Special report on the Hunter Region

Sound, diversified economy will help the Hunter
Coal and agriculture along with interest rate cuts and increased government spending is expected to take the edge off an expected downturn in the Hunter economy over the last half of 2008 and into the middle of 2009 according to the Hunter Valley Research Foundation’s latest economic review of the region.

Hunter unemployment rates are now on par with the State average compared with ten years ago when unemployment was 10.1% against a State average of 7.1%. This is particularly the case in the 15 – 19 age group, where unemployment has dropped from 28% to 13%. The number of residential building approvals in the March Quarter of 2008 increased by 25% compared with the same quarter in 2007 and this also compares with a State average of -4.4%.

Short term consumer confidence for the economy started to contract late in 2007 however with coinciding news of the financial crises affecting global markets, the sharpest declines occurred in the first two quarters of 2008. Business confidence continued to deteriorate in June 2008 with confidence for the next three months at the lowest since surveys began in March 1996.

Meanwhile, with a buoyant coal mining industry and the drought in the Upper Hunter now over and the Australian dollar now down, agriculture is expected to again play a strong part in supporting the regional economy.

Newcastle Port sets new trade record
Newcastle Port has set new records in trade for the 2007-08 financial year with more than 93 million tonnes in imports and exports passing through the port worth $10.3 billion. Trade increased by 7.71 million tonnes worth $2 billion compared with the year before.

Total trade in 2007/08 was 93.31 million tonnes compared to 85.60 in the 2006/07 financial year. Trade value of $10.3 billion in 2007/08 compares to $8.3 billion the previous year, a 24 per cent increase. Coal continues to be Newcastle’s main export with 88.88 million tonnes leaving the port in 2007/08. Rural drought conditions have significantly impacted on grain movements through Newcastle for the past few years but this was offset slightly this year by import of fertilizer products.
A total of 3,277 shipping movements were registered in 2007-08 compared to 2,992 the previous year, a 10 per cent increase.

Gas pipeline will add to Hunter’s competitiveness
A proposed 825km gas transmission pipeline from the South Western Queensland coal fields to Newcastle and the HEZ at Kurri Kurri is currently with the Department of Planning for approval as a ‘critical infrastructure’ project.

The proposal put forward by Hunter Gas Pipeline Pty Ltd, a consortium of Hunter investors, has the potential to provide a competitively priced source of energy for the Hunter region’s growing industry base. To be built at a cost of $850 million the pipeline will service the whole region and should be completed within three years.

Retail investment a confidence indicator
Australia’s shopping centre giants are seeing the opportunities flowing from a vibrant Hunter economy with Westfield taking the lead and investing $170 million in redeveloping their Kotara shopping centre in 2007. GPT Group are presently redeveloping Charlestown Square at a cost of $350 million.

With Newcastle being the sixth largest city in Australia and the CBD in need of rejuvenation, moves by GPT Group to redevelop the area have been welcomed by business and the community. Major Retailer, David Jones, has agreed to be an anchor tenant, with a 12,000sqm premium department store in the $500 million project. The GPT project is seen by the Hunter Business Chamber as the catalyst that will restore business confidence in Newcastle.

Having seen the growth opportunities in the region, supermarket giant, Woolworths, are investing $35 million in supermarket development at Cardiff, Morisset and Swansea while Coles will build a $35 million development at Morisset. Both companies will increase the size of the stores at Charlestown Square. In addition Aldi have plans for supermarkets at Belmont, Cardiff and Toronto.

HEZ vital to Lower Hunter growth
Kurri Kurri’s Hunter Economic Zone (HEZ) is continuing its steady progression, with business to begin operating at the site by the end of the year.

HEZ represents the biggest injection of employment-generating capital into the area in a generation, with the businesses operating at HEZ to provide the Hunter region with increased investment, new customers and clients, and job opportunities. Tenants already signed to the commercial and industrial estate include aluminium product specialist, Ullrich Aluminium; global construction contractor, Laing O’Rourke; and pre-fabricated wall designer, Wall Integrated Panel Systems; with additional tenants to be announced shortly.

As part of the State Government’s Lower Hunter Regional Strategy, HEZ will be instrumental in the development of the Lower Hunter region, and is expected to contribute up to 15,000 new jobs for locals and bring more than $1.1 billion to the local economy. HEZ will also provide opportunities for new Hunter businesses to open, or existing companies to expand.

HEZ spans 514 hectares, making it Australia’s largest contiguous business estate, catering for the business needs of those in the manufacturing, metals, mining and logistics industries.

Newcastle Airport key economic hub
Newcastle Airport’s latest economic impact assessment report has confirmed the Airport’s role as one of the region’s key economic and employment hubs, contributing millions annually to Hunter households and the Hunter economy.

The report, The Economic Impact and Benefits of Newcastle Airport, estimates that Newcastle Airport supports 3,278 jobs. This figure represents 1,120 extra jobs – or a 51% increase, from the 2,158 jobs reported in the previous 2005 study.

Around 25 commercial and government-related organisations operate on the Newcastle Airport precinct, relying on both the Airport and RAAF Base to generate jobs and incomes. The activities are varied and include airlines, aircraft maintenance, car rental and parking, fuel services, ground handlers, cleaning, security, and RAAF related business.

According to the report the Airport precinct contributes a total of $448 million to the economy; $226 million more than the Airport’s contribution in 2005. Of this total, its contribution to Hunter tourism is estimated to be $151 million, up from $124 million in 2005.

