation of build-to-rent assets. Our deep end-to-end construction and design capability is invaluable. We can utilize our multi-sector active operational management platform to drive value at the asset level and have a demonstrated track record of delivering investment outperformance across multiple sectors. We believe these factors will provide us with an enduring competitive advantage with which to drive performance and growth in this emerging sector. I'll now hand over to Angela Buckley.
Good morning, everyone. As the team has highlighted today, I'm going to talk to you more about, I think, what really makes up build-to-rent for us, and the commitment that Mirvac has made over a seven-year period to deliver in the asset class, and what we've learned along the way. We have an ambition to lead the category. As Richard said, we have a first-mover advantage, really being backed by fifty years of residential experience, which we can lean on every single day, which the development team will talk to you more about. This truly integrated business and the commitment to continuous learning has really given us a very strong focus on iterating and operating in this space, which we will again, we consider through the whole life cycle.
Our secured and diversified development pipeline puts us in a fantastic position, with all of that pipeline to be operational within by FY25, which provides a meaningful, scalable portfolio and delivery certainty. We have the capability and capacity to grow this pipeline with exposure across Sydney, Melbourne, and Brisbane. Our experienced team and proven platform, we believe, really set us for growth into the sector, and the opportunity and the runway, as Richard has noted, is significant. Importantly, we've invested heavily right throughout the whole business. We've created a market-leading brand in LIV, and we have a truly customer-centric approach to everything that we do.
We have more than 1,100 customers today, and that number is rapidly increasing and will do so over the course of the next year, and have now been operating at Sydney Olympic Park for more than three years, and we're coming up to our first anniversary in Melbourne. And this has really given us great insights, proving our operating metrics, maintaining high occupancy, resident retention, and customer satisfaction. And we have a really strong emphasis on removing the friction points from people's lives and creating a more enhanced living experience, which we'll talk to shortly. It's not surprising to say that ESG is at the heart of everything we do, and build to rent is just an exemplar example of this.
We have, we have a, with it, aligned to Mirvac's This Changes Everything strategy, we've achieved net positive Scope 1 and Scope 2 within our build-to-rent portfolio and a commitment to Scope 3 target by 2030. Importantly for build-to-rent, being able to deliver ESG with social sustainability is one of the greatest opportunities that we see, having driving community, community benefits being central to the LIV offering. Also the opportunity to deliver more broadly across the housing continuum, and doing so with partnerships, government partnerships to deliver affordable housing like we have at LIV Anura.
Importantly, over the last 12 months, we've really, in the successful establishment of our build-to-rent venture, importantly, we've taken the next step in creating an aligned partnership with a developer core vehicle, with very aligned investors who also see the opportunity for us to grow, and doing so in a way that provides great visibility and transparency, and that commitment to grow the portfolio to over 5,000 apartments. Here is a snapshot of the portfolio as it exists today. As I said, we really think about the portfolio as being over three generations, and we were fortunate to have our first project, LIV Indigo at Sydney Olympic Park, which as I said, has now been operational for three years. That again has given us really wonderful insights.
Since the project stabilized more than 18 months ago, and through a COVID period, it's never had occupancy less than 95%. So it's really being able to achieve really great leasing results and customer satisfaction as well. Our first foray into Melbourne is what we really consider to be generation 2 of our portfolio. This is a much more purposefully designed build to rent opportunity rather than a repurposed build to sell development. And again, the learnings, the diversity of the customer and our initial performance results here have been extremely pleasing in outperforming strong market conditions. And now we turn our focus really to what's next.
Within the next 12 months, we'll be delivering two new projects, one at LIV Aston, which you will hopefully get the benefit of seeing today. We pleasingly topped out that project last week, and we're well on our way to completing that mid-next year, as well as LIV Anura, which the development team will talk to in more detail. And finally, Albert Fields, which is also in Brunswick, which is really our first foray into medium density style development within build to rent. You can see here that all of the ESG targets we have across the portfolio are extremely strong. We're market leading with respect to that, and we really believe we have a-- can take advantage of this going forward.
I think importantly, we really believe that this is about creating a new category of housing. This is not just about optimizing renting or trying to bring some attributes of what people, what customers currently only see the security they currently only receive as part of being, as part of being in a build to sell style development or being an owner of a property. That is really about putting the customer at the center of everything that we do. We are really about delivering to those deep human needs: safety, security, connection that really evokes belonging and flexibility that enables individuality. And these are the attributes that really set build to rents apart, and that in the customer's eyes, start to see the value of what we are, what we are delivering and where they can belong.
It is no surprise that if you are a renter in this country, you're not used to being treated as a customer. The current makeup is that really the landlord is the customer of the real estate agent and the tenant is simply the person that pays the rent. And so the benefit of the build to rent model is really about flipping that and putting the resident at the heart of what we deliver and creating an experience centered around that, which we believe will create much more certainty, security for those customers, and leads to ultimately why we have conviction that we can deliver stability in the cash flows over long periods of time. How do we do that? How do we deliver that every single day?
There are-- you can see the attributes that we talk to here, but it's starting really sec-- We know from our customer feedback, offering security of tenure delivers, uh, really, is really important for our tenants. That comes through in a number of ways. It's not just the security of the lease, that the customer can choose how long they live with us for. You can rent with us for three years or for twelve months, but also what's included as well. Having a team on site seven days a week, white goods are always included. You-- we create removal of friction through the renting process. You can seamlessly connect to Wi-Fi. The electricity is on when you move in. We can offer additional services, which I'll talk to in a moment, and you may never lose a parcel again.
And these attributes are really, really important. But I think the way that we design the buildings is really centered around creating connection and that belonging. And in a LIV building, we always say, you're feeling at home when you walk into the building, not when you open your apartment door. And then importantly, flexibility, and that really enables individuality. We don't just welcome pets, we make sure we encourage residents to paint their walls, to ensure that they can hang pictures, that they can really make the home their own, and that we can add on or take off what they don't need.
So if you don't, you don't necessarily need to own a car park to own a car to live with us because we can offer a different solution, and that is all part of the value proposition as well. And importantly, creating third spaces, spaces that genuinely add to the living experience for our residents. I'm often asked about the pricing of build-to-rent and our apartments, and how does that really compare? And I think it's really important to think about it in two components. There is the pure financial proposition for the resident, but then the, how really we think about the other inclusions and amenity and how that really ladders up to, for the individual customer.
