The Residential Investment Review 2023 by Colliers has discovered that amid Australia’s housing crisis, institutional investors will be focussing on the residential, and, most significantly, the Build to Rent sectors – a growing yet still premature asset class across the country.
Since the housing supply and demand imbalance is expected to be more acute than indicated by the Government’s projected deficit of -79,000 dwellings by 2033, there is a critical requirement for institutional investment to boost alternative housing models, according to Colliers National Director of Residential Capital Markets Robert Papaleo.
“The urgent need for institutional investment and alternative housing models to provide a helping hand for Australia’s housing crisis has many parallels to the UK’s situation in the early 2010s, ahead of institutionalisation of its now robust Build to Rent market. Despite limited exposure to the Australian residential sector historically, market activity in 2023 indicated growing interest from institutional investors, who drove the lion’s share of Build to Rent sales in a year which saw 43% of total sales activity since 2015.
“Domination of the rapidly expanding Build to Rent market is a foot in the door to the broader $10.2tn residential market for these investors, who have been renowned for providing residential accommodation overseas for decades and are well-poised to support alternative housing models in addition to greenfield development.”
Robert Papaleo, National Director of Residential Capital Markets, Colliers
By the end of 2023, completed institutional Build to Rent assets represented an estimated market value of around $3.3bn, which is approximately 80% of the national Build to Rent market and 0.03% of the total value of Australia’s residential market.
Colliers also found that Melbourne currently has the highest share of Australia’s completed Build to Rent stock (48%) due to greater availability of well located, larger sites with permitted schemes of 300+ apartments historically. South-East Queensland boasts the second largest share of completed stock (39%), primarily due to the conversion of the former Gold Coast Commonwealth Games Village.
“Notwithstanding the significant historical barriers to institutional investment in Australia’s residential sector, the Build to Rent market has rapidly evolved since the first institutional-backed Build to Rent projects were delivered in Perth (2017), Gold Coast (2018), Sydney (2020) and Melbourne (2022).
“The nature of projects is maturing, as market participation of institutional investors, who account for six of the top ten Build to Rent platforms in Australia, 13,650 completed and committed Build to Rent apartments, as well as sites which may provide an additional 8,250 apartments, induces developers to bring forward projects with innovative partnership models and alternative structured deals.”
Robert Papaleo, National Director of Residential Capital Markets, Colliers
Over $5bn in capital was raised in 2023 to support the Australian Build to Rent sector, and while the current average development comprises 281 apartments, projects set to be delivered by 2028 will contain an average of 365 apartments.
“As the Build to Rent market continues to evolve in 2024 and beyond, institutional capital is expected to also increase investment in purpose-built student accommodation, land lease communities and co-living, which are sectors that address more specific needs and can support higher returns for well-positioned sites.
“It is promising that Government recognised in July 2023 that institutional investors can play a positive role in addressing the political, policy and economic imperative of new housing, in addition to identifying policy levers for barriers to such investment. Accelerated institutional market participation is necessary to ease pressure on Australian residential supply, as private landlords face higher financing costs and regulation changes reducing rental returns.”
Robert Papaleo, National Director of Residential Capital Markets, Colliers
