[+] Horizontal Build-to-Rent: The Next Frontier

Build-to-rent is increasingly moving to urban fringe areas as developers scavenge for large sites for their vertical communities. But horizontal build-to-rent could be the next frontier in Australia’s burgeoning market. While there are only a few examples of completed build-to-rent towers in the market currently, the pipeline is looking healthy as more domestic and international developers look to capitalise on the affordability pressures in the Australian market. Colliers national director for build-to-rent Robert Papaleo believes as the urban sprawl of build-to-rent developments continues, developers could look to replicate the single family build-to-rent model in the United States. The Sun Belt in the US is home to more than 90,000 single-family rental homes across about 720 build-to-rent communities, and continues to expand. And it’s one of the strongest performing property sectors. It is forecast to outperform multifamily (vertical build-to-rent), office, retail, storage and hospitality growth this year in the US, with average rental growth of 14.3 per cent year-on-year. ▲ Greenfield community developers including Mirvac and Stockland could be the first to incorporate pockets of horizontal build-to-rent into their developments. Papaleo says the horizontal build-to-rent communities are similar to land lease in Australia, but aimed at families as opposed to retirement living communities. Papaleo says the underlying market fundamentals are compelling for investors in this space as the pipeline doubles between 2021 and 2022, and then again by 2024. “Institutional capital is looking for the next frontier … there’s definitely the logic to support horizontal build-to-rent in the Australian market,” Papaleo says. “I think it comes down to not only the affordability issue , but also the increased cost of living in those urban areas. Working from home has also influenced the way people live and the migration to the outer suburbs. “There’s also the market segment that could afford to service a loan but at this point don’t have the deposit to access that housing. “They’ve got sufficient income but they haven’t had time to raise a deposit, or they want the flexibility and are comfortable living in the greenfield market.” Papaleo says build-to-rent developers are moving to cheaper sites in their search for scale, heading for the wilds of Parramatta, Nedlands and Penrith in Sydney, and lifestyle areas such as Scarborough in Perth. But it could be the growth corridors outside of major cities that attract horizontal build-to-rent communities. He says the likes of Mirvac, Stockland and Lendlease, who are already active in build-to-rent and land lease markets, could be the first to develop horizontal build-to-rent as part of their greenfield communities. But unlike vertical build-to-rent, developments could be as small as 30 houses, whereas tower communities tend to be a minimum of 200 apartments. ▲ Render of the Gurner-Qualitas mixed-use build-to-rent development proposal earmarked for a 2049sq m Parramatta site that, if approved, will comprise 385 apartments. Papaleo says 2022 has been a “breakout year” for the build-to-rent sector but southeast Queensland’s residential market remained robust. It doesn’t have the affordability pressures in play to support a build-to-rent market boom. “If and when those markets begin to soften I think that’s when the build-to-rent proposition becomes more feasible. “By the end of 2026 we think there’s going to be around 16,000 completed assets in Australia. It’s a healthy pipeline. “The residential housing market is the largest single market for any investor in Australia, and the underlying fundamentals for build-to-rent are not going away. ” Victoria has about 58 per cent of the build-to-rent pipeline, Queensland has about a quarter of the market share, Sydney has 15 per cent and Perth has about 3 per cent. It’s an asset class that is attracting big investment in the US. Private equity firms are buying up big in the Sun Belt. Swiss-based Partners Group are spending almost $1.5 billion to acquire 2500 single-family rental properties recently completed and a further 1000 under construction earlier this year. Canada’s Tricon Residential—one of the biggest single-family listed REITs—has a portfolio of more than 33,000 single-family rental homes in the US and Canada. It announced last month it was again teaming with Arizona State Retirement System to invest $500 million to build a further 2500 single family rentals in the US Sun Belt. Blackstone and Brookfield are also heavily invested in the US horizontal build-to-rent market, but are yet to export the asset class to Australian shores. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Horizontal Build-to-Rent: The Next Frontier

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