I think really importantly here, what we've done is show, and something that we've learnt through the process, is really that we find very regularly, residents are prepared to trade down in order to their size. So while they might rent a two-bedroom apartment in the open market in the build to sell space, they are happy to be in a one-bedroom apartment at LIV Munro. And you can see that quote from one of our customers who relocated from just from Queen Street in a two-bedroom apartment, but have actually found that they feel they have more space at Munro within their apartment because it's well designed, but also because they have access to and they utilize the additional spaces as well.
What we're doing here is just showing really how the value of those inclusions shows up financially. You can see, interestingly, for if we compare just a one-bedroom apartment to LIV Munro at the moment for the September data, where the rent difference purely to the market at the 90th percentile is about 11%, and then to the 75th percentile is at 17%. And that really and it's very quickly, easily able to be seen by where the customers do see the value and what the attraction of that what that is. Once we take the fact that they don't need a health and wellness membership or necessarily a car, that white goods are included, that there isn't an outlay for a bond, the numbers become quite compelling quite quickly.
That is before all of the other inclusions, that are listed below, which are actually, for a lot of people, what really makes the difference and where they see the value. As I said, we have more than 1,100 customers today. This is, we also have a lot of pets, more pets than children, which is an interesting trend in and of itself. Again, we are really using, and having that one-to-one relationship with those customers to really understand their living preferences, their experience, where we can continue to evolve and improve the offer, and, you know, testament to our incredible team who deliver a really wonderful experience, and it comes through in the customer feedback that we have.
We've made a really strong commitment to delivering right across the whole spectrum of the living experience, and a big important part of that is actually digitizing the experience. So our residents don't have keys. Everything is electronic. They can do much of what they need with our purpose-built Mirvac app, whether that be to collect a parcel, to book a space, to have a request for a repair or maintenance that can be done on site, to attend an event, and to get to know their neighbors, or simply building information. Which interestingly, was built through AI technology, which has enabled us to for there to be an on-demand concierge for our residents through the app at any point in time, which we get wonderful feedback on as well.
And then the insights that this information is really giving us in terms of understanding then how many bookings are being made, how those customers are using those spaces, what is popular in each of the different projects, and why, how attendance at events might lead to retention rates. And then also, areas like car bookings, where our residents are able to have on-demand access to their own car share services as well, which has had incredible take-up and is already delivering ancillary revenue for us.
I'd just like to end on, I think, some of the really important learnings that we've had over this period of time, and really how we try to implement those in real time, and that those are coming through into the development projects, and the benefit of that cycle. The first is really around partnerships. So while Mirvac has an end-to-end capability right across the board, we are certainly also about making sure that where appropriate, we work in partnership with others who are subject matter experts. As I said, at LIV Munro, we have two resident-only Tesla EV vehicles in the basement, and those they have had incredible take-up. They have been used every single day since we implemented them.
And the latent demand is significantly more than we expected, and it really, again, for the car saving amount that someone has, they could use that car for 30 hours a week under the subscription model. So it's really easy to see how it starts to create value for the customers. I think the other important part is really considering that life cycle assessment right through the project, and really, what are the operating expenses at the other side of that development phase?
All that is, every single decision that we make in the development phase has an impact through the operating period, and making sure that we're considering the whole life cycle assessment of that, and we know that that will be important in terms of the resiliency of the returns, and that, and that, that CapEx profile that Richard spoke to earlier. And while we've really digitized the living experience for our customers, I, by and large, can tell you that the value that the on-site team brings and how important they are to driving customer satisfaction is so paramount. And you'll meet some of the wonderful LIV Munro team there today, and you might even run into Jackie, who is one of our residents, who, interestingly enough, moved out of a retirement village to live at LIV Munro.
And then finally, I think it's important to understand our approach to amenity. Amenity spaces is really about creating and improving the everyday experience of people. It's not about creating grand spaces and having, you know, what we refer to as an amenities arms race. It is about making sure that those spaces have maximum utilization, that they're very well designed, that they're tech-enabled. Our dining room can be a meeting room by day and a dining room by night. The studio is used for a myriad of different reasons and purposes, and therefore improving that accessibility for our customers and having that utilization, we know is a really key part of resident retention. Thank you. I'm handing to Scott.
Thanks, Ange. Good morning, everyone. As you are aware, our funds management offering has expanded considerably in recent years and is now an important part of our overall group strategy. We recently reorganized our corporate structure to ensure that we have market-leading corporate governance and has been well received by both our existing and our potential capital partners. Our focus is on leveraging our in-house asset creation and asset curation capabilities to form aligned partnerships with growth-minded capital in areas where we have deep operational capability and high conviction. We added three new aligned partnerships over FY 2023, including our BTR venture, and grew our third-party capital under management by AUD 7 billion to AUD 17 billion. As Ange touched on, we're proud to have launched one of Australia's first operational build-to-rent ventures with key cornerstone investors, including Clean Energy Finance Corporation.
The venture comprises Mirvac's operational build-to-rent assets, including LIV Indigo in Sydney and LIV Munro here in Melbourne, as well as three pipeline assets with around 2,200 lots in our secured pipeline, with an expected end value of AUD 1.8 billion. Mirvac owns 44%, of the venture, with the other 56% owned by our aligned long-term capital partners. Our new BTR venture allows us to accelerate our growth ambitions in this sector with aligned capital partners, who will partner with us in the funding and delivery of our secured development pipeline, as well as in the purchase of future development sites. This partnership frees up capital from the Mirvac balance sheet and allows us to get to scale faster.
The BTR venture is serviced by our operating company under the brand LIV, which will manage the investments and the assets, while Mirvac will provide development and construction services on behalf of the venture. Mirvac has retained 100% ownership of the LIV operating platform. The platform has been created with future scale in mind and spans property management, leasing, customer and brand, technology, and finance. The platform has been created over our six-year build to rent journey, and the operational expertise and learnings across this capability is a considerable point of difference in what remains an immature asset class in Australia. In the BTR context, our LIV platform typifies what we would describe as deep operational capability that sets Mirvac apart. As the face of LIV for our customers, this platform is a critical component in the quality of our residents' experience.
The feedback loop from the platform contributes to the evolution of our offering and is highly scalable, providing opportunities for consolidation in what is a highly fragmented sector of subscale players. Mirvac generates numerous fee streams from this platform, including property management and investment management, while our broader development capability also generates development management and construction service revenues. As this platform scales up over time, it has the potential to generate meaningful earnings contribution to the group and to generate value creation for our shareholders. We see considerable scope for growth in our funds platform over time, with the opportunity to further grow initiatives across the living sector spectrum.
