Rental crisis means old offices need to make way for apartments, says Blackstone boss

Structural shortage of housing will force big cities to rethink how they use empty office space, says the boss of the world’s biggest property fund.

A housing crisis will force Australia’s big cities to rethink how they use their vacant office towers, which should make way for residential apartments, according to the boss of Blackstone, one of the world’s biggest property investors.

The New York-based Jon Gray said while people are returning back to the cities to work, “there will be less demand for office space on a relative basis”. At the same time there has been underbuilding of housing across most developed markets around the world.

“It’s a structural shortage. And in places like Australia where there is large immigration as a per cent of population you haven’t been building housing at a rate to keep up with that. That is a formula for continued upward pressure on both for sale values and rental values,” Mr Gray said in an interview.

Blackstone global boss Jon Gray at Crown Resorts in Sydney. Picture: John Feder

Mr Gray was talking in Sydney ahead of his appearance as a speaker at Australia’s Economic Outlook conference hosted jointly by Sky News and The Australian on Friday.

His comments come as Australia is moving deeper into a housing crisis with rents surging while new construction slows. Soaring interest rates and rising migration levels, including a return of international students, are placing additional pressure on the property market.

The Albanese government has responded with a series of measures aimed at helping with affordability, although the supply side including a new $10bn affordable housing fund is still some years off.

Blackstone, which has $1.5 trillion in assets under management around the world, is one of dozens of big players now eyeing a bigger role in the build-to-rent market in Australia, which could see apartments built specifically for long-term residential leases rather than for sale.

Blackstone, which also has significant tourism assets, last year acquired James Packer’s Crown Resorts for nearly $8.9bn and has vowed to overhaul and rebuild the troubled-prone casino operator.

Mr Gray said it is hard to convert ageing office towers into apartment towers but expects “there is going to be a number of these buildings torn down around the world and more densification of housing in the central business districts”.

“If you use the US as an example and if you took new home construction, both single family multi-family as a per cent of population, prior to the global financial crisis, and then the 15 years after we’ve been building at about half the rate.

“And this latest surge of interest rates is going to cause the slowdown again with new construction.”

Originally published as Rental crisis means old offices need to make way for apartments, says Blackstone boss