A new report reveals that the number of apartments under construction nationally has increased by 65% over the first eight months of 2023, while the number of apartments with planning approval awaiting construction increased by 15%, and the number of known projects proposed at various stages of planning increased a massive 78%.
The report – Build to Rent Residential Australia: September 2023 – by JLL also found that Victoria remains the largest focus of Build to Rent supply, with 59% of the current pipeline followed by 24% in Queensland and 13% in NSW.
“Low vacancies, rapidly rising rents and growing displacement of low-income earners has undoubtedly focused the attention of all levels of government nationally on addressing what has become a critically important social issue. Accordingly, in 2023 we’ve seen the introduction of a range of government incentives aimed at supporting the emerging Build to Rent market.
“But while Build to Rent is gaining momentum quickly following those changes, the Build to Rent supply pipeline is not yet large enough to offset the fall in Build to Sell construction and we still will not build anywhere near enough apartments over the next few years. Indeed, we expect if all Build to Rent currently proposed over the next five years is delivered, it will still only equate to around 10% of historical apartment supply levels.”
Leigh Warner, Head of Residential Research – Australia, JLL
The number of apartments under construction and due in 2024 was expected to exceed 4,000 (which is roughly the number of currently operational Build to Rent apartments), and over 7,500 are in various stages of planning and construction and are due in 2025.
“While capital market conditions remained challenging for the vast majority of the commercial real estate sector, activity in the Build to Rent and broader living sectors had been considerable, including the Lendlease and QuadReal joint venture partnership in Brisbane (advised by JLL), the fund-through partnership between Lendlease and Daiwa House for $650m (advised by JLL) and the Student One transaction to Blackstone for $500m+ (advised by JLL). Investors now largely accept the macro investment case for Build to Rent in Australia. As capital markets continue to stabilise and as investors become more familiar with underwriting what is still a relatively nascent sector, we expect investor demand will only increase.”
Luke Prokuda, Head of Equity Advisory – Australia, JLL
JLL expected both transactional and capital raising activity in the sector would accelerate in 2024 as developments started to complete and reach stabilisation, as investors continued to become more comfortable with underwriting investments and as the interest rate cycle reached its peak.
“Furthermore, we expect further clarity will emerge on the Federal Government’s decision to reduce the withholding tax rates for foreign investors in MITs, which will allow investors to factor this change into the underwriting considerations.”
Luke Prokuda, Head of Equity Advisory – Australia, JLL
According to Leigh, increased rents had also played a key role in helping to underpin Build to Rent project feasibilities and attract more development and investment interest.
He stated that the operational Build to Rent product was capitalising on strong market conditions with strong lease-up rates being achieved and, in some cases, large rental uplift.
“Long selling periods, particularly for larger Build to Sell projects, are highly detrimental in a market where construction resources remain stretched and finance costs uncertain, which leaves developers very vulnerable to any rise in a project’s cost base. Not only do Build to Rent projects have the benefit of no selling period, but project revenues are rising in a market of strong rental growth, and this is supporting project feasibilities.”
Leigh Warner, Head of Residential Research – Australia, JLL
JLL understand that, anecdotally, most projects had been leasing up quickly at anywhere between 25 to 40 apartments per month.
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