Our deep operational capability, leadership across the sectors we choose to operate in, our ability to create and own our own product, along with our strong focus on alignment and corporate governance, are all important points of difference, which will continue to attract like-minded and aligned capital partners to the platform. Going forward, we'll continue to expand our funds management offering via our existing vehicles and also across a broader suite of asset classes and product types. We'll continue to utilize the depth of our asset creation and asset curation capabilities. This will allow us to deliver higher returns for investors and accelerate value and capital being unlocked from our deep development pipeline. Pleasingly, in the living sectors, we are seeing strong tailwinds forming in the, in the medium term.
With an acutely undersupplied market, strong migration trends, and tight vacancy, we are confident that we have the pipeline, the brand, and the track record to take advantage of these opportunities in the coming years. I'll now hand over to Stuart Penklis to outline the development opportunity in BTR.
Thank you, Scotty, and good morning, all. As you know, the development skill set at Mirvac is key. With over 50 years of experience, that skill set is more important today than it has ever been. Our deep integrated development platform is a key competitive advantage and a major driver of considerable value to shareholders across commercial, mixed-use, and residential, creating new, modern, sustainable investment assets, delivering development earnings to our shareholders. We are renowned for our quality, independently recently reflected in our five-star iCIRT rating, the first five-star rating to be awarded in Australia. The diversity of our platform provides resilience of earnings through the cycles, and our recent consolidation of the development division into one united team, as mentioned earlier by Campbell, drives efficient capital allocation, ensures we are fully leveraging our skills across the platform, and provides unparalleled opportunities for our people at Mirvac.
We have an innovation focus reflected in our push into prefabrication and digitization, which is driving efficiency and safety benefits, and you'll be able to see this firsthand on the tour, particularly at LIV Aston. We are taking a more selective approach to development in the current environment, placing AUD 1.8 billion of office developments on hold. This integrated model has created over AUD 1.3 billion of value over the last 10 years in commercial and mixed-use alone, created over AUD 6 billion of assets for our balance sheet and capital partners, including our two operational BTR assets. This is part of the reason we have one of the most modern, sustainable, and high-performing investment portfolios in the market. This deep experience and capability and alignment of interest drives benefits across site selection, design, procurement, managing construction, and planning risk.
It also helps us to deliver positive sustainability outcomes and maintain high-quality standards for our customers. Our success in pioneering the BTR asset class in Australia has been underpinned by our prior learnings across residential and commercial projects, and leveraging skill sets across the wider team. I'll now pass on to Sarsha. Sarsha, who will, who is our Head of BTR Development, to provide some further color on our BTR development pipeline. Thanks, Sarsha.
Thanks, Stu. Thanks, Stu. We've now been developing build-to-rent assets for almost seven years, and having created two of the first assets in the country, there have been considerable learnings we've been able to benefit from. With access to constant feedback loop from our customers and data sets from two distinct assets, we can implement changes we believe are necessary in current and future design, all of which is possible with our in-house design and construction teams. This has been demonstrated in our lobby design at LIV Munro, which we carefully considered. Taking on learnings from Indigo, we worked through a number of iterations to get the design just right. The lobby's open plan, with a casual concierge desk, which allows for interaction between the community team and residents, creating a comfortable lounge-like environment where the residents can congregate.
The design provides the perfect environment for incidental interactions as residents come and go from their apartment, and we have had many successful events in the space already. Also, we found that co-working is one of the most utilized amenity spaces at Munro, which is already a big step up from Indigo. We are now further enhancing our assets under development by adding additional meeting rooms and desks to cater to the demand. Lastly, modular construction creates valuable savings in cost, time, and waste and ensures a very high-quality finish. Our bathrooms are created in an off-site factory under controlled conditions, with all of the tiling, plumbing, fittings, and fixtures installed. Then the pods are craned in, reducing the need for numerous subcontractors during that busy finishing phase, where there's a lot of wet trades typically.
Our design team continue to evolve the layouts of the pods, and we can use our scale to forward-order these pods across our entire residential development book of projects, delivering considerable savings. Developing with ESG is the heart of everything we do and has truly become more important to the industry, partners, and residents. Our socially aware residents expect more than just token sustainability measures and are making decisions based on their values. LIV Munro has a strong sustainability focus, targeting an 8.1 NABERS rating. From sustainability by design in how we activate our spaces and provide communities where people can age in place, sustainability in the positive choices we empower our residents to make every day...
Across our build-to-rent portfolio, we're eliminating gas, installing solar panels, and buying 100% renewable power through embedded networks, as well as targeting Green Star points that improve air quality, access to daylight, and thermal performance, all of which optimize the consumer's living experience while reducing energy use. We're installing EV chargers for car sharing and upgrading our substations to cater for the future transition to electric vehicles, and providing one-for-one bike parking and access to scooters to encourage alternate modes of transport. Looking now at our current development pipeline under construction. This is our project, LIV Aston, which we'll all take you on a tour today, as the previous speakers have advised.
LIV Aston is located on the corner of Spencer and Flinders Street in the Melbourne CBD, and will set a new benchmark for build-to-rent developments in Victoria, and will cater to customers that are seeking a frictionless lifestyle. This project has just topped out, as Angela mentioned, which was very exciting, and is due for completion mid-2024. It will include 474 apartments, 20 of which will be provided as affordable units, with which the LIV team will manage. There will be 670 square meters of ground floor retail, which is focused on food and beverage, and services used and service uses aimed to complement the residential offering.
The whole of level 5, over 2,000 square meters, is dedicated to resident amenity, with a focus on health and wellness, and includes co-working, cinema, pool, gym, saunas, and a pet park, of course. There are also communal areas for people to entertain friends and family, with our level 32 private dining offering spectacular views down the Yarra River, which we'll have the benefit of showing you on the tour. LIV Anura is our first project in Newstead, Brisbane, and includes 396 apartments and 1,200 square meters of retail. The project is part of a pilot program with the Queensland Government to deliver high-quality, tenure-blind housing for key workers. 25%, or 99 apartments will be offered to people with locational needs who work in professions such as healthcare, emergency services, or education, and satisfy the state's eligibility.
The apartments will be leased, managed, and operated by the LIV team and spread throughout the building to ensure diversity. The key workers will have full access to all the building amenity, which includes pool, sauna, co-working, pet park, and resident lounges. LIV Anura is currently under construction and is due for completion mid-next year. Finally, LIV Albert Fields. LIV Albert Fields is 6 kms to the north of the Melbourne CBD in Brunswick, which has a really strong arts and live music scene, while being highly connected and multicultural. Albert Fields is a mid-rise project of 498 apartments on a 1-hectare site, surrounded by 20 hectares of parkland. The project will include 15 affordable housing units and retail activating the ground plane.