Newcastle Airport CEO, Paul Hughes, said that the figures display the importance of the Airport to the region and the significance of the Airport as a major transport hub. “The Airport last year handled 1 million passengers, connecting the Hunter to Australia and the rest of the world. The contribution of the Airport to the region is widely recognised, however the flow-on effects and benefits of the Airport to the region are mostly invisible. This study shows that Newcastle Airport continues to be a catalyst for economic prosperity for business and tourism. The Airport helps to underpin Hunter business and is a significant contributor and facilitator of tourism,” said Mr Hughes.

Other key findings from the study include:
- Newcastle Airport operations contribute approximately $283 million to the Hunter region’s net output, up from $79.5 million in 2005.
- The contribution to family and household income is estimated to be $192 million annually or 1.6% of the Hunter region household income.
Newcastle Airport supports an estimated 894 tourism-related jobs.

Hunter draws international visitors
The Hunter has become one of Australia’s most popular destinations with 109,000 visitors attracted to the diverse tourism activities that the region offers in the year to June 2008. Overall, the tourism industry in the region employs some 11,900 people and attracts around $1.5 billion annually.
Its diversity is reflected in the choice of opportunities visitors to the region have and these extend across the entire area.

Hunter Valley Wine Country
Based around one of Australia’s largest and most famous wine growing regions, Hunter Valley Wine Country has seen more than $1 billion in investment since 2001. With over 120 wineries and some 70 restaurants, along with some of Australia’s highest quality accommodation in internationally branded hotels it is little wonder that the region attracts the high yield visitor market.

Facilities and attractions that bring in this market sector include the world famous Hunter Valley Gardens, Golden Door Health Retreat Elysia, Grand Mercure The Vintage and some of the best golf courses in Australia.

Cruise Hunter
The Hunter cruise industry is rapidly expanding with more ships and visitors staying longer in the region. A campaign to attract luxury boutique cruise vessels, navy vessels and super yachts for maintenance has seen the Port of Newcastle host a growing number of ships with passengers and crews with plenty of money to spend.

A recent study into the economic impact of the cruise industry in Australia, Cruise Down Under, showed $2.3 million in benefits for the Hunter Region in 2007-08. The Hunter saw five times more passengers in 2007-08 than 2006-07 due largely to the port of Newcastle improving its ability to handle bigger cruise ships. The Newcastle Port Corporation and Cruise Hunter are working with the cruise industry to attract more ships to the Hunter Region.

The study revealed the cruise shipping industry contributed $324 million to the economy in 2007-08. It is an exciting opportunity for the region to be showcased to the world. The highlight of this year’s cruise season will be a visit in January 2009 by the 297 metre long Millennium expected to bring over 2,000 passengers to the Hunter.

Newcastle to become superyacht centre

The global market demand for the construction and refit/repair of superyachts has flourished over recent years, however growth of this market in Australia has been restricted by the lack of suitable shipyards.

Azzura Marine set up in Newcastle approximately two years ago, leasing the former State Dockyard to position this precinct as an internationally recognisable hub for superyachts in Australia.

Earlier this year Azzura Marine announced it had concluded an agreement with Sensation Yachts to acquire its business assets and take over its facility at Carrington. This agreement enables Azzura Marine to continue using the facility for its existing refit and repair projects and allows the group to commence building superyachts in Newcastle earlier than anticipated.

Principal of Azzura Marine, Iain Murray AM, said “Securing the site will allow Azzura Marine to complete our current refit and repair works but also aggressively pursue other opportunities that would not have been possible without the availability of this type of facility and infrastructure. This is a positive step for renewed activity on the site and will generate an immediate influx of work, with employment in the short term expected to reach over 100 staff under the direction of Azzura Marine,” he said.

A review of the Hunter industrial property market
By Graham Burns, Managing Director, Hunter Land Pty Ltd

2008 will be remembered as the period of greatest economic turbulence in our lifetime.

The question is how well the industrial development in the Hunter Valley will do getting through this instability, and most importantly what we can do to improve our position. Unfortunately, in a climate of contracting markets and reduced consumer confidence, this will mean in many cases how well we can do at the expense of another place.

For example, the Hunter Valley now has a considerably expanded offer in regard to range, quantity and price of industrial land. Our competitive position in the cost of human resources will also improve as some businesses shed staff. Added to this is the move to high skill industry types, for example the Aerospace business park at Williamtown which will potentially expand and upgrade that sector to world class in Australia.

Companies looking at Metro Sydney as a destination for an industrial project are finding that in many cases the shutters are down – rather than taking a discount on land held, owners are simply withdrawing from the market to wait out better times. Those that are left have land that might retail from $200 to $500 per square metre. In the Hunter good land can be secured from $80 to $180 per square metre.

Construction costs are very competitive in the Hunter, and this often allows the user to get more bang for the buck, or to acquire more land for future expansion.

On product types, we are seeing a flight from small unit style projects as SME’s become inactive, defunct or get swallowed in market rationalisation. There is great activity in sectors that need larger buildings, or which have a specific focus particularly exposure to the mining industry. Mining is a core industry in this region, and services are frequently located off mine sites to meet OH&S and cost of labour benchmarks. Even with a dropping commodities market, the US dollar exchange rate and forward contracts mean that coal industry businesses are in need of industrial buildings and infrastructure.

One cautionary note is the continued reluctance to see structural change to planning policies. Specifically, the idea that all commercial users should be in CBD locations is just defying gravity on an obvious need for some users to be near their customers. This is one area where the region will suffer. Another example is decentralised services – industry zones reach critical masses where hotel, support commercial and light retail support became an absolute must.

Our market is on the move, and there will be great challenge in the next twelve months. The concepts of value will be questioned as for some product the depth of the market becomes shallow. The bottom line is that the Hunter still represents great value for money in a regional, state and national context.

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