Challenges and opportunities put a spotlight on the Build to Rent sector in 2022, but competitive advantages are likely to emerge in 2023, research by real estate firm JLL finds.
The Australian Build to Rent sector is growing and progressing, with the completion and lease-up of several developments in late 2022, and more projects in the coming years.
The research conducted by JLL shows that the sector is gaining momentum in 2023, with rental conditions unlikely to improve in the medium term and with Build to Rent becoming popular amongst renters.
However, rental affordability will be critical in the sector’s continued development, with developers still trying to combat rising construction and finance costs.
“Despite the challenges for Build to Rent developers, they still have a significant competitive advantage over build-to-sell developers in not having a lengthy selling period where construction and finance costs are not locked in.”
Leigh Warner, Head of Residential Research – Australia, JLL
JLL identify that another potential opportunity for Build to Rent developers in 2023 may be the availability of capital, as economic struggles abroad make Australia’s comparatively small market appear even more attractive.
At the end 2022, there were a total of 20,515 Build to Rent apartments in the pipeline, which compares to around 13,600 a year earlier.
The number of apartments under construction fell slightly in Q4 2022, but there were 5,413 units remaining at the end of the year plus an additional 5,944 with planning approval and 9,158 in earlier planning stages.
Of those under construction or with planning approval, Melbourne still dominates the pipeline, with around 63% of planned supply.
Interest in Brisbane has grown significantly in 2022 (25%) with this being the second highest share, but the challenges of making projects work in Sydney are reflected in a lower share of the pipeline.
“Leasing interest has generally been very strong for the new units that completed in 2022, along with other existing Build to Rent developments, reflecting the tight rental market conditions. We anticipate site acquisition opportunities to increase in 2023, as vendor expectations adjust to the reality that higher interest rates are affecting demand and pricing for sites (from all sectors). This adjustment will likely see the number of opportunities increase for those well capitalised Build to Rent operators who are in a position to build their pipeline and market share, perhaps in the second half of the year.”
Noral Wild, Head of Alternative Investments – Australia, JLL
Looking at both operational and pipeline projects, Home has the largest pipeline of major institutional players with 2,288 apartments, followed by Mirvac’s Liv pipeline of 2,199 and Greystar at 1,944.
Key trends for the Australian Build to Rent sector in 2023 include: a clearer picture via greater operational data and analysis of project leasing metrics; rents and the types of amenities and features that work best; new players emerging in Build to Rent; even greater government support through taxation measures and planning regulation in the face of rising political pressure to address imbalances in the rental market; a wider geographic focus for new developments; and site acquisition opportunities for Build to Rent operators in the second half of the year, as vendor expectations adjust to the reality that higher interest rates mean much lower demand and prices.