The amenity at Albert Fields is curated to target our target customer, the progressive humanist, who lean into sustainability and seek out others led by community feel. There is over 2,600 sq m of internal and external amenity, including gym, co-working, a workshop, and a communal laundry, which is a bit different from our other assets, rooftop dining, and kitchen gardens. LIV Albert Fields will be 100% fossil fuel-free and is our first project targeting five stars under the new Green Star Buildings tool. We started construction earlier this year, and we are targeting completion mid-2025. I will now pass across to Stephen Gould, our GM of land lease, sorry, to walk you through the land lease sector. Thank you.
Thanks very much, Sarsha, and good morning, everyone. It's a real pleasure to be here with you today, and also online. So my name is Stephen Gould. I've been given the exciting opportunity to lead Mirvac's launch into the land lease sector. I've been at Mirvac now for just under 18 years, and I'm really looking forward to seeing Mirvac write the next chapter and really push hard into the living sectors. So over the past 12 months, we've been advancing towards establishing our land lease platform with a focus on land that we control or we own within our residential MPC business. So today, I'll provide an update on the progress that we've made, as well as providing a high-level overview of the land lease model and why it's so attractive to Mirvac.
So first, on the land lease model, and this might be known to some of you already through investments in other platforms, but at a high level, land lease creation involves the creation of purpose-built communities for downsizers who want to live in an inclusive and safe community alongside other like-minded people, and they're designed to promote a physical and mentally active lifestyle. As the developer of a land lease community, Mirvac retains ownership of the land and the community facilities while the customers enter into long-term lease agreements for specific areas within the community upon which their home is located. The customer buys the home from Mirvac, which releases a development profit to Mirvac, and the customer then pays a weekly rent for the land that the house is situated on.
Each resident in a land lease community is responsible for the maintenance of their own home and ensuring that externally, it continues to meet the standards that are set by the developer. And the developer's obligations are to ensure the community facilities are maintained to a high standard, and includes, which includes the upkeep of the common area, landscaping. So under the long-term rental agreements, which are commonly referred to as site agreements, the rents are escalated annually, generally in line or slightly above CPI. When residents exit a land lease community, there's no- generally, there's no deferred management fees or exit fees, although some operators do have these arrangements. But where they don't, what it means is the customer retains all capital gains, and this is a key difference between retirement villages and land lease.
When customers enter a land lease community, they buy the house. There's no stamp duty payable because the purchase of the house is considered a chattel, and there's no stamp duty given that the relocatable nature of the homes. For customers who are eligible to receive the Commonwealth Rental Assistance, which is normally a high percentage of land lease customers, a portion of their weekly rent is funded by the Australian government. One of the pathways to qualify for Commonwealth Rental Assistance is being eligible to receive the age pension, and this requires satisfaction of two tests: an asset test and an income test. The income test is generally satisfied because these customers are generally retired persons or retired couples.
On the asset test, however, in the case of a couple, they need to have financial assets, so financial assets are things like cash, shares, superannuation, valued at less than AUD 986,500, so it's quite a lot. If they've got less than that, they qualify for an age pension or part pension, and importantly, the value of the home that they're buying is excluded from that asset test. So Commonwealth Rental Assistance for a couple is AUD 74 a week and AUD 78.50 for a single person. So assuming a AUD 200 per week rent under a land lease site agreement, almost 40% of the rent is funded by the Commonwealth Government. So that, from an investment perspective, that's quite appealing to us.
So the combination of low risk, secure, passive, recurring income with embedded contracted, rental growth together with development profits and the recycling of capital through the sale of homes provides the basis of a real compelling investment proposition. Coupled with the strong tailwinds driven by our aging population, the low penetration rate, within an emerging sector, the government support of qualifying customers through the Commonwealth Rental Assistance, virtually, no vacancy, no downtime, and limited arrears risks, and low CapEx and incentives, we think land lease provides our security holders with a really favorable risk-adjusted investment return profile. We think the size of the market opportunity in the land lease sector is significant, with the population older than 55 years, of age, expected to almost double over the next 40 years.
Penetration within the sector is relatively low compared to the retirement villages sector and the manufactured housing market in the U.S. As awareness of the land lease sector in Australia grows, and as the quality of the offering improves, growth in the land lease sector will accelerate, driven by the combination of the larger population of over 55s, together with the expansion of the market share. The land lease sector is rapidly evolving away from its cottage industry past and becoming a meaningful institutional asset class. As well as being a highly compelling investment proposition, land lease also provides a compelling customer proposition through lifestyle, financial, and social benefits in an environment which is supported by the Commonwealth Government and aligned with government policy.
Customers are able to downsize from their family homes and use the equity that's released to purchase a modern land lease home in communities which have resort-like facilities. Homes within land lease communities are purposefully designed to offer low-maintenance living, which for many downsizers, is a key attraction, with no lawns to mow and gutters to clean. A key aspect of the customer value proposition in land lease is the social connection on offer. Customers trade off or trade away the need for large backyards and are instead provided access to community facilities, which open up opportunities to interact with their neighbors in a way that would have been difficult in the family home.
The community facilities are generally extensive and can include swimming pools, spas, gyms, saunas, industrial kitchens to cater for large gatherings, tennis and pickleball courts, lawn bowling greens, cinema rooms, dining rooms, games room, craft and hobby rooms, golf simulators, communal gardens, and we're even seeing bowling alleys being incorporated into these communities. There are many ways that residents can choose to remain connected to others in a land lease community and to make new friends, whether through informal bump-ins or participating in organized events or activities, which are normally curated by the resident-formed social clubs within the community. Many land lease communities offer on-site storage for caravans, as many downsizers will lock up and leave for extended periods, and having a low-maintenance home makes this easily achievable.
For older people, physical security becomes more important, and particularly so for single people. The safety offered within a land lease community through perimeter fences, vehicle access controls, and CCTV coverage enhances the customer proposition further. I've already mentioned the financial benefits through no stamp duty and the access to the Commonwealth Rental Assistance. Land lease homes are generally very affordable and normally sold at a lower price to the surrounding market, adding to the financial benefits that the customer receives. On the housing supply side, when downsizers move from their family home and into a land lease home, they're freeing up a home for first home buyers and upgraders to help solve Australia's housing shortage. Mirvac has many of the building blocks, internally, to establish a presence in the land lease sector, including being an existing land owner.
