Property consultancy Knight Frank’s Australian Horizon report has found that the Build to Rent sector is expanding at a rapid pace.
The number of apartment completions reached a record high in 2024, with 4,349 apartments expected to be completed nationally, as the sector continues to grow.
2025 is likely to see a higher total of close to 6,000 apartments based on schemes currently under construction, although the potential for delay means there may be a more modest increase.
On the face of it, this is a rapid expansion and a significant step up from much lower levels of apartment completions in 2023, but it is still less than many developers were projecting a year ago, due to well-documented challenges in the form of elevated construction costs, labour shortages, and high funding costs.
Slower progress points to a gap between ambition and action, given that living sectors are consistently cited as among the most desirable form of investment for major domestic and cross-border groups.
Feasibility hurdles have been difficult to navigate, notwithstanding the long-term desire to ramp up allocations to residential and the existence of chronic supply shortages in the rental market.
This demonstrates the need for alternative forms of new supply that target the rental market more directly than the traditional Build to Sell product.
However, there has been considerable movement underneath the surface. The travails of the past two years have, to some degree, filtered out those groups with the capacity and appetite to proceed in the current climate – albeit more slowly than envisaged two years ago.
This is compared to those where planned developments will not meet projected return expectations unless the macro environment becomes more favourable.
This means that in 2025, activity will be led by core offshore investors with both a lower cost of capital and specialist expertise in living sectors, including major European investors
such as PGGM, Bouwinvest and APG and major Canadian investors such as Ontario Teachers’ Pension Plan.
For these groups, living sectors are at the heart of their long-term strategy, and their global expertise means they are better placed to satisfy more challenging feasibility criteria which new entrants will be unable to navigate.
Knight Frank also found that the perceived success of schemes targeting the middle range of the rental range – as opposed to the top end of the rental market – will be important to winning support from policymakers to adjust planning and taxation frameworks.
