Property consultancy Savills has released a new report highlighting that in 2023, the Build to Rent sector captured 8% of all transactional dollars across the Australian real estate market – considerably above the five-year average of 1%.
Savills found that the long-term tailwinds, alongside the fact that Australia is not building enough new homes to meet long-term need over the next decade, places the sector in good stead for its next phase of growth.
The report revealed that rolling annual residential starts are at a decade low at 165,000, with completions 22% below their 2017 peak. The reduced level of new housing stock will buoy demand for rental properties, sustain elevated occupancy and support the demand for Build to Rent assets.
The tail end of 2023 saw inflation consistently fall more than expected, and economic commentators now expect the cash rate target to be cut from its current peak of 4.35%, much earlier in 2024 than previously anticipated.
“While we are not out of the woods yet, the outlook on interest rates is much more positive now than it was six or even three months ago. These conditions should bring additional investment and growth into the Australian Build to Rent sector. Build to Rent is a different offering to the private rental sector and should be considered that way, and be treated that way in aspects of policy, planning and taxation.
“Fundamentally, this higher rental pricing is largely due to the value-add offering provided to a resident in a Build to Rent scheme when compared to one in the private rental market. The higher rental rate accounts for that professionalism, sustainability, amenity provision, tenure security, and quality difference across the two housing choices.”
Paul Savitz, Director – Operational Capital Markets, Savills Australia
Case Study: Melbourne shows Build to Rent achieves a higher rental price
Savills analysed a range of two-bedroom rental apartments across six newly developed and operational Build to Rent schemes, spanning Melbourne’s CBD, East, South and West.
The analysis compared median Build to Rent rental prices to privately-owned two-bedroom median prices in the same suburbs and identified that Build to Rent schemes command 18% to 26% higher rents.
The schemes analysed are all reporting occupancy of 90%+ as of Q1 2024 or report strong lease up if recently launched, suggesting there is solid demand for good quality rental product.
The notable rental premium and markedly low vacancy of these schemes, coupled with favourable economic conditions, are a positive indicator of market appetite for increased levels of Build to Rent investment.