Mirvac has over 50 years' experience in the residential development sector, with a strong brand and thousands of existing customer connections, all of which will assist in establishing our presence in the sector. Prefabrication of entire homes or elements of homes offers future benefits within the sector, and Mirvac has experience in prefabrication within our residential business, and that knowledge is transferable to land lease. Our first land lease project will be located within our Everleigh MPC project in Brisbane, and a global site of just over 11 hectares has been identified, and planning works are underway to bring this site to life, which will initially require a change of use application being submitted to the approving authority later this year. Everleigh sits within the Logan LGA and will benefit from a large potential customer base of downsizers in the surrounding region.
Significant amenity is already being invested by Mirvac into our Everleigh master planned community project, including sports fields, a wetland park, and a future town center. Future residents of our Land Lease community at Everleigh will have access to all of this amenity, in addition to the facilities that will be delivered within the community for the benefit of the Land Lease customers or residents only. The site that we've identified for Land Lease at Everleigh will provide customers with a sense of privacy, but also remaining connected to the broader master planned community, with fantastic visual connection into the adjoining future wetland park and conservation forest area. As Land Lease is targeting downsizers, there's minimal cannibalization of residential demand by our Land Lease project, given residential master planned community projects typically target first home buyers and upgraders.
So land lease is complementary through this incremental demand that it generates. We're excited about bringing this project to life and creating a very attractive community for our future residents at Everleigh. Aside from this first project, we're also looking at unlocking additional land lease opportunities within our MPC portfolio, and we hope to talk about those at a later time. So we look forward to the growth of our exposure in this really attractive asset class over time, and we'll now open to questions from the room and via the webcast. I'll be joined by Courtenay, Richard, Stuart, and Angela. So thank you.
Great. So we'll just move to the Q&A session now. I'll take questions from the room, and obviously, any of those in the webcast, please send them through, and I'll ask the questions out as well. Thank you. Lauren, I think Lauren was first. Lauren. There you go, loves. There you go.
Thanks. Morning, everyone. Are you able to talk about what percentage of your capital you see allocated to the entire living sectors over time, and also whether there would be any additional capital partnering opportunities in land lease? Thank you.
So maybe I'll start with that one. So our plan, I think, as we've spoken about it at, in April and again at the full-year results, is to grow our allocation. We haven't set a target yet. The natural growth you will see just through the development pipeline we've got in BTR, so that's roughly 3% now. By the time we get to 2,200, that's sort of getting close to 5%, and then we have an aspiration of growing to 5,000, so that'll start to give you a sense of where the allocation is going to.
Land Lease, we certainly have high expectations of growth and, to many in the room, we've mentioned in the past, we will look organically and also inorganically if opportunities exist to help us, and we'll largely do that by funding over time, via the disposal of some of the older office assets, with an aim to maintain our office portfolio, with a real focus only on the premium grade stock, which is roughly 50% of the portfolio at the moment.
And, more capital partnering?
Capital partnering, I think you should... We're a big believer in capital partnering, across the board. We think it frees up our balance sheet, gives us a lot of flexibility, and it gets aligned capital to work alongside us. Yes, potentially.
... Thanks. Thanks, guys. Just a question for—on land lease. You've got one project here, Everleigh. It's obviously early days. Do you expect to activate that across all the land bank of your master planned communities going forward? And similar to one of your peers, bring in a capital partner to accelerate that. And on that same vein, would you look at a platform to accelerate that entry into the market? 'Cause it takes time to get scale. So I know a few questions there, but all land lease focused.
Maybe I'll address the, I guess, the organic pathway. Yeah, we are looking at, you know, all of the land that we own. Real focus on the East Coast. There are some planning constraints in the Sydney Basin, so that's probably gonna push us more into the Victorian market. But we're gonna start in Queensland, which has traditionally been a pretty strong market from a land lease perspective. And, you know, we think that the Everleigh project is well located and should be quite attractive from a customer perspective.
May I just add, I think the team has identified 6-8 sites already across the portfolio that they could develop into. That will happen over time. As you've heard from Gouldy and Campbell even today, we like the sector, and we want it to be material for the group. For it to be material, we'll look at opportunities. What you're hearing today is the opportunity on our existing platform, which I think we've got the capabilities to deliver. Getting to scale is interesting for us, so we'll look at those opportunities.
You would look at external and also capital partnering to accelerate. Is that a fair comment?
Potentially.
Okay. And then just finally for me, on the build-to-rent stuff's great because you've been a first mover. There's no. In commercial, you make a lot of profits, Campbell, and historically, the spread. It looks like build-to-rent's not a lot of development profit, but more fee and income-based and more total return driven, as opposed to the upfront development. Is that a way to look at it?
Yeah, I think that's probably a fair assessment. I think when we look across the developing activities in Mirvac, build-to-rent probably is at the lower end of development return, if you're looking at return on its own. But if you look at the quality of the income stream that's created, it's probably one of the better quality income streams. So for us, it makes a lot of sense to keep investing from our, MPT perspective because it's good, secure, long-term income streams with low volatility, which goes to the resilience in income that we are looking for from Mirvac Property Trust. We're looking for capital partners to help us on the developing side because the returns are a little, lighter than we have in other areas of the business.
However, this is all about growing long-term income streams, and we need a like-minded capital, which we have, to join us in, in that pursuit.
Thanks, Campbell and team. Thank you.
Yeah, just following on Lauren's question, how capital light do you see the living sector being, or the strategy being when it fully matures?
Well, maybe from a capital light perspective, if you take our full year results a few months ago, we are spending on average AUD 88 million a year in tenant incentives across predominantly office and, and retail, and we're spending roughly AUD 44 million in maintenance CapEx. As we allocate more capital to these sectors, we think those numbers will diminish over time, which means that the capital efficiency of our business should get better, which means the cash flows from our business become a little more secure, a little more regular, without those heavy CapEx burdens that come from tenant incentives, incentives and maintenance CapEx.
If you think about the BTR business, you guys are 44% of the business. Do you see that being steady for the next few years, or over five, six years, will that be down at, you know, 10, 15?
Oh, look, we're looking to grow the business as we've said. So capital, we still need capital to grow out the build-to-rent part of our business. And LIV needs to get to scale. We're obviously on a pathway to 2,200 apartments with an ambition of 5,000 apartments. It's gonna take time. You know, this is a sector that doesn't exist in Australia really yet. And so this is a develop to core strategy. It's gonna take us time. But we have like-minded capital that wants to get there with us.
