Property consultant Charter Keck Cramer has released insights from its Melbourne State of the Market report that reflects on the state of the sector throughout 2023 and what the market holds in 2024.
The research found that in 2023, conditions across the Melbourne Build to Rent and Build to Sell apartment markets remained extremely difficult and continued to be some of the most challenging in recent decades.
According to Charter Keck Cramer, the market has been incredibly hard to read with it remaining severely distorted and not behaving in accordance with long-term averages or pre-pandemic trends.
The market fundamentals to support Build to Rent living at scale exist across the country. The Build to Rent market is realistically only anticipated to emerge at scale after one-two market cycles (10-15 years), which is how the purpose-built student accommodation (PBSA) market emerged in Australia and the Build to Rent market has now emerged in the UK. The investment landscape is also very different compared to 12 months ago.
Investor’s Weighted Average Cost of Capital (WACC) requirements have increased due to rate rises, increased construction costs, and the fact that there is a low appetite to take on development risk (especially planning and now construction risk) under current conditions.
Charter Keck Cramer has noticed that several developers have failed to raise capital to proceed, and various projects are now even being repositioned back to Build to Sell apartment schemes. However, strong rental growth and Government policy changes are both in favour of the Build to Rent market going forward.
The company is encouraging as much patience as possible this year, as there are hopes that the market will continue to recover over 2024 and into 2025. Conditions are set to stabilise with more market certainty and confidence, and, based on the substantial supply vs demand imbalance, Charter Keck Cramer anticipate conditions to markedly improve at the point when rates enter a cutting phase and dramatically accelerate when various incentives are introduced to stimulate the Build to Sell and Build to Rent apartment markets.
