JLL has found that the living sector is currently the most active and liquid in the commercial real estate space globally. However, the living sector in Asia Pacific (APAC) is in its infancy, with hopes for it to evolve.
The report aims to examine residential units that have been purpose-built for the rental market in countries with institutional presence.
Australia has recently come to the forefront with Build to Rent development opportunities, attracting both local and offshore specialists.
According to JLL, however, groups have generally been pursuing a build-to-core approach.
The weight of capital looking for Build to Rent assets in a very early phase of development means investors have had to accept relatively thin development margins to source investment opportunities.
Fund managers such as Lendlease, Mirvac, Hines, and Greystar are leading this build-to-core strategy, focusing particularly on Victoria and Queensland where around 82% of the Australian Build to Rent pipeline is currently concentrated.
Many completed projects have outperformed initial underwriting assumptions in terms of lease-up velocity, occupancy and rental growth.
Positive news came for foreign investors with the Federal Government in its May budget deciding to lower the withholding tax on investments in a managed investment trust (MIT) from 30% to 15%.
At the same time, the rate of tax depreciation on eligible Build to Rent projects has also increased from 2.5% to 4%.
With governments under intense pressure to do more to address widespread housing supply issues across Australia, JLL has anticipated more tax and planning initiatives will be introduced to support the growth of the sector.
There has been general market uncertainty and increases in cost of debt, but compared to other asset classes, the hypothetical yield expansion for Build to Rent has yet to be seen.
The current housing crisis across the country has led to robust rental growth and record low vacancy rates, which are the primary drivers of gross revenue for Build to Rent.
According to the report, this has strengthened the investment case, resulting in increased interest and liquidity.