Cool.
Thank you. Good morning. Thanks for hosting today. David Pobucky from Macquarie. Just in terms of the timeline around the 5,000 apartments, what are your thoughts around that timeline? And, you know, is, is there enough opportunity in the subsector across all the players, given the structural tailwinds, or would you expect constraints, like more competition for land, et cetera?
I think in terms of the pathway to 5,000, we definitely see being able to secure and have that pipeline operationalized by 2030 as an ambition, and the one we see being executable as well. I think that the market is in an interesting phase right now, just with respect to the number of... There's a big difference between the number of genuine participants that have built and developing product as compared to what is early planning or even just approval pipeline. So I think the sector is in a stage of maturity, certainly, but there's that, you know, as Campbell said, there's a long way to go, but a quite significant runway and opportunity, and we certainly feel we're really well placed to be able to deliver on that.
... Thank you. Just second one for me, if I could please. You spoke a bit about building scale in land lease. Can you speak to how investors should be thinking about returns for that part of the segment at this early stage?
Yep. So, sort of a yield on cost of between 5% and 5.5% for an established Land Lease project. Rental growth of, you know, minimum 3.5% or CPI, whichever is higher. And from a sort of a development perspective, generally targeting a normal development IRR return.
Good morning. Lou Pirenc from Jarden. Two questions, one on build to rent. Can you talk about the affordability issue, and how are you gonna balance, you know, delivering returns for your investors versus the political pressure of, you know, we need more affordability? Can you, you know, link to that is, you know, you talked about one project, 25% for essential workers, other projects, 15 units out of 400. How do you determine? Is that just to get the DA approved, or is there more thinking behind it?
Yeah, I might answer the first question or the second question first. So, certainly it's a range of different scenarios with respect to what ends up being the total quantum of apartments that might be affordable, and also the range of that affordability in terms of addressing perhaps a medium- or medium- to low-income earner as well. And that really is dependent on... Some can be planning driven, so it can just be that we will dedicate to provide a certain percentage at a certain discount for a defined period of time, and that, of course, is then considered as part of the overall metrics and return of the project.
But then at the other end of the scale, there is obviously the opportunity to work more in partnership with government, and Anura is a great example of that, where we can provide a more meaningful contribution to a more diverse customer base. So we see build to rent as being really in a great place to be able to deliver probably to what we call the missing middle of people that don't necessarily need income support in any way, but do need to be located ideally close to the where they work.
So I think we're, you know, we think that there's really great example—Anura is a fantastic example of that as a project, in that we're two kilometers from the CBD, 100 apartments that will—close to 100 apartments, that will be delivered for exactly that cohort. And that is really important in terms of creating sustainable and productive cities as well. But it is difficult to do without government partnerships. So I think the, you know, the great part about that is, obviously there's a lot of dialogue in play now, and I think the opportunity to continue to work in partnership going forward, particularly as we talk about the housing targets, is good, and we are well placed to be able to deliver on that as well.
Certainly, I think we recognize, and Alex's research also really shows, that there is, you know, a very big addressable audience beyond what our current Gen 1, Gen 2 product type is, and we are really focused on trying to broaden that out. That will come from a range of product typology as well, and certainly that conviction that we have, that people are prepared to trade down some private space in order to perhaps have a more affordable solution when you can complement it with a level of amenity. Not as, doesn't have to be ridiculous amounts of amenity, but just meaningful, meaningful changes. So there's an element of product and also location, and within the developments as well.
It is something that I think we recognize that, you know, we can address a much larger audience, and as we scale, it becomes even easier to be able to do that as well, which we think is important.
Great. And then just as a second question, how should we think about operating costs, particularly with land lease, kind of a new business? Is that all just part of the broader development residential business, or should we expect a ramp up, a step up in building a team there?
Yeah, look, from a development perspective, I think the one conscious decision that we made, and Campbell alluded to, was bringing all the development skill set together. And if you look at our platform, being able to leverage those skill sets across the entire business, we see as a true competitive advantage moving forward. And that's not just from a development perspective, it's from a procurement perspective, it's from a design perspective, and it's really leveraging, I suppose, that uniqueness of the Mirvac diversity to deliver value.
We will continue to push, and I think one of the great slides that was up today was just showing that diversification, particularly in living, anything from land subdivision, to detached houses, to attached houses, mid-rise apartments, high-rise apartments, and sort of everything in between, is truly unique, and delivers enormous competitive advantage to not only the business, our people, but obviously our investors as well.
Sorry, can I just add, from an operating platform point of view, it's very important, obviously, to build to rent. We retain that operating platform for the moment, and we think it's important to create value, will create value over time. We've stated before that we don't think really that gets to a break-even position until it gets beyond our current pipeline. So between 2.5 and 5,000, it will get to a break-even position. So we're funding those operating costs for the short term, but we see the value that will get created in the long term. I think land lease is early days for us. We've got one project. We're not sitting around establishing a massive team that's burning costs.
Gould is doing a great job getting Everleigh off the ground, and that's our focus at the moment.
... We do have a quick question online. Just, I'll, we'll pass over one second. Just following up on that comment, Courtenay, about the build-to-rent operating platform in terms of the break-even, you answered that. Just where the earnings might come through in the PNL for the OpCo?
All of that is in the funds segment, so in asset management. So Tori, Victoria Tavendale, who's here today, she's responsible for delivering the property management, asset management platform into the build-to-rent business, and it'll all sit within that line in our segment reporting.
I was just wondering if you can comment on the lease terms for build-to-rent. So if someone takes a three-year lease out, for example, do they have fixed escalators in that? And how much would you capitalize on rents that are supposedly 20% up? Like, would you put a 20% rental increase on one of your tenants? And lastly, all related to this, how do you manage credit risk and evicting tenants if you have to?
Yeah. All great-- all really great questions. The-- so, in terms of the-- if you have a multi-year lease with us, then, the-- effectively, the, within the lease, there is, a mechanism where the rent will be reviewed one of three ways, and, it's written that it's the greater of, so it'll be the greater of, a CPI or a fixed percentage, which, we have nominated in the leases at 4%, or, in Melbourne, for example, it's the RPI, which is Rental Price Index, and that tracks to the performance of the rental market. So across those mechanisms, that then results in, what that, what that, twelve-month review is.
Of course, that'll, you know, that is from a resident perspective, they have some level of certainty of what that is going to be, albeit there is exposure, obviously, to market conditions, which they would be exposed to otherwise. Also then enables that, you know, I guess part of the investment thesis that we are able to, that, you know, that given—even though you might have a multi-year lease, you're still having that kind of inflation benefit as well. I think with the review process and obviously just thinking about how we best manage this, it is a case of, one, obviously really trying to optimize cash flow, and valuation, but obviously in a way that we think is really sustainable as well. You know, the...
That is about being really transparent with our customers around what the market performance is and, therefore, at what the review process is and why, and, you know, having conviction in the overall offering and the difference that it has relative to a typical rental experience. We've seen resident retention rates more recently higher than we probably anticipated, and probably that's a reflection of, you know, where the market performance is right now. You know, ultimately, it's about also being fair and reasonable, and we know that there might be times when churn can be higher, and therefore, we might achieve greater leasing spreads on a new deal. Obviously, achieving that high levels of occupancy are really important as well.
It's a balancing act.
and the people-
Oh, we go through, again, I think, obviously, part of the integrated model, we go through, effectively a due diligence process across each and every resident that applies with us. That means that, you know, you do what we do, you know, an equivalent of a credit check. We're making sure we check rental history, check employment history. There's reference checks undertaken as well, to try to create that, to create certainty around that. And of course, the last thing we would wanna do is put someone into a tenancy that can't afford that tenancy as well. That only creates future problems for us. So it's very much an approach of all of that being considered, as part of that.
And then, you know, if a resident's not right, it's better to reject them upfront than to have to deal with it later, and that's certainly our approach.
Angela, this might sound like a premature question. I'm just thinking sort of 15 or 20 years' time, when we develop an office building, we often look to move it on, in that kind of timeframe. With this kind of product, you've got a brand to consider as well. I just be interested in what thought process you have over that timeframe, and I'd sort of put the same to land lease, which I appreciate is even more premature, but...
I think one of the one of the benefits of being a single asset owner and our approach to, I guess, long-term life cycle maintenance as well, you know, it's unlike an office building where a lot of that capital is actually being dependent on the tenant and when they're coming and going. And, you know, we we obviously forecast what our turnover costs are going to be at a period of time, but also as we think about repairs, renovations over the cash flow period as well, we're able to do that much more strategically, and that brings back in the benefit of the in-house model in that procurement process as well, and I think a much more sustainable way to do that.
You don't necessarily have to. You're not ripping out a fit out every time a tenant's moving on. We're adapting the building over time. And, you know, certainly, I think when we're designing up front, it's the same principles. We, you know, think about that long-term ownership and really applying that in the development phase, which is, you know, goes part to why the development returns may not necessarily be as compelling in day one, because you're actually preserving the returns over time as well. So, and, you know, I think ultimately, that, you know, better, better environmental outcomes and, and ultimately, hopefully, better financial returns as well.
I think that, you know, we can see when we look to the more mature markets, particularly, you know, in the U.S., obviously, that's going through a cycle of kind of uplift and renovation and changes, and, I think, you know, obviously, that we're a long, long way away from that. But we have conviction that when we take the long-term view today and make the right decisions today, that that will serve us well for where we go in the future.
... Maybe I could just follow on, Angela, and ask a bit more. I'm interested in the-- Sorry, I've cut off the question, Steve. I'm interested in the expected OpEx of the build-to-rent over the long term. You know, obviously, you've got a lot of leases per square meter, you have a lot of kitchens and bathrooms, deteriorating. How do you compare on your expectations on, it's obviously early days, the build-to-rent versus other asset classes in terms of an OpEx perspective?
Yeah. I mean, I think we think about OpEx and CapEx as two very distinct buckets. I think that's really, that's really important. And, you know, we definitely see, I categorically can tell you there are operational benefits, operating expenditure benefits, if we think about those through development phase. So that is, you know, how, how... I know it sounds simple, but how often-- how many times a year are we gonna have to clean the windows? The facade matters, the windows matter, the way that we-- all the finishes that we use, have a, can have a direct impact. Where we, where we locate the waste and how easy that is for to be moved, all of these considerations, how quick- how will people use the spaces?
What efficiency do we get through the towers, through the lifting, through security on that, and then how that impacts ongoing security. You know, I sense, my sense is that it's taken us a good period of time to really learn that, to hone it, and to be able to accurately forecast it going forward as well. And I think it'll be interesting to see how the market truly adapts to that as the market also learns that as well. In terms of operating expenses for the projects, you know, they really vary, and but it's fair to think about it in three distinct buckets. One is obviously your statutory costs, which...
Your insurance costs, the what we call the controllable expenses, which are really about that cleaning and maintenance, security, and then the management costs as well. They will roughly split out to about a third of the total operating expenses. Then, that can range between, sort of, you know, between sort of 20, early 20 to even up to 30% of the total revenue that we achieve each and every year. Then, for CapEx, we again take a lifecycle view, so looking out over that sort of, you know, 20-year period, and then obviously, really accounting for that, obviously, within our DCF assumptions as well. You know, Rich talked to that, you know, roughly looking around 50 basis points on a, on as a proportion of GAV over that long-term period as well.
We are continuing to learn every single day with respect to that.
Campbell, can I just get you to clarify your answer to Lauren's question earlier, just about the 50% office? Is that using office as a funding tool, and it'll be 50% of group assets? Is that what you were saying?
Yeah, look, I think we've, I think the way you should read that is that over time, we will be reducing our exposure to office, but we still like office as an asset class, but where we found the best performance in office is in premium grade. That's approaching 50% of our portfolio now, which is one of the highest on the street. That's an area we wanna focus on when it comes to office, and over time, I think you'll see, as you've seen us done pretty much every year over the last 10 years, you'll see us continue to dispose of older real estate to fund the next generation of income-producing assets, whether it be build-to-rent, industrial, office or land lease.
Sorry, so 50% of your portfolio, the office portfolio today is premium?
Premium. That's correct.
The rest is saleable, is it?
No, I'm not saying that. I'm saying over time, over time, our focus is to own premium-grade real estate. We've got a lot of really good quality office buildings, which is not premium grade, but in great locations. That doesn't mean that we'll be selling those anytime soon. But what I'm saying is that the thematic that we're investing to, is over time, we will reduce exposure to office and grow our exposure to the living sectors and industrial, and we will do that via a couple of ways. One is retained earnings, which we retain in our payout ratios, which you've seen over many years. And the second will be reallocating capital away from older office buildings, which you've also seen us do pretty much every year over the last seven or eight years.
Angela, I think you've had the same five BTR owned and sort of completed and development assets for probably 18 months. Just wondering, is that a deliberate strategy to prove up the asset class internally, or have you kind of just not seen acquisition opportunities to top up that pipeline?
I think it's a combination of three factors, really. Certainly, you know, we've got a dedicated new business team who are actively assessing market opportunities and really have been doing so for a period of time. We've certainly been prudent through the last part of the cycle and in understanding a lot of those operating metrics that I've spoken to, you know, making sure that we're considering that as part of that process. But we've obviously been very focused over the last 12 months in establishing the venture. That was a really important step in this growth plan and making sure that, you know, we had aligned partners with us who are ready to capitalize on the next stage of the growth plans as well.
And making sure that, you know, when we're standing behind something, as we've, you know, have been, that, you know, we really, we have the commitment to doing so as well. So, and the last 12 months, particularly, have been really important in terms of, in terms of being able to do that and prove up those operating metrics. So I think, you know, we're at a really exciting point now, in terms of going forward and, and the next stage of that growth towards that 5,000 apartments.
And most of the active developers are seeking capital to fund their pipelines, which, you know, you've obviously got, but they're not all gonna get. So do you think you see yourself as a consolidator of some of those platforms that maybe can't get equity?
... I think there'll be consolidation in the sector over time. You know, there's a stated 28 platforms today, which either have an aspiration or, you know, to participate in the market. But really, when you look closely, it's probably the kind of really active participants are significantly smaller than that, and I think that does, you know, probably lend itself to, you know, future consolidation opportunities. But, you know, we're really focused on the pathway to 5,000 and that organic growth and, as our sort of primary focus going forward.
We do think this can be a pretty big sector going forward, as you saw in the slides. And whether there's organic or inorganic opportunities in build-to-rent, we'll have a look at those, assuming we've got the right capital partners alongside us.
Can I- Just one more question. Sorry. Stu, are you able to give us a trading update on how the resi business is performing post-balance day?
Yes, certainly. Look, I would say that it's patchy. I think that to generalize about the market at the moment is challenging because we are seeing some projects that, you know, continue to see very good volumes, and then we're seeing other projects that are seeing quite soft dynamics at the moment. I would say that first-time buyers, MPC, is still continuing to be soft in terms of demand. I think that there is the sentiment on the ground is that there's still a fear of increased interest rates coming through. The serviceability test that APRA requires the banks to apply of 300 basis points is really starting to now bite. And I think that what we're seeing is that playing through to volumes.
In saying that, we are starting to see some green shoots in Greenfield MPC. The one thing that I would say is that we are certainly, and the team today will see it, out at The Fabric when we go and visit it. There is certainly a focus on, and greater demand in that upgrader market, particularly in the middle ring. And we're trying to respond to that as much as we can, in two ways. Firstly, the certainty of delivery, and the fact that, you know, you can come to Mirvac and buy a complete solution. You don't need to buy land and engage a third-party builder. So that, that's certainly how we're playing to that.
The second part of that is through really focusing on the price points and affordability in that middle ring. And again, today, you'll see at The Fabric where we're about to launch our first lightweight, prefabricated apartment building, which again is looking to come in at a price point. And then into the apartment space, obviously, we're in the process of launching a number of new projects, which, you know, we're seeing moderate take-up off the plan.
I think the one thing that I would categorize is there's a lack of urgency at the moment in the market, but on the positive side, there is just such a chronic undersupply of product, which we're seeing you know, you know, we're seeing sales each week on the projects, but it is certainly at a lower rate than what we've seen in previous cycles. But, you know, I suppose, as we said at results, as soon as we think that as soon as there's an indication that rates have hit the the top of the rate hike cycle, we expect demand to come back very quickly.
I suppose one of the most promising things that we're seeing at the market at the moment is in the established market, the strengthening of house prices, which we think will bode well to particularly our off-the-plan sales, apartment releases. Yeah, and I'll probably just... On the Sydney projects, we have certainly seen a tick-up in sales, as we're nearing completion on Willoughby and Waverley. Waverley's started to settle, likewise with the first phase of Willoughby. So finally, we're starting to see those projects bring completed product to the market, and we're seeing now an uptick in sales on that, on that project. Likewise, with, you know, Green Square, which, that project will first completions or the first phase of completions will be in November of this year.
We're still seeing actually very high sales rates there, and in fact, we're down to about 15 apartments remaining on that project, so, you know, of 320 odd. So very strong velocity on, again, established precincts where people can see and touch existing completed product. And just finally, in Brisbane, again, Brisbane, you know, is still running very strongly from an apartments perspective, and we're just seeing a number of tier two developers continuing to withdraw from the market, which is basically seeing a number of purchasers gravitating to the tier one developers.
We're probably coming towards the end of our Q&A session. We'll have a more fulsome operational update on the 25th of October with the release of our quarterly. But just Shelton, last question from you.
Sure. Thanks, Gavin team. Just on Campbell's, one on the allocation. You've got a lot of good office, and you've got some, you know, not as good premium, but still nice. Would you-- there's a lot of talk in the press about converting office to resi. I know it doesn't always work because of the, the floor plan, location, and, and the zoning. Is that something you'd look at in your port-- for portfolio as well? Because you, you got 55%, which will be premium, so you're still allocating capital premium. But would you look at buying either sites that will never really be good for office anymore, making them resi or in your existing portfolio converting? Is that something probably more a 5-10 year view, but are you looking at that at the moment?
Yeah, look, probably not so much at the moment. The balance sheet's pretty full. We've got a lot in front of us with Harbourside and 55 Pitt Street, plus potentially the launch of seven apartment buildings. So we've certainly got our hands full with balance sheet. Are we looking for opportunities? Always. The resi conversion of office is difficult. Floor plate design is probably the most challenging element of it because you just need to have more window space to floor space than you do for an office building, which is the complete opposite. So they don't necessarily work, but you know what? If office buildings get cheap enough, you might find that math works, but I'd say the math would be pretty difficult to make them work in the short term.
Thanks.
I might just end the Q&A session here, but if you see Freddie in the room, we'll have plenty of time for questions with the management team through the asset tours, and I'll just pass it back to Campbell for closing remarks.
Okay, so thank you all for listening in, for those online, but also for those in the room. We really appreciate you spending some time with us, getting a chance to meet with the executive team and the senior people from Mirvac, and obviously excited to show you some of the finished product that we've been working on in the living sectors specifically. So, Gavin, I might hand back to you to just take us through the logistics of the